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 September 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 October 25, 2007, 71,606,989 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
September 30, 2007 and 2006 3
Consolidated Statements of Income for the Nine Months Ended
September 30, 2007 and 2006 4
Consolidated Condensed Balance Sheets as of September 30, 2007
and December 31, 2006 5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2007 and 2006 6
Notes to Consolidated Financial Statements as of September 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 6. Exhibits 29
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 were also prepared without audit. The interim consolidated
financial statements do not include all the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements, although in management's opinion,
the disclosures are adequate so that the information presented is not
misleading.
Operating results for the three-month and nine-month periods ended
September 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 and notes thereto
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) September 30
---------------------------------------------------------------------------
2007 2006
---------------------------------------------------------------------------
(Unaudited)
Operating revenues $ 510,260 $ 541,297
---------------------------
Operating expenses:
Salaries, wages and benefits 150,789 149,466
Fuel 101,859 106,946
Supplies and maintenance 40,698 41,427
Taxes and licenses 28,796 30,069
Insurance and claims 22,001 24,079
Depreciation 41,087 42,623
Rent and purchased transportation 87,537 105,150
Communications and utilities 4,978 5,117
Other (4,549) (4,266)
---------------------------
Total operating expenses 473,196 500,611
---------------------------
Operating income 37,064 40,686
---------------------------
Other expense (income):
Interest expense 527 65
Interest income (1,015) (1,079)
Other 54 59
---------------------------
Total other expense (income) (434) (955)
---------------------------
Income before income taxes 37,498 41,641
Income taxes 15,648 17,090
---------------------------
Net income $ 21,850 $ 24,551
===========================
Earnings per share:
Basic $ .30 $ .32
===========================
Diluted $ .30 $ .31
===========================
Dividends declared per share $ .050 $ .045
===========================
Weighted-average common shares outstanding:
Basic 72,305 77,150
===========================
Diluted 73,501 78,564
===========================
See Notes to Consolidated Financial Statements (Unaudited).
3
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended
(In thousands, except per share amounts) September 30
---------------------------------------------------------------------------
2007 2006
---------------------------------------------------------------------------
(Unaudited)
Operating revenues $ 1,545,459 $ 1,562,108
-------------------------
Operating expenses:
Salaries, wages and benefits 451,645 445,822
Fuel 290,862 298,404
Supplies and maintenance 120,366 118,201
Taxes and licenses 88,276 87,443
Insurance and claims 70,128 64,887
Depreciation 125,273 124,796
Rent and purchased transportation 296,655 294,504
Communications and utilities 15,252 14,839
Other (15,714) (10,647)
-------------------------
Total operating expenses 1,442,743 1,438,249
-------------------------
Operating income 102,716 123,859
-------------------------
Other expense (income):
Interest expense 2,920 342
Interest income (2,989) (3,295)
Other 172 185
-------------------------
Total other expense (income) 103 (2,768)
-------------------------
Income before income taxes 102,613 126,627
Income taxes 42,841 52,026
-------------------------
Net income $ 59,772 $ 74,601
=========================
Earnings per share:
Basic $ .81 $ .95
=========================
Diluted $ .80 $ .94
=========================
Dividends declared per share $ .145 $ .130
=========================
Weighted-average common shares outstanding:
Basic 73,482 78,269
=========================
Diluted 74,810 79,728
=========================
See Notes to Consolidated Financial Statements (Unaudited).
4
WERNER ENTERPRISES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share amounts) September 30 December 31
----------------------------------------------------------------------------
2007 2006
----------------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 20,850 $ 31,613
Accounts receivable, trade, less allowance
of $9,634 and $9,417, respectively 218,094 232,794
Other receivables 13,890 17,933
Inventories and supplies 11,002 10,850
Prepaid taxes, licenses and permits 7,551 18,457
Current deferred income taxes 28,477 25,251
Other current assets 26,197 24,143
----------------------------
Total current assets 326,061 361,041
----------------------------
Property and equipment 1,634,244 1,687,220
Less - accumulated depreciation 621,445 590,880
----------------------------
Property and equipment, net 1,012,799 1,096,340
----------------------------
Other non-current assets 19,640 20,792
----------------------------
$ 1,358,500 $ 1,478,173
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 64,254 $ 75,821
Insurance and claims accruals 78,365 73,782
Accrued payroll 25,057 21,344
Other current liabilities 17,742 19,963
----------------------------
Total current liabilities 185,418 190,910
----------------------------
Long-term debt, net of current portion 10,000 100,000
Other long-term liabilities 7,185 999
Insurance and claims accruals, net of current
portion 104,500 99,500
Deferred income taxes 205,639 216,413
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 200,000,000
shares authorized; 80,533,536 shares
issued; 71,804,271 and 75,339,297 shares
outstanding, respectively 805 805
Paid-in capital 100,804 105,193
Retained earnings 911,344 862,403
Accumulated other comprehensive income (loss) (339) (207)
Treasury stock, at cost; 8,729,265 and
5,194,239 shares, respectively (166,856) (97,843)
----------------------------
Total stockholders' equity 845,758 870,351
----------------------------
$ 1,358,500 $ 1,478,173
============================
See Notes to Consolidated Financial Statements (Unaudited).
5
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
(In thousands) September 30
-----------------------------------------------------------------------------
2007 2006
-----------------------------------------------------------------------------
(Unaudited)
Cash flows from operating activities:
Net income $ 59,772 $ 74,601
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 125,273 124,796
Deferred income taxes (8,930) (642)
Gain on disposal of property and equipment (19,300) (21,516)
Stock based compensation 1,192 1,830
Other long-term assets 1,580 (316)
Insurance claims accruals, net of current
portion 5,000 4,000
Other long-term liabilities 848 347
Changes in certain working capital items:
Accounts receivable, net 14,700 (1,487)
Other current assets 12,743 7,832
Accounts payable (11,567) 33,228
Other current liabilities 5,875 4,116
--------------------------
Net cash provided by operating activities 187,186 226,789
--------------------------
Cash flows from investing activities:
Additions to property and equipment (111,899) (246,797)
Retirements of property and equipment 84,621 118,498
Decrease in notes receivable 4,418 3,977
--------------------------
Net cash used in investing activities (22,860) (124,322)
--------------------------
Cash flows from financing activities:
Repayments of short-term debt (30,000) (60,000)
Proceeds from issuance of long-term debt 10,000 10,000
Repayments of long-term debt (70,000) -
Dividends on common stock (10,363) (9,830)
Repurchases of common stock (87,052) (57,392)
Stock options exercised 8,178 3,265
Excess tax benefits from exercise of stock
options 4,280 2,144
--------------------------
Net cash used in financing activities (174,957) (111,813)
--------------------------
Effect of exchange rate fluctuations on cash (132) (292)
Net decrease in cash and cash equivalents (10,763) (9,638)
Cash and cash equivalents, beginning of period 31,613 36,583
--------------------------
Cash and cash equivalents, end of period $ 20,850 $ 26,945
==========================
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 3,606 $ 392
Income taxes $ 47,574 $ 51,242
Supplemental schedule of non-cash investing
activities:
Notes receivable issued upon sale of revenue
equipment $ 4,846 $ 6,408
See Notes to Consolidated Financial Statements (Unaudited).
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.
Comprehensive income (loss) from foreign currency translation adjustments
was ($445) and $718 (in thousands) for the three-month periods and ($132)
and ($292) (in thousands) for the nine-month periods ended September 30,
2007 and 2006, respectively.
(2) Long-Term Debt
Long-term debt consisted of the following (in thousands):
September 30 December 31
------------ -----------
2007 2006
------------ -----------
Notes payable to banks under committed
credit facilities $ 10,000 $ 100,000
Less current maturities - -
------------ -----------
Long-term debt, net $ 10,000 $ 100,000
============ ===========
The notes payable to banks under committed credit facilities bear
variable interest (6.15% on September 30, 2007) based on the London
Interbank Offered Rate ("LIBOR") and mature in May 2011. As of September
30, 2007, the Company has an additional $215.0 million of available credit
under its credit facilities with two banks, and this amount is further
reduced by $37.1 million in letters of credit under which the Company is
obligated. Each of the debt agreements include, among other things, two
financial covenants requiring that the Company (i) not exceed a maximum
ratio of total debt to total capitalization and (ii) 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 as of
September 30, 2007.
Effective August 6, 2007, the Company amended its $50.0 million bank
credit facility with Harris, N.A., extending the expiration date of the
facility from May 31, 2008 to May 31, 2009.
(3) Income Taxes
The Company adopted the provisions of Financial Accounting Standards
Board ("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 nine-month periods ended September 30, 2007,
there were no material changes to the total amount of unrecognized tax
benefits. The Company does not expect any significant increases or
7
decreases for uncertain tax positions during the next twelve months, except
for the potential outcome of the matter discussed in Note 4.
The Company files U.S. federal income tax returns, as well as income
tax returns in various states and 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 September 30, 2007, the Company has commitments for net capital
expenditures of approximately $16.2 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 deduction. This deduction was based on a timing difference
between financial reporting and tax reporting, and, if the Company does 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 was reversed in the Company's
2004 income tax return. The Company formally protested 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's management and tax advisors have held several meetings and
conference calls with the appeals officer in the last several weeks in an
attempt to resolve this matter. It is the Company's current expectation
that in the next few weeks, the Company will make a formal offer to the IRS
to settle this matter. As a result, the Company's current expectation is
that the anticipated settlement of this matter may likely result in the
Company paying interest charges in an amount estimated to be in the range of
$4.0 million to $7.2 million, net of taxes, as of September 30, 2007. The
Company expects to resolve this issue before fiscal year end, and in that
event, the Company will record the estimated interest, net of taxes, for
this matter in its fourth quarter 2007 financial statements.
(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 attributed 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 Nine Months Ended
September 30 September 30
-------------------- --------------------
2007 2006 2007 2006
-------------------- --------------------
Net income $ 21,850 $ 24,551 $ 59,772 $ 74,601
==================== ====================
Weighted-average common shares
outstanding 72,305 77,150 73,482 78,269
Common stock equivalents 1,196 1,414 1,328 1,459
-------------------- --------------------
Shares used in computing diluted
earnings per share 73,501 78,564 74,810 79,728
==================== ====================
Basic earnings per share $ .30 $ .32 $ .81 $ .95
==================== ====================
Diluted earnings per share $ .30 $ .31 $ .80 $ .94
==================== ====================
8
The calculation of diluted earnings per share for the periods indicated
excludes the following outstanding options to purchase shares of common
stock because they were anti-dilutive (the option price was greater than the
average market price of the common shares):
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------- ----------------------------
2007 2006 2007 2006
---------------------------- ----------------------------
Number of options 24,500 29,500 29,500 24,500
Range of option purchase prices $19.84-$20.36 $19.26-$20.36 $19.26-$20.36 $19.84-$20.36
(6) Stock Based Compensation
The Company's 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 of Directors or the Compensation Committee
will determine 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. No awards of
restricted stock or stock appreciation rights have been issued. 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. As of
September 30, 2007, there were 8,892,657 shares 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
January 1, 2006 for (i) the portion of outstanding awards not yet vested as
of January 1, 2006, based on the grant-date fair value of those awards
calculated under SFAS No. 123, Accounting for Stock-Based Compensation, for
either recognition or pro forma disclosures and (ii) all share-based
payments granted on or after January 1, 2006, based on the grant-date fair
value of those awards calculated under SFAS No. 123R. Stock-based employee
compensation expense was $0.4 million and $0.5 million for the three-month
periods and $1.2 million and $1.8 million for the nine-month periods ended
September 30, 2007 and 2006, respectively, and such expense 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 $0.2 million and $0.2 million for the
three-month periods and $0.5 million and $0.7 million for the nine-month
periods ended September 30, 2007 and 2006, respectively. There was no
cumulative effect of initially adopting SFAS No. 123R.
9
The following table summarizes Stock Option Plan activity for the nine
months ended September 30, 2007:
Weighted-
Average
Number Weighted- Remaining Aggregate
of Average Contractual Intrinsic
Options Exercise Term Value
(in 000s) Price ($) (Years) (in 000s)
----------------------------------------------
Outstanding at beginning of period 4,565 $ 11.03
Options granted - $ -
Options exercised (965) $ 8.47
Options forfeited - $ -
Options expired (2) $ 8.65
-------
Outstanding at end of period 3,598 $ 11.72 4.54 $ 20,498
=======
Exercisable at end of period 2,802 $ 10.04 3.75 $ 20,326
=======
The Company granted no stock options during the three-month and nine-
month periods ended September 30, 2007 and granted no stock options during
the three-month period and granted 5,000 stock options during the nine-month
period ended September 30, 2006. The fair value of stock options granted
was estimated using a Black-Scholes valuation model with the following
assumptions:
Nine Months Ended
September 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 five-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 stock options exercised was $3.7 million
and $0.1 million for the three-month periods and $10.4 million and $5.2
million for the nine-month periods ended September 30, 2007 and 2006,
respectively. As of September 30, 2007, the total unrecognized compensation
cost related to nonvested stock option awards was approximately $1.5 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 ("Truckload") and Value Added Services ("VAS").
The Truckload segment consists of six operating fleets that have been
aggregated because they have similar economic characteristics and meet the
other aggregation criteria of SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information ("No. 131"). 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 across the U.S. 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 segment
include non-trucking revenues of $2.2 million and $3.1 million for the
three-month periods and $7.6 million and $8.7 million for the nine-month
periods ended September 30, 2007 and 2006, respectively. These revenues
consist primarily of the portion of shipments delivered to or from Mexico
where the Company utilizes a third-party capacity provider.
The VAS segment generates the majority of the Company's non-trucking
revenues. The services provided by the VAS segment include 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 require the elimination of revenue between the Company's segments
in the table below.
11
The following tables summarize the Company's segment information (in
thousands):
Revenues
--------
Three Months Ended Nine Months Ended
September 30 September 30
---------------------- ------------------------
2007 2006 2007 2006
---------------------- ------------------------
Truckload Transportation Services $ 451,272 $ 466,379 $ 1,332,148 $ 1,356,296
Value Added Services 54,517 71,405 200,243 196,383
Other 3,781 2,801 11,178 7,081
Corporate 690 712 1,890 2,348
---------------------- ------------------------
Total $ 510,260 $ 541,297 $ 1,545,459 $ 1,562,108
====================== ========================
Operating Income
----------------
Three Months Ended Nine Months Ended
September 30 September 30
---------------------- ------------------------
2007 2006 2007 2006
---------------------- ------------------------
Truckload Transportation Services $ 33,066 $ 38,880 $ 91,474 $ 118,006
Value Added Services 3,181 1,850 9,578 5,726
Other 864 408 2,507 1,038
Corporate (47) (452) (843) (911)
---------------------- ------------------------
Total $ 37,064 $ 40,686 $ 102,716 $ 123,859
====================== ========================
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") summarizes the financial statements from
management's perspective with respect to the Company's financial condition,
results of operations, liquidity and other factors that may affect actual
results. The MD&A is organized in the following sections:
* Cautionary Note Regarding Forward-Looking Statements
* Overview
* Results of Operations
* Liquidity and Capital Resources
* Off-Balance Sheet Arrangements
* Regulations
* Critical Accounting Policies
* Accounting Standards
The MD&A should be read in conjunction with the Company's Annual Report
on Form 10-K for the year ended December 31, 2006.
Cautionary Note Regarding Forward-Looking Statements:
This Quarterly Report on Form 10-Q contains historical information and
forward-looking statements based on information currently available to the
Company's management. The forward-looking statements are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995, as amended. These safe harbor provisions encourage reporting
companies to provide prospective information to investors. Forward-looking
statements can be identified by the use of certain words, such as
"anticipate", "believe", "estimate", "expect", "intend", "plan", "project"
and other similar terms and language. The Company believes the forward-
looking statements are reasonable based on currently available information.
However, forward-looking statements involve risks, uncertainties and
12
assumptions, whether known or unknown, that could cause actual results to
differ materially from the anticipated results expressed in such forward-
looking statements. A discussion of important factors relating to forward-
looking statements is included in Item 1A, "Risk Factors", in the Company's
Annual Report on Form 10-K for the year ended December 31, 2006. Readers
should not unduly rely on the forward-looking statements included in this
Form 10-Q because such statements speak only to the date they were made.
Unless otherwise required by applicable securities laws, the Company assumes
no obligation to update forward-looking statements to reflect subsequent
events or circumstances.
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 making capital investments in tractors and trailers.
Although the Company's business volume is not highly concentrated, the
Company may also be affected by the financial failure of customers or the
loss of a customer's business.
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 segment
also includes a small amount of non-trucking revenues, consisting primarily
of the portion of shipments delivered to or from Mexico where the Truckload
segment utilizes a third-party capacity provider. Non-trucking revenues
reported in the operating statistics table include those revenues generated
by the VAS and Truckload segments. Trucking revenues accounted for
approximately 88% of total operating revenues in third quarter 2007, and
non-trucking and other operating revenues accounted for approximately 12%.
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 fuel costs, these revenues are identified separately within
the operating statistics table and are excluded from the statistics to
provide a more meaningful comparison between periods. The non-trucking
revenues in the operating statistics table include such revenues generated
by a fleet whose operations fall within the Truckload segment. The Company
does this so that it can calculate the revenue statistics in the operating
statistics table using only revenue 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, per-
mile rates charged to customers, average monthly miles generated per
tractor, average percentage of empty miles, average trip length, and 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
13
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 environments, and
the costs of insurance coverage to protect against catastrophic losses.
The operating ratio is a common industry measure used to evaluate the
profitability of the Company and its trucking operating fleets. The
operating ratio consists of operating expenses expressed as a percentage of
operating revenues. The most significant variable expenses that impact
trucking operations 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 third quarter 2007 to
third quarter 2006, several industry-wide issues could cause costs to
increase in future periods. These issues include a softer freight market,
changing fuel prices, and a challenging driver recruiting and retention
market. 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 engine
emission standards that became effective in October 2002 (phase 1) for all
newly purchased trucks. These emission standards resulted in increased
truck purchase costs. In addition, a new set of more stringent engine
emissions standards mandated by the Environmental Protection Agency ("EPA")
became effective in January 2007 for all newly manufactured trucks. The
Company expects that trucks with engines produced under the 2007 standards
will be less fuel-efficient and have a higher cost than trucks with 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
has allowed 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. These services are 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. This expense item 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 Nine Months Ended
September 30 % September 30 %
------------------- -----------------------
2007 2006 Change 2007 2006 Change
-------- -------- ------ ---------- ---------- ------
Trucking revenues, net of
fuel surcharge (1) $371,746 $381,108 -2.5% $1,113,221 $1,125,261 -1.1%
Trucking fuel surcharge
revenues (1) 77,286 82,088 -5.8% 211,072 222,189 -5.0%
Non-trucking revenues,
including VAS (1) 56,725 74,519 -23.9% 207,860 205,068 1.4%
Other operating revenues (1) 4,503 3,582 25.7% 13,306 9,590 38.7%
-------- -------- ---------- ----------
Operating revenues (1) $510,260 $541,297 -5.7% $1,545,459 $1,562,108 -1.1%
======== ======== ========== ==========
Operating ratio
(consolidated) (2) 92.7% 92.5% 93.4% 92.1%
Average monthly miles
per tractor 9,956 9,742 2.2% 9,846 9,837 0.1%
Average revenues per
total mile (3) $1.474 $1.475 -0.1% $1.460 $1.462 -0.1%
Average revenues per
loaded mile (3) $1.702 $1.696 0.4% $1.688 $1.679 0.5%
Average percentage of
empty miles 13.38% 13.00% 2.9% 13.47% 12.92% 4.3%
Average trip length in
miles (loaded) 550 581 -5.3% 561 583 -3.8%
Total miles (loaded and
empty) (1) 252,128 258,329 -2.4% 762,327 769,498 -0.9%
Average tractors in service 8,441 8,839 -4.5% 8,603 8,692 -1.0%
Average revenues per
tractor per week (3) $3,388 $3,317 2.1% $3,318 $3,320 -0.1%
Total tractors (at
quarter end)
Company 7,620 8,050 7,620 8,050
Owner-operator 810 810 810 810
-------- -------- ---------- ----------
Total tractors 8,430 8,860 8,430 8,860
Total trailers (truck and
intermodal, at quarter end) 24,765 25,330 24,765 25,330
(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 $2.2 million and $3.1 million for
the three-month periods and $7.6 million and $8.7 million for the nine-month
periods ended September 30, 2007 and 2006, respectively, as described on
page 11.
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------------- ------------------------------------
Truckload Transportation Services 2007 2006 2007 2006
(amounts in 000s) --------------- --------------- ----------------- -----------------
--------------------------------- $ % $ % $ % $ %
--------------- --------------- ----------------- -----------------
Revenues $451,272 100.0 $466,379 100.0 $1,332,148 100.0 $1,356,296 100.0
Operating expenses 418,206 92.7 427,499 91.7 1,240,674 93.1 1,238,290 91.3
-------- -------- ---------- ----------
Operating income $ 33,066 7.3 $ 38,880 8.3 $ 91,474 6.9 $ 118,006 8.7
======== ======== ========== ==========
Higher fuel prices and higher fuel surcharge collections increase 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 Nine Months Ended
September 30 September 30
-------------------------------- ------------------------------------
Truckload Transportation Services 2007 2006 2007 2006
(amounts in 000s) --------------- --------------- ----------------- -----------------
--------------------------------- $ % $ % $ % $ %
--------------- --------------- ----------------- -----------------
Revenues $451,272 $466,379 $1,332,148 $1,356,296
Less: trucking fuel surcharge
revenues 77,286 82,088 211,072 222,189
-------- -------- ---------- ----------
Revenues, net of fuel surcharges 373,986 100.0 384,291 100.0 1,121,076 100.0 1,134,107 100.0
-------- -------- ---------- ----------
Operating expenses 418,206 427,499 1,240,674 1,238,290
Less: trucking fuel surcharge
revenues 77,286 82,088 211,072 222,189
-------- -------- ---------- ----------
Operating expenses, net of
fuel surcharges 340,920 91.2 345,411 89.9 1,029,602 91.8 1,016,101 89.6
-------- -------- ---------- ----------
Operating income $ 33,066 8.8 $ 38,880 10.1 $ 91,474 8.2 $ 118,006 10.4
======== ======== ========== ==========
The following table sets forth the VAS segment's non-trucking revenues,
rent and purchased transportation, other operating expenses, and operating
income. 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 Nine Months Ended
September 30 September 30
-------------------------------- ------------------------------------
Value Added Services 2007 2006 2007 2006
(amounts in 000s) --------------- --------------- ----------------- -----------------
-------------------- $ % $ % $ % $ %
--------------- --------------- ----------------- -----------------
Revenues $ 54,517 100.0 $ 71,405 100.0 $200,243 100.0 $196,383 100.0
Rent and purchased
transportation expense 45,963 84.3 64,873 90.9 175,200 87.5 177,968 90.6
-------- -------- -------- --------
Gross margin 8,554 15.7 6,532 9.1 25,043 12.5 18,415 9.4
Other operating expenses 5,373 9.9 4,682 6.5 15,465 7.7 12,689 6.5
-------- -------- -------- --------
Operating income $ 3,181 5.8 $ 1,850 2.6 $ 9,578 4.8 $ 5,726 2.9
======== ======== ======== ========
16
Three Months Ended September 30, 2007 Compared to Three Months Ended
----------------------------------------------------------------------------
September 30, 2006
------------------
Operating Revenues
Operating revenues decreased 5.7% for the three months ended September
30, 2007, compared to the same period of the prior year. Excluding fuel
surcharge revenues, trucking revenues decreased 2.5% due primarily to a 4.5%
decrease in the average number of tractors in service (as discussed further
below), offset by a 2.2% increase in average monthly miles per tractor. The
average percentage of empty miles increased to 13.4% in third quarter
2007 from 13.0% in third quarter 2006. A significant portion of the
increase in the empty mile percentage is due to the softer freight market as
well as a reduction in the Company's average length of haul.
Freight demand softness and the temporary increase in the supply of
trucks caused by the industry truck prebuy (i.e., accelerated purchases of
tractors ahead of the January 1, 2007 EPA engine emission standards) made
for continued challenging market conditions during third quarter 2007. 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
July, August, and September than in the same months of the previous four
years. However, due to the load count weakness that began in August 2006,
load volumes in August and September 2007 were only slightly lower than load
volumes in August and September 2006. Load volumes in third quarter 2007
improved slightly from July to September, albeit at a slower rate of
improvement than the typical seasonal progression during these months.
Freight volumes picked up modestly due to a typical end-of-quarter push at
the end of third quarter 2007.
Load volumes were lower for the Van Network during October 2007
compared to October 2006, and were significantly lower in the latter half of
the month of October 2007. Prebook percentages of loads to trucks were
slightly higher in the first half of October 2007 compared to the first half
of October 2006 but were lower in the second half of October 2007 compared
to the second half of October 2006, after considering the effect of the
medium-to-long-haul Van fleet reduction that was initiated in mid-March 2007
and completed in June 2007.
For the last year, truckload industry freight rates have been flat or
lower due to (i) the significant truck prebuy prompted by changes to the EPA
engine emission regulations that became effective for newly manufactured
engines beginning January 2007, which added a total of 170,000 more trucks
in the years 2005 and 2006 than are normally produced, and (ii) a softer
freight market due to weakness in the housing and automotive sectors,
inventory tightening, and moderate growth in the retail sector. Since April
2007, Class 8 truck production declined dramatically, and the Company
expects this will continue for several more months. Over time, lower new
truck production and inventory depletion of 2006 engine trucks on truck
dealer lots should help to balance the supply of trucks with the freight
market. During the same period in which truckload freight rates have been
depressed, inflationary and operational cost pressures have severely
challenged truckload carriers, particularly highly leveraged private
carriers. If this environment continues, an increase in trucking company
failures is more likely, which should also help to balance the supply of
trucks. When the market improves, industry freight rates may likely rebound
and increase more rapidly than normal.
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 has the greatest exposure to the spot freight market and 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 the volume of freight with the capacity of trucks and to
improve profitability. By the latter part of April 2007, this initial goal
was achieved, but 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-
17
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 VAS Brokerage team.
During third quarter 2007, the truck fleet increased slightly, ending the
quarter at 8,430 trucks. The Company may decide to further reduce its truck
fleet in the future if freight market conditions are unfavorable.
Fuel surcharge revenues represent collections from customers for the
higher cost of fuel. These revenues decreased to $77.3 million in third
quarter 2007 from $82.1 million in third 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. Decreases in the DOE
national average fuel price, changes to customer fuel surcharge programs,
and a change in the mix of customers contributed to the decrease in fuel
surcharge revenues.
VAS revenues decreased 23.7% to $54.5 million for the three months
ended September 30, 2007 from $71.4 million for the three months ended
September 30, 2006. VAS revenues are generated by the following VAS
operating divisions: Truck Brokerage, Freight Management (single-source
logistics), Intermodal, and International. Effective at the beginning of
third quarter 2007, the Company and a large VAS Freight Management customer
negotiated a structural change to their continuing arrangement related to
the use of third-party carriers. This change affects the reporting of VAS
revenues and purchased transportation expenses for this customer in third
quarter 2007 and future periods, and consequently, the Company began
reporting VAS revenues for this customer on a net basis (revenues net of
purchased transportation expense) rather than on a gross basis. This change
resulted in a reduction in VAS revenues and VAS rent and purchased
transportation expense of $20.0 million from third quarter 2006 to third
quarter 2007, but the change had no impact on the dollar amount of VAS gross
margin or operating income. Excluding the affected freight revenues for
this customer, VAS revenues grew 6% in third quarter 2007 compared to third
quarter 2006.
Brokerage continued to produce strong results with 16% revenue growth
and improved operating income as a percentage of revenues. Freight
Management successfully distributed freight to other operating divisions and
continues to secure new customer business awards that generate growth across
all Company business segments. Intermodal revenues declined by design, yet
produced significant operating income improvement as the Company benefited
from intermodal strategy changes that management began implementing during
the latter part of 2006.
Werner Global Logistics ("WGL") is actively assisting customers with
innovative global supply chain solutions. Customer development efforts are
progressing, and WGL currently has been awarded business with an annualized
revenue run rate of approximately $25 million per year, in line with
management's business plan. WGL continues to secure several new and
meaningful customer business awards. Werner, through its subsidiaries and
affiliates, is a licensed U.S. Non-Vessel Operating Common Carrier
("NVOCC"), U.S. Customs Broker, licensed Freight Forwarder in China,
licensed China NVOCC, a Transportation Security Administration approved
Indirect Air Carrier, and an International Air Transport Association
Accredited Cargo Agent.
Operating Expenses
Operating expenses, expressed as a percentage of operating revenues,
were 92.7% for the three months ended September 30, 2007, compared to 92.5%
for the three months ended September 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
18
Company's two reportable segments, Truckload Transportation Services and
Value Added Services.
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 Nine Months Ended Increase
September 30 (Decrease) September 30 (Decrease)
-------------------- -------------------
2007 2006 per Mile 2007 2006 per Mile
--------------------------------------------------------------
Salaries, wages and benefits $0.578 $0.561 $0.017 $0.573 $0.563 $0.010
Fuel 0.402 0.412 (0.010) 0.379 0.386 (0.007)
Supplies and maintenance 0.153 0.154 (0.001) 0.149 0.147 0.002
Taxes and licenses 0.114 0.116 (0.002) 0.115 0.113 0.002
Insurance and claims 0.087 0.093 (0.006) 0.092 0.084 0.008
Depreciation 0.157 0.159 (0.002) 0.158 0.157 0.001
Rent and purchased transportation 0.165 0.155 0.010 0.159 0.151 0.008
Communications and utilities 0.019 0.019 0.000 0.020 0.019 0.001
Other (0.016) (0.014) (0.002) (0.018) (0.011) (0.007)
--------------------------------------------------------------
Total $1.659 $1.655 $0.004 $1.627 $1.609 $0.018
==============================================================
Owner-operator costs are included in rent and purchased transportation
expense. Owner-operator miles were a greater percentage of total miles at
12.7% in third quarter 2007 compared to 11.6% in third 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 1.3 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 (0.4 cents), fuel (0.5
cents), depreciation (0.2 cents), supplies and maintenance (0.1 cent), and
taxes and licenses (0.1 cent).
The increase in salaries, wages and benefits of 1.7 cents per mile for
the Truckload segment is primarily due to higher group health insurance
costs, an increase in the percentage of dedicated fleet trucks, and an
increase in student driver pay. Student pay increased as the average number
of student drivers being trained during third quarter 2007 was higher than
in third quarter 2006. Salaries, wages and benefits for non-drivers
increased in third quarter 2007 compared to third quarter 2006 due to an
increase in employees in the non-trucking VAS operations.
The Company renewed its workers' compensation insurance coverage. 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 driver market remained challenging but was not quite as difficult
in third quarter 2007 compared to third quarter 2006. The weakness in the
construction market and the van fleet reduction contributed favorably to the
Company's driver recruiting and retention efforts in third quarter 2007.
The Company anticipates that competition for qualified drivers will remain
high and cannot predict whether it will experience driver shortages in the
future. If such a shortage were to occur and additional increases in driver
pay rates were necessary to attract and retain drivers, the Company's
19
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
slightly higher average diesel fuel prices, due to the decrease in the
percentage of company truck miles versus owner-operator miles and increasing
percentages of aerodynamic trucks which improved fuel miles per gallon.
Average fuel cost per gallon in third quarter 2007 was 7 cents higher than
third quarter 2006. The average price per gallon was 5 cents lower in July
2007 than July 2006, was 18 cents lower in August 2007 than August 2006, and
45 cents higher in September 2007 than September 2006. Fuel prices have
continued to rise in October 2007 and are approaching the record-high price
levels experienced in 2005. As of today, diesel fuel prices are 80 cents
per gallon higher than on the same date a year ago, and average prices for
the month of October 2007 were 62 cents per gallon higher than October 2006.
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 ("mpg") for all trucks, due to the lower energy
content (btu) of ULSD. The Company successfully offset the negative mpg
impact of ULSD in third quarter 2007 compared to third quarter 2006 by
increasing the percentage of aerodynamic trucks in the fleet.
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 increase or decrease in the future or the extent to which
fuel surcharges will be collected from customers. As of September 30, 2007,
the Company had no derivative financial instruments to reduce its exposure
to fuel price fluctuations.
Insurance and claims for the Truckload segment decreased 0.6 cents on a
per-mile basis due primarily to lower negative loss development and improved
claims experience on higher-dollar liability claims in third quarter 2007
compared to third quarter 2006. During the policy year beginning August 1,
2006, the Company was 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 was 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 was responsible for the first $5.0
million of claims in the policy year. During the policy year beginning
August 1, 2007, the Company is 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 maintains liability
insurance coverage with reputable insurance carriers substantially in excess
of the $10.0 million per claim. 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 discussed on
page 18, the VAS segment's rent and purchased transportation expense
decreased in response to a structural change to a large VAS customer's
continuing arrangement. That change resulted in a reduction in VAS revenues
and VAS rent and purchased transportation expense of $20.0 million from
third quarter 2006 to third quarter 2007. Excluding the rent and purchased
transportation expense for this customer, the dollar amount of this expense
increased for the VAS segment, similar to VAS revenues. These expenses
generally vary depending on changes in the volume of services generated by
the segment.
Rent and purchased transportation for the Truckload segment increased
1.0 cent per total mile in third quarter 2007 due primarily to the increase
in the percentage of owner-operator truck miles versus company truck miles.
The Company's customer fuel surcharge programs do not differentiate between
miles generated by company-owned trucks and miles generated by owner-
operator trucks.
20
The Company continues to experience difficulty attracting and retaining
owner-operator drivers because of challenging operating conditions
(including inflationary cost increases) that are the responsibility of the
owner-operators. The number of owner-operators stayed the same at 810 as
of September 30, 2007 and 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 occurred 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 0.2 cents
per mile in third quarter 2007. Gains on sales of assets (a reduction of
other operating expenses), primarily trucks and trailers, decreased slightly
to $5.5 million in third quarter 2007 compared to $5.6 million in third
quarter 2006. In third quarter 2007, the Company continued to sell its
oldest van trailers that are fully depreciated and replaced them with new
trailers. The Company expects to continue doing so throughout the remainder
of 2007.
Recent rising fuel prices and continued freight demand softness are
beginning to negatively affect both the volume and pricing (average gain per
unit sold) of used truck and trailer sales. Also, if carrier bankruptcies
begin to accelerate in the truckload industry due to the challenging freight
conditions and higher fuel prices, this could result in an increased supply
of used equipment for sale, which could also negatively impact used truck
and trailer pricing.
The Company's effective income tax rate (income taxes expressed as a
percentage of income before income taxes) was 41.7% for third quarter 2007
versus 41.0% for third quarter 2006.
Nine Months Ended September 30, 2007 Compared to Nine Months Ended September
----------------------------------------------------------------------------
30, 2006
--------
Operating Revenues
Operating revenues decreased by 1.1% for the nine months ended
September 30, 2007, compared to the same period of the previous year.
Excluding fuel surcharge revenues, trucking revenues decreased 1.1%, due
primarily to a 1.0% decrease in the average number of tractors in service
and a 0.1% decrease in average revenues per total mile.
Operating Expenses
Operating expenses, expressed as a percentage of operating revenues,
were 93.4% for the nine months ended September 30, 2007, compared to 92.1%
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 were a greater percentage of total miles at 12.3%
for the nine months ended September 30, 2007 compared to 11.7% for the nine
months ended September 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 this increase caused rent and purchased transportation
expense for the Truckload segment to rise by approximately 0.8 cents per
total mile. Other expense categories had offsetting decreases on a total-
mile basis, as follows: salaries, wages and benefits (0.3 cents), fuel (0.3
cents), depreciation (0.1 cent), and taxes and licenses (0.1 cent).
21
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 1.0 cent on a per-mile basis due to higher driver pay per
mile. This higher driver pay is attributed to the increase in discretionary
driver pay items and the higher percentage of dedicated fleet trucks.
Increases in group health insurance costs were offset by lower state
unemployment tax expense for Nebraska and other states and workers'
compensation costs. Fuel decreased 0.7 cents per total mile, despite
slightly higher average diesel fuel prices. This fuel decrease is due to a
decrease in the percentage of company truck miles versus owner-operator
miles and increasing percentages of aerodynamic trucks to improve fuel miles
per gallon. Insurance and claims increased 0.8 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. Other
operating expenses decreased 0.7 cents per total mile as lower gains on
sales of assets in 2007 ($19.3 million in 2007 compared to $21.5 million in
2006) 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 former customers. The Company's effective income tax rate was
41.8% and 41.1% for the nine months ended September 30, 2007 and 2006,
respectively.
Liquidity and Capital Resources:
During the nine months ended September 30, 2007, the Company generated
cash flow from operations of $187.2 million, which is a 17.5% decrease
($39.6 million) in cash flow compared to the same nine-month period a year
ago. The decrease in cash flow from operations is because of (i) a $22.5
million increase in accounts payable for revenue equipment from December
2005 to September 2006 (compared to a $13.7 million decrease in accounts
payable for revenue equipment from December 2006 to September 2007) as the
Company is currently delaying the purchase of trucks with 2007 engines and
(ii) lower net income in 2007. The changes in accounts payable for revenue
equipment were offset partially by improved working capital changes in
accounts receivable. Cash flow from operations enabled the Company to make
net capital expenditures and make net repayments of debt and repurchase
common stock as discussed below.
Net cash used in investing activities for the nine-month period ended
September 30, 2007 decreased by $101.4 million, from $124.3 million for the
nine-month period ended September 30, 2006 to $22.9 million for the nine-
month period ended September 30, 2007. Net property additions (particularly
revenue equipment) were $27.3 million for the nine-month period ended
September 30, 2007 versus $128.3 million during the same period of 2006.
The decrease occurred primarily because the Company is taking delivery of
substantially fewer new trucks during 2007 to delay purchases of higher cost
trucks with 2007 engines. The average age of the Company's truck fleet is
1.89 years at September 30, 2007 compared to 1.35 years as of September 30,
2006.
As of September 30, 2007, the Company has committed to property and
equipment purchases of approximately $16.2 million. The Company intends to
fund these net capital expenditures with cash flow from operations and by
financing available under its existing credit facilities, as management
deems necessary.
Net financing activities used $175.0 million and $111.8 million during
the nine months ended September 30, 2007 and 2006, respectively. The $63.2
million increase in cash used for financing activities was primarily the
result of a $40.0 million increase in debt repayments (net of borrowings)
and a $29.7 million increase in repurchases of the Company's common stock in
2007. These uses of cash were offset by an additional $7.0 million of
proceeds and tax benefits from the exercise of stock options in 2007. The
Company paid dividends of $10.4 million in the nine-month period ended
September 30, 2007 and $9.8 million in the nine-month period ended September
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 $87.1 million and $57.4
million in the nine-month periods ended September 30, 2007 and 2006,
respectively. From time to time, the Company has repurchased, and may
22
continue to repurchase, shares of common stock. The timing and amount of
such purchases depends on market and other factors. As of September 30,
2007, the Company had purchased 5,291,200 shares pursuant to its current
repurchase authorization and had 708,800 shares remaining available for
repurchase. On October 11, 2007, the Company's Board of Directors approved
an increase in the number of shares of common stock authorized for
repurchase by the Company. Under the new authorization, the Company is
authorized to repurchase an additional 8,000,000 shares, resulting in a
total of 8,708,800 shares available for repurchase as of October 11, 2007.
Management believes the Company's financial position as of September
30, 2007 is strong. As of September 30, 2007, the Company had $20.9 million
of cash and cash equivalents and $845.8 million of stockholders' equity. As
of September 30, 2007, the Company had $225.0 million of available credit
pursuant to credit facilities, of which it had borrowed $10.0 million. The
credit available under these facilities is further reduced by the $37.1
million in letters of credit under which the Company is obligated. 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 September 30, 2007, the Company did not have any non-cancelable
revenue equipment operating leases or 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. On August 31, 2007, the American Trucking
Associations ("ATA") filed a petition for Rulemaking before the FMCSA
requesting an expedited rulemaking to preserve the 11-hour driving limit
and the 34-hour restart. On September 6, 2007, ATA filed a Motion for a
Stay of the Mandate asking the Court to delay the effective date of its July
24th decision. Subsequently, FMCSA filed a brief supporting the ATA's
Motion for a Stay of the Mandate. On September 28, 2007, the Court issued
a 90-day stay of the effective date of its decision.
23
FMCSA has not indicated if it will grant the ATA's petition for a
Rulemaking. Some response from FMCSA is likely within 90 days of September
28th. 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. In 1998, the Company began a successful pilot program and
subsequently became the first, and only, trucking company in the United
States to receive an exemption from the U.S. Department of Transportation
("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 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 five to twelve 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
five-year life and 25% salvage value. Depreciation expense
calculated in this manner continues at the same straight-line rate
24
(which approximates the continuing declining market value of the
tractors) when 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 circumstances indicate 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 the carrying amount exceeds its fair value. For long-lived
assets classified as held and used, the carrying amount is not
recoverable when the carrying value of the long-lived asset exceeds
the sum of the future net cash flows. The Company does not
separately identify assets by operating segment because 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.
Management periodically evaluates these estimates and policies as
events and circumstances change. There have been no modifications or
alterations to these policies that occurred during the Company's most recent
25
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 ("No. 157"). This Statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements. The
provisions of SFAS No. 157 are effective as of the beginning of the first
fiscal year beginning after November 15, 2007. As of September 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 ("No. 159"). 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 September
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
attributed 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 surcharge 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 or the
extent to which fuel surcharges could be collected to offset such increases.
As of September 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, Canada, and Asia. Foreign
currency transaction gains and losses were not material to the Company's
results of operations for third 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 risks involving any foreign currency
exchange rate and the effects that such exchange rate movements would have
on the Company's future costs or future cash flows.
Interest Rate Risk
The Company had $10.0 million of debt outstanding at September 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 $100,000. The Company has
26
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
Securities Exchange Act of 1934, 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 on April 14, 2006 its
Board of Directors approved an increase to its authorization for common
stock repurchases of 6,000,000 shares. As of September 30, 2007, the
Company had purchased 5,291,200 shares pursuant to this authorization and
had 708,800 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 third quarter of 2007 made pursuant to this authorization.
During the quarter, the Company did not purchase shares outside of 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
-----------------------------------------------------------------------------------------
July 1-31, 2007 184,900 $19.51 184,900 2,023,900
August 1-31, 2007 1,315,100 $19.25 1,315,100 708,800
September 1-30, 2007 - - - 708,800
------------------ --------------------
Total 1,500,000 $19.29 1,500,000 708,800
================== ====================
On October 11, 2007, the Company's Board of Directors approved an
increase in the number of shares of common stock authorized for repurchase
by the Company. Under the new authorization, the Company is authorized to
repurchase 8,000,000 shares, which is in addition to the remaining 708,800
shares available for repurchase pursuant to the Board of Directors' previous
authorized increase approved on April 14, 2006. The authorization will
continue unless withdrawn by the Board of Directors.
28
Item 6. Exhibits.
Index of Exhibits
Exhibit 3(i) Restated Articles of Incorporation (Incorporated by
reference to Exhibit 3(i) to the Company's report on Form 10-Q for
the quarter ended June 30, 2007)
Exhibit 3(ii) Revised and Restated By-Laws (Incorporated by reference to
Exhibit 3(ii) to the Company's report on Form 10-Q for the quarter
ended June 30, 2007)
Exhibit 10.1 Non-Employee Director Compensation (filed herewith)
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)
29
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: October 31, 2007 By: /s/ John J. Steele
------------------------ ---------------------------------------
John J. Steele
Executive Vice President, Treasurer and
Chief Financial Officer
Date: October 31, 2007 By: /s/ James L. Johnson
------------------------ ---------------------------------------
James L. Johnson
Senior Vice President, Controller and
Corporate Secretary
30