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, 2006
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 28, 2006, 77,269,947 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, 2006 and 2005 3
Consolidated Statements of Income for the Six Months Ended
June 30, 2006 and 2005 4
Consolidated Condensed Balance Sheets as of June 30, 2006 and
December 31, 2005 5
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2006 and 2005 6
Notes to Consolidated Financial Statements as of June 30, 2006 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
Item 4. Controls and Procedures 26
PART II - OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 6. Exhibits 28
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, 2006, are not necessarily indicative of the results that may be
expected for the year ending December 31, 2006. 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, 2005.
2
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
(In thousands, except per share amounts) June 30
---------------------------------------------------------------------------
2006 2005
---------------------------------------------------------------------------
(Unaudited)
Operating revenues $ 528,889 $ 485,789
---------------------------
Operating expenses:
Salaries, wages and benefits 149,743 141,332
Fuel 102,812 78,064
Supplies and maintenance 38,982 39,921
Taxes and licenses 27,905 29,465
Insurance and claims 21,613 21,838
Depreciation 41,072 40,539
Rent and purchased transportation 101,335 90,342
Communications and utilities 4,827 5,134
Other (5,751) (2,974)
---------------------------
Total operating expenses 482,538 443,661
---------------------------
Operating income 46,351 42,128
---------------------------
Other expense (income):
Interest expense 4 2
Interest income (1,221) (822)
Other 85 46
---------------------------
Total other expense (income) (1,132) (774)
---------------------------
Income before income taxes 47,483 42,902
Income taxes 19,462 17,607
---------------------------
Net income $ 28,021 $ 25,295
===========================
Earnings per share:
Basic $ .36 $ .32
===========================
Diluted $ .35 $ .31
===========================
Dividends declared per share $ .045 $ .040
===========================
Weighted-average common shares outstanding:
Basic 78,236 79,415
===========================
Diluted 79,689 80,692
===========================
3
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended
(In thousands, except per share amounts) June 30
---------------------------------------------------------------------------
2006 2005
---------------------------------------------------------------------------
(Unaudited)
Operating revenues $ 1,020,811 $ 941,051
---------------------------
Operating expenses:
Salaries, wages and benefits 296,356 281,554
Fuel 191,458 145,692
Supplies and maintenance 76,774 76,675
Taxes and licenses 57,374 58,243
Insurance and claims 40,808 45,038
Depreciation 82,173 80,176
Rent and purchased transportation 189,354 172,909
Communications and utilities 9,722 10,576
Other (6,381) (4,777)
---------------------------
Total operating expenses 937,638 866,086
---------------------------
Operating income 83,173 74,965
---------------------------
Other expense (income):
Interest expense 277 6
Interest income (2,216) (1,787)
Other 126 73
---------------------------
Total other expense (income) (1,813) (1,708)
---------------------------
Income before income taxes 84,986 76,673
Income taxes 34,936 31,457
---------------------------
Net income $ 50,050 $ 45,216
===========================
Earnings per share:
Basic $ .63 $ .57
===========================
Diluted $ .62 $ .56
===========================
Dividends declared per share $ .085 $ .075
===========================
Weighted-average common shares outstanding:
Basic 78,837 79,383
===========================
Diluted 80,324 80,754
===========================
4
WERNER ENTERPRISES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share amounts) June 30 December 31
---------------------------------------------------------------------------
2006 2005
---------------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 42,810 $ 36,583
Accounts receivable, trade, less allowance of
$15,828 and $8,357, respectively 233,504 240,224
Other receivables 17,370 19,914
Inventories and supplies 10,576 10,951
Prepaid taxes, licenses and permits 8,215 18,054
Current deferred income taxes 21,900 20,940
Other current assets 22,755 20,966
---------------------------
Total current assets 357,130 367,632
---------------------------
Property and equipment 1,538,914 1,555,764
Less - accumulated depreciation 564,213 553,157
---------------------------
Property and equipment, net 974,701 1,002,607
---------------------------
Other non-current assets 16,420 15,523
---------------------------
$1,348,251 $1,385,762
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 63,273 $ 52,387
Current portion of long-term debt - 60,000
Insurance and claims accruals 60,511 62,418
Accrued payroll 22,502 21,274
Other current liabilities 18,321 21,838
---------------------------
Total current liabilities 164,607 217,917
---------------------------
Other long-term liabilities 745 526
Insurance and claims accruals, net of current
portion 97,500 95,000
Deferred income taxes 213,525 209,868
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 200,000,000
shares authorized; 80,533,536 shares
issued; 77,810,695 and 79,420,443 shares
outstanding, respectively 805 805
Paid-in capital 104,391 105,074
Retained earnings 820,657 777,260
Accumulated other comprehensive loss (1,269) (259)
Treasury stock, at cost; 2,722,841 and
1,113,093 shares, respectively (52,710) (20,429)
---------------------------
Total stockholders' equity 871,874 862,451
---------------------------
$1,348,251 $1,385,762
===========================
5
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
(In thousands) June 30
---------------------------------------------------------------------------
2006 2005
---------------------------------------------------------------------------
(Unaudited)
Cash flows from operating activities:
Net income $ 50,050 $ 45,216
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 82,173 80,176
Deferred income taxes 2,697 (37,675)
Gain on disposal of property and equipment (15,958) (6,039)
Stock based compensation 1,312 -
Tax benefit from exercise of stock options - 1,260
Other long-term assets 68 (311)
Insurance claims accruals, net of current
portion 2,500 3,000
Other long-term liabilities 219 -
Changes in certain working capital items:
Accounts receivable, net 6,720 (12,018)
Other current assets 10,969 349
Accounts payable 10,886 4,171
Other current liabilities (4,521) 18,142
---------------------------
Net cash provided by operating activities 147,115 96,271
---------------------------
Cash flows from investing activities:
Additions to property and equipment (129,893) (208,640)
Retirements of property and equipment 88,058 55,979
Decrease in notes receivable 2,561 2,087
---------------------------
Net cash used in investing activities (39,274) (150,574)
---------------------------
Cash flows from financing activities:
Repayments of short-term debt (60,000) -
Dividends on common stock (6,328) (5,552)
Repurchases of common stock (39,477) (263)
Stock options exercised 3,112 1,868
Excess tax benefits from exercise of stock
options 2,089 -
---------------------------
Net cash used in financing activities (100,604) (3,947)
---------------------------
Effect of exchange rate fluctuations on cash (1,010) 500
Net increase (decrease) in cash and cash
equivalents 6,227 (57,750)
Cash and cash equivalents, beginning of period 36,583 108,807
---------------------------
Cash and cash equivalents, end of period $ 42,810 $ 51,057
Supplemental disclosures of cash flow ===========================
information:
Cash paid during the period for:
Interest $ 388 $ 6
Income taxes $ 34,370 $ 65,999
Supplemental schedule of non-cash investing
activities:
Notes receivable issued upon sale of revenue
equipment $ 3,526 $ 5,298
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 ($712) and $549 (in thousands) for the three-month periods
and ($1,010) and $500 (in thousands) for the six-month periods ended June
30, 2006 and 2005, respectively.
(2) Long-Term Debt
As of June 30, 2006, the Company has credit facilities with two banks
totaling $200.0 million which mature at various dates from May 2008 to May
2011 and bear variable interest based on the London Interbank Offered Rate
("LIBOR"), on which no borrowings were outstanding. The Company repaid the
$60.0 million of outstanding debt as of December 31, 2005 in first quarter
2006. As of June 30, 2006, the credit available pursuant to these bank
credit facilities is reduced by $37.2 million in letters of credit the
Company maintains. Each of the debt agreements require, among other things,
that the Company not exceed a maximum ratio of total debt to total
capitalization and 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. While the Company had
no borrowings outstanding under these credit facilities as of June 30,
2006, the Company remained in compliance with these covenants at June 30,
2006.
On June 7, 2006, the Company amended its $75.0 million bank credit
facility with Wells Fargo Bank, increasing the credit facility to $100.0
million and extending the maturity date from May 16, 2007 to May 31, 2011.
The amendment also replaced the minimum consolidated tangible net worth
requirement with a maximum total debt to capitalization requirement of 40%.
On June 28, 2006, the Company amended its $50.0 million bank credit
facility with Harris, N.A., increasing the credit facility to $100.0
million and extending the expiration date from October 22, 2007 to May 31,
2008. The amendment also provides for the maximum facility amount to be
reduced from $100.0 million to $75.0 million on March 31, 2007 and from
$75.0 million to $50.0 million on June 30, 2007. The amendment also
replaced the minimum consolidated tangible net worth requirement with a
maximum ratio of total funded debt to total capitalization requirement of
0.40 to 1.00.
(3) Commitments and Contingencies
As of June 30, 2006, the Company has commitments for net capital
expenditures of approximately $122.9 million.
7
(4) 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
---------------------- ----------------------
2006 2005 2006 2005
---------------------- ----------------------
Net income $ 28,021 $ 25,295 $ 50,050 $ 45,216
====================== ======================
Weighted-average common
shares outstanding 78,236 79,415 78,837 79,383
Common stock equivalents 1,453 1,277 1,487 1,371
---------------------- ----------------------
Shares used in computing
diluted earnings per share 79,689 80,692 80,324 80,754
====================== ======================
Basic earnings per share $ .36 $ .32 $ .63 $ .57
====================== ======================
Diluted earnings per
share $ .35 $ .31 $ .62 $ .56
====================== ======================
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
--------------------------- ---------------------------
2006 2005 2006 2005
--------------------------- ---------------------------
Number of shares under
option 24,500 39,500 5,000 -
Range of option purchase
prices $19.84-$20.36 $19.26-$19.84 $20.36 -
(5) Stock Based Compensation
The Company's Stock Option Plan (the "Stock Option Plan") is a
nonqualified plan that provides for the grant of options to management
employees. Options are granted at prices equal to the market value of the
Company's common stock using the common stock's closing price on the date
prior to the date the option is granted.
Options granted become exercisable in installments from six 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 optioned under the
Stock Option Plan is 20,000,000 shares. The maximum aggregate number of
options that may be granted to any one person under the Stock Option Plan
is 2,562,500 options. At June 30, 2006, 8,886,133 shares were available
for granting additional options.
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
8
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 for the three-month period and six-month period ended June 30, 2006
was $0.6 million and $1.3 million, respectively, and is included in
salaries, wages and benefits within the consolidated statements of income.
There was no cumulative effect of initially adopting SFAS No. 123R.
The Company granted 5,000 and 20,000 stock options during the three-
month periods ended June 30, 2006 and 2005 and 5,000 and 39,500 options
during the six-month periods ended June 30, 2006 and 2005. The fair value
of stock options granted was estimated using a Black-Scholes valuation
model with the following weighted-average assumptions:
Six Months Ended
June 30
-------------------------
2006 2005
-------------------------
Risk-free interest rate 4.7% 4.0%
Expected dividend yield 0.88% 0.78%
Expected volatility 36% 37%
Expected term (in years) 4.9 4.5
The risk-free interest rate assumptions were based on average 5-year
and 10-year U.S. Treasury note yields. The expected volatility was based
on historical daily price changes of the Company's stock since June 2001
for the options granted in 2006 and on historical monthly price changes of
the Company's stock since January 1990 for the options granted in 2005.
The expected term was the average number of years that the Company
estimated these options will be outstanding. The Company considered groups
of employees that have similar historical exercise behavior separately for
valuation purposes.
The following table summarizes Stock Option Plan activity for the six
months ended June 30, 2006:
Weighted
Average
Number Weighted Remaining Aggregate
of Average Contractual Intrinsic
Options Exercise Term Value
(in 000's) Price ($) (Years) (in 000's)
----------------------------------------------------
Outstanding at beginning of period 5,029 $ 10.83
Options granted 5 $ 20.36
Options exercised (391) $ 7.97
Options forfeited (44) $ 17.69
Options expired (1) $ 7.35
------------
Outstanding at end of period 4,598 $ 11.02 5.38 $ 42,520
============
Exercisable at end of period 2,826 $ 9.29 4.47 $ 31,035
============
The weighted-average grant date fair value of stock options granted
during the six months ended June 30, 2006 and 2005 was $7.37 and $6.74 per
share, respectively. The total intrinsic value of share options exercised
during the six months ended June 30, 2006 and 2005 was $5.1 million and
$3.1 million, respectively. As of June 30, 2006, the total unrecognized
compensation cost related to nonvested stock option awards was
approximately $3.5 million and is expected to be recognized over a weighted
average period of 1.4 years.
In periods prior to January 1, 2006, the Company applied the intrinsic
value based method of Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in
9
accounting for its Stock Option Plan. No stock-based employee compensation
cost was reflected in net income, as all options granted under the plan had
an exercise price equal to the market value of the underlying common stock
on the date of grant. The Company's pro forma net income and earnings per
share (in thousands, except per share amounts) would have been as indicated
below had the estimated fair value of all option grants on their grant date
been charged to salaries, wages and benefits expense in accordance with
SFAS No. 123, Accounting for Stock-Based Compensation.
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
2005 2005
---------------------- ----------------------
Net income, as reported $ 25,295 $ 45,216
Less: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related
tax effects 457 905
--------- ---------
Net income, pro forma $ 24,838 $ 44,311
========= =========
Earnings per share:
Basic - as reported $ .32 $ .57
========= =========
Basic - pro forma $ .31 $ .56
========= =========
Diluted - as reported $ .31 $ .56
========= =========
Diluted - pro forma $ .31 $ .55
========= =========
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 2006.
(6) 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 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 Dedicated Services fleet provides truckload
services required by a specific company, plant, or distribution center.
The Flatbed and Temperature-Controlled fleets provide truckload services
for products with specialized trailers. The Expedited fleet provides time-
sensitive truckload services utilizing driver teams. Revenues for the
Truckload Transportation Services segment include non-trucking revenues of
$2.8 million and $3.5 million for the three-month periods and $5.6 million
and $7.0 million for the six-month periods ended June 30, 2006 and 2005,
respectively, representing the portion of shipments delivered to or from
Mexico where the Company utilizes a third-party capacity provider and
revenues generated in a few dedicated accounts where the services of third-
party capacity providers are used to meet customer capacity requirements.
The VAS segment, which generates the majority of the Company's non-trucking
revenues, provides truck brokerage, intermodal, and freight transportation
management (single-source logistics), as well as a newly expanded
international product line. The Company recently formed Werner Global
10
Logistics U.S., LLC, a separate company that operates under the VAS
segment. After several months of researching and developing the Company's
business plans, the Company is announcing its entrance into the Asian
transportation market. Expectations for the product offering in China will
include site selection analysis, vendor and purchase order management, full
container load consolidation and warehousing, as well as door-to-door
freight forwarding and customs brokerage. These services are expected to
be achieved through a combination of strategic alliances with best in class
providers throughout the Trans-Pacific supply chain and company-owned
assets.
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.
The following tables summarize the Company's segment information (in
thousands of dollars):
Revenues
--------
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
2006 2005 2006 2005
---------------------- ----------------------
Truckload Transportation Services $ 456,920 $ 427,136 $ 889,917 $ 829,499
Value Added Services 68,807 55,555 124,978 105,715
Other 2,418 1,919 4,280 3,818
Corporate 744 1,179 1,636 2,019
---------------------- ----------------------
Total $ 528,889 $ 485,789 $1,020,811 $ 941,051
====================== ======================
Operating Income
----------------
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
2006 2005 2006 2005
---------------------- ----------------------
Truckload Transportation Services $ 44,043 $ 39,803 $ 79,126 $ 70,987
Value Added Services 2,365 1,916 3,876 3,909
Other 167 815 630 1,671
Corporate (224) (406) (459) (1,602)
---------------------- ----------------------
Total $ 46,351 $ 42,128 $ 83,173 $ 74,965
====================== ======================
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
11
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, 2005. 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
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 services, 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 for the portion of shipments delivered to
or from Mexico where it utilizes a third-party capacity provider, and for a
few of its dedicated accounts where the services of third-party capacity
providers are used to meet customer capacity requirements. 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 86% of
total operating revenues in second quarter 2006, and non-trucking and other
operating revenues accounted for 14%.
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 revenue 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
12
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 2006 to second quarter 2005, several
industry-wide issues, including high 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 October 2002 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")
will become effective for all newly manufactured trucks. The Company
intends to continue to keep its fleet as new as possible in advance of the
new standards. 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. The Company has
accelerated its normal three-year replacement cycle for company-owned
tractors. These purchases are funded by net cash from operations and when
necessary, by borrowings from the Company's credit facilities.
Non-trucking services provided by the Company, primarily through its
VAS division, include truck brokerage, intermodal, and freight
transportation management (single-source logistics), as well as a newly
expanded international product line. Unlike the Company's trucking
operations, the non-trucking operations are less asset-intensive and are
instead dependent upon information systems, qualified employees, and the
services of other 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 ratio. The operating margin for the non-trucking business is
lower than those of the trucking operations, but the return on assets is
substantially higher.
13
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 %
---------------------- ----------------------
2006 2005 Change 2006 2005 Change
---------- ---------- -------- ---------- ---------- --------
Trucking revenues, net of
fuel surcharge (1) $375,897 $371,612 1.2% $744,153 $729,478 2.0%
Trucking fuel surcharge
revenues (1) 78,213 51,967 50.5% 140,101 92,903 50.8%
Non-trucking revenues,
including VAS (1) 71,569 59,065 21.2% 130,549 112,742 15.8%
Other operating revenues (1) 3,210 3,145 2.1% 6,008 5,928 1.3%
---------- ---------- ---------- ----------
Operating revenues (1) $528,889 $485,789 8.9% $1,020,811 $941,051 8.5%
========== ========== ========== ==========
Operating ratio
(consolidated) (2) 91.2% 91.3% -0.1% 91.9% 92.0% -0.1%
Average monthly miles per
tractor 9,938 10,199 -2.6% 9,886 10,066 -1.8%
Average revenues per total
mile (3) $1.463 $1.389 5.3% $1.456 $1.391 4.7%
Average revenues per loaded
mile (3) $1.679 $1.578 6.4% $1.671 $1.579 5.8%
Average percentage of empty
miles (4) 12.84% 11.99% 7.1% 12.87% 11.88% 8.3%
Average trip length in
miles (loaded) 584 566 3.2% 585 569 2.8%
Total miles (loaded and
empty) (1) 256,852 267,547 -4.0% 511,169 524,393 -2.5%
Average tractors in service 8,615 8,744 -1.5% 8,618 8,682 -0.7%
Average revenues per
tractor per week (3) $3,356 $3,269 2.7% $3,321 $3,231 2.8%
Total tractors (at quarter
end)
Company 7,905 7,820 7,905 7,820
Owner-operator 805 930 805 930
---------- ---------- ---------- ----------
Total tractors 8,710 8,750 8,710 8,750
Total trailers (truck and
intermodal, at quarter end) 25,180 24,090 25,180 24,090
Managed containers (at
quarter end) 400 - 400 -
(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.
(4) Miles without trailer cargo. Dedicated fleets have a higher empty mile
percentage, which is priced in the dedicated business.
14
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 $2.8 million and $3.5 million for
the three-month periods and $5.6 million and $7.0 million for the six-month
periods ended June 30, 2006 and 2005, respectively, as described on page
10.
Three Months Ended Six Months Ended
June 30 June 30
------------------------------ ------------------------------
Truckload Transportation Services 2006 2005 2006 2005
-------------- -------------- -------------- --------------
(amounts in 000's) $ % $ % $ % $ %
-------------------- -------------- -------------- -------------- --------------
Revenues $456,920 100.0 $427,136 100.0 $889,917 100.0 $829,499 100.0
Operating expenses 412,877 90.4 387,333 90.7 810,791 91.1 758,512 91.4
-------- -------- -------- --------
Operating income $ 44,043 9.6 $ 39,803 9.3 $ 79,126 8.9 $ 70,987 8.6
======== ======== ======== ========
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. Eliminating this sometimes 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 using total operating
expenses, net of fuel surcharge revenues, as a percentage of revenues,
excluding fuel surcharges.
Three Months Ended Six Months Ended
June 30 June 30
------------------------------ ------------------------------
Truckload Transportation Services 2006 2005 2006 2005
-------------- -------------- -------------- --------------
(amounts in 000's) $ % $ % $ % $ %
-------------------- -------------- -------------- -------------- --------------
Revenues $456,920 $427,136 $889,917 $829,499
Less: trucking fuel surcharge
revenues 78,213 51,967 140,101 92,903
-------- -------- -------- --------
Revenues, net of fuel surcharges 378,707 100.0 375,169 100.0 749,816 100.0 736,596 100.0
-------- -------- -------- --------
Operating expenses 412,877 387,333 810,791 758,512
Less: trucking fuel surcharge
revenues 78,213 51,967 140,101 92,903
-------- -------- -------- --------
Operating expenses, net of
fuel surcharges 334,664 88.4 335,366 89.4 670,690 89.4 665,609 90.4
-------- -------- -------- --------
Operating income $ 44,043 11.6 $ 39,803 10.6 $ 79,126 10.6 $ 70,987 9.6
======== ======== ======== ========
The following table sets forth the non-trucking revenues, 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 (amounts 2006 2005 2006 2005
----------------------------- -------------- -------------- -------------- --------------
in 000's) $ % $ % $ % $ %
----------- -------------- -------------- -------------- --------------
Revenues $ 68,807 100.0 $ 55,555 100.0 $124,978 100.0 $105,715 100.0
Rent and purchased transportation
expense 62,204 90.4 50,405 90.7 113,095 90.5 95,571 90.4
-------- -------- -------- --------
Gross margin 6,603 9.6 5,150 9.3 11,883 9.5 10,144 9.6
Other operating expenses 4,238 6.2 3,234 5.9 8,007 6.4 6,235 5.9
-------- -------- -------- --------
Operating income $ 2,365 3.4 $ 1,916 3.4 $ 3,876 3.1 $ 3,909 3.7
======== ======== ======== ========
15
Three Months Ended June 30, 2006 Compared to Three Months Ended June 30,
---------------------------------------------------------------------------
2005
----
Operating Revenues
Operating revenues increased 8.9% for the three months ended June 30,
2006, compared to the same period of the prior year. Excluding fuel
surcharge revenues, trucking revenues increased 1.2% due primarily to a
5.3% increase in average revenues per total mile, offset by a 1.5% decrease
in the average number of tractors in service, and a 2.6% decrease in
average monthly miles per tractor. Average revenues per total mile,
excluding fuel surcharges, increased due to customer rate increases. The
average percentage of empty miles increased to 12.8% in second quarter 2006
from 12.0% in second quarter 2005. A significant portion of the decrease
in average miles per truck is due to the ongoing shift of trucks from the
medium-to-long-haul van division (which has higher average miles per truck)
to the dedicated division (which has lower average miles per truck).
Dedicated fleet business also tends to have a higher empty mile percentage,
lower miles per trip, and a higher rate per loaded mile. The revision to
the hours of service regulations that went into effect in October 2005 also
caused lower miles per truck for some shorter haul or multiple stop
shipments.
A substantial portion of the Company's freight base is under contract
with customers and provides for annual pricing increases. A significant
portion of the Company's non-dedicated fleet contracts renew and will be
renegotiated during the second half of 2006. There continue to be several
inflationary cost pressures that are impacting truckload carriers. They
include: driver pay and other driver-related costs due to a difficult
driver market, rising diesel fuel prices, conversion from low sulfur diesel
fuel to ultra-low sulfur diesel fuel ("ULSD"), new engine emission
requirements for newly manufactured trucks beginning in January 2007 that
are increasing the truck purchase costs and lowering the miles per gallon
("mpg"), and rising liability and cargo insurance costs. To recoup these
cost increases, management will be seeking freight rate increases during
the upcoming contract renewal period.
As second quarter 2006 progressed, freight demand improved on a year-
over-year basis. April 2006 demand was comparable to April 2005.
Beginning the second week of May 2006, freight demand was better than the
same period of 2005. This favorable demand trend continued throughout the
last seven weeks of second quarter 2006. July 2006 freight demand has been
about the same as it was in July 2005. The Company measures freight demand
for all periods by comparing the percentage of available loads to available
trucks for its non-dedicated truck fleets.
Fuel surcharge revenues, which represent collections from customers
for the higher cost of fuel, increased to $78.2 million in second quarter
2006 from $52.0 million in second quarter 2005 as a result of higher fuel
costs. 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. These programs have historically enabled the Company
to recover a significant portion of the fuel price increases. However, the
five-cent per gallon brackets only recoup approximately 80% to 85% of the
actual increase in the cost of fuel, due to empty miles not billable to
customers, out-of-route miles, truck idle time, and the volatility in the
fuel prices as prices change rapidly in short periods of time.
VAS revenues increased 23.9% to $68.8 million for the three months
ended June 30, 2006 from $55.6 million for the three months ended June 30,
2005 due to growth in brokerage and intermodal while gross margin dollars
increased 28.2% for the same period. VAS revenues include truck brokerage,
freight transportation management (single-source logistics), intermodal,
and multimodal, as well as a newly expanded international product line (see
16
paragraph below). VAS has a goal to grow revenues and operating income
over 20% during third and fourth quarter 2006 compared to third and fourth
quarter 2005. The VAS brokerage network consists of nine offices and 43
freight brokers. The brokerage product line has expanded from dry van
freight into the flatbed and temperature-controlled segments of the
business, which is accelerating the growth rate. The Company continues to
focus on growing the volume of business in the VAS segment, which provides
customers with additional sources of capacity.
The Company recently formed Werner Global Logistics U.S., LLC, a
separate company that operates under the VAS segment. After several months
of researching and developing the Company's business plans, the Company is
announcing its entrance into the Asian transportation market. Werner
Global Logistics U.S., LLC recently obtained its U.S. Ocean Transport
Intermediary (NVOCC and Ocean Freight Forwarding) license and established a
local presence with the opening of its Shanghai, China office.
Expectations for the product offering in China will include site selection
analysis, vendor and purchase order management, full container load
consolidation and warehousing, as well as door-to-door freight forwarding
and customs brokerage. These services are expected to be achieved through a
combination of strategic alliances with best in class providers throughout
the Trans-Pacific supply chain and company-owned assets.
Operating Expenses
Operating expenses, expressed as a percentage of operating revenues,
were 91.2% for the three months ended June 30, 2006, compared to 91.3% for
the three months ended June 30, 2005. As explained above, the significant
increase in fuel expense and related fuel surcharge revenues had the effect
of increasing the operating ratio. Because the Company's VAS business
operates with a lower operating margin and a higher return on assets than
the trucking business, the growth in VAS business in second quarter 2006
compared to second quarter 2005 also increased the Company's overall
operating ratio. The tables on page 15 show the operating ratios and
operating margins for the 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 to
adjust for the impact on the percentage of total operating revenues caused
by changes in fuel surcharge revenues, which provides a more consistent
basis for comparing the results of operations from period to period.
Three Months Ended Increase Six Months Ended Increase
June 30 (Decrease) June 30 (Decrease)
------------------ ----------------
2006 2005 per Mile 2006 2005 per Mile
---------------------------------------------------------------
Salaries, wages and benefits $0.567 $0.517 $.050 $0.565 $0.525 $.040
Fuel 0.398 0.291 .107 0.372 0.277 .095
Supplies and maintenance 0.144 0.144 .000 0.144 0.145 (.001)
Taxes and licenses 0.108 0.110 (.002) 0.112 0.111 .001
Insurance and claims 0.084 0.081 .003 0.080 0.085 (.005)
Depreciation 0.155 0.147 .008 0.156 0.148 .008
Rent and purchased transportation 0.152 0.149 .003 0.148 0.147 .001
Communications and utilities 0.018 0.019 (.001) 0.019 0.020 (.001)
Other (0.019) (0.010) (.009) (0.010) (0.012) .002
Owner-operator costs are included in rent and purchased transportation
expense. Owner-operator miles as a percentage of total miles were 11.6% in
second quarter 2006 compared to 12.8% in second quarter 2005. Owner-
operators are independent contractors who supply their own tractor and
driver and are responsible for their operating expenses including fuel,
17
supplies and maintenance, and fuel taxes. This decrease in owner-operator
miles as a percentage of total miles shifted costs from the rent and
purchased transportation category to other expense categories. The Company
estimates that rent and purchased transportation expense for the truckload
segment was lower by approximately 1.4 cents per total mile due to this
decrease, and other expense categories had offsetting increases on a total-
mile basis, as follows: salaries, wages and benefits (0.5 cents), fuel (0.5
cents), supplies and maintenance (0.1 cent), taxes and licenses (0.1 cent),
and depreciation (0.2 cents).
Salaries, wages and benefits for non-drivers increased in second
quarter 2006 compared to second quarter 2005 due to a larger number of
personnel to support the growth in VAS. The increase in salaries, wages and
benefits of 5.0 cents per mile for the truckload segment is primarily due
to higher driver pay per mile resulting from an increase in the percentage
of company truck miles versus owner-operator miles (see above), driver pay
increases for some dedicated fleets, and increases in the Company's group
health insurance costs and workers' compensation expense. The Company
renewed its workers' compensation insurance coverage, and for the policy
year beginning April 1, 2006, the Company continues to maintain a self-
insurance retention of $1.0 million per claim and is responsible for an
annual aggregate amount of $1.0 million for claims above $1.0 million and
below $2.0 million. The Company's premium rates for this coverage did not
change from the prior policy year. Non-driver salaries, wages and benefits
increased due to an increase in the number of equipment maintenance
personnel and approximately $0.6 million of stock compensation expense
related to the Company's adoption of Statement of Financial Accounting
Standards ("SFAS") No. 123R on January 1, 2006. See footnote 5 to the
Notes to Consolidated Financial Statements for more explanation of SFAS No.
123R.
The driver market continues to be extremely challenging, as it becomes
even more difficult during the spring and summer months when the truckload
industry competes with construction, agricultural, and other outdoor jobs
that are more plentiful during this seasonal period. Average tractors in
service declined by 129 trucks from second quarter 2005 to second quarter
2006 due principally to the driver market; however, the Company made
significant progress improving its truck count during the latter part of
second quarter 2006 by reducing driver turnover. Decreasing driver
turnover continues to be a primary focus of the Company's non-driver
workforce. 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 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 increased 10.7 cents per mile for the truckload segment due to
higher average diesel fuel prices. Fuel costs averaged 57 cents a gallon
higher in second quarter 2006 compared to second quarter 2005. In the
Company's March 31, 2006 Form 10-Q filed with the Securities and Exchange
Commission on May 1, 2006, the Company estimated the negative impact of
higher fuel costs on second quarter 2006 earnings compared to second
quarter 2005 earnings to be four cents to six cents per share, assuming
diesel fuel prices for the last nine weeks of second quarter 2006 remained
at the average price for the first four weeks of second quarter 2006. The
Company's average mpg was better than expected, and the Company's fuel
surcharge collections were higher than estimated, resulting in only a two-
cent per share negative impact on second quarter 2006 earnings compared to
second quarter 2005 earnings. The Company includes the following items in
the calculation of the estimated impact of higher fuel costs on earnings
for both periods: fuel pricing, fuel reimbursement to owner-operator
drivers, lower mpg due to the increasing percentage of company-owned trucks
with post-October 2002 engines ("EPA phase one"), and anticipated fuel
surcharge reimbursement.
Truckload carriers will be required to transition from low sulfur
diesel fuel to ULSD, as refiners gradually meet the October 15, 2006
transition date mandated by the EPA. Preliminary estimates are that ULSD
will result in a 1% to 3% degradation of fuel mpg for all trucks, due to
the lower energy content (btu) of ULSD. The EPA estimates the higher cost
of ULSD to the end user should not exceed eight cents per gallon once the
18
fuel becomes widely available. However, during the transition period,
supply and demand factors could cause the pricing of ULSD to be more
volatile. To the extent that diesel fuel prices increase more
significantly during the transition to ULSD, the Company's fuel surcharge
programs with its customers are designed to recover most of the potential
diesel fuel price increase.
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, 2006, the Company had no derivative financial instruments to
reduce its exposure to fuel price fluctuations.
Insurance and claims for the truckload segment increased 0.3 cents
on a per-mile basis due primarily to negative development on existing
liability insurance claims. For the policy year that began August 1, 2005,
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. The Company's
liability insurance premiums for the policy year beginning August 1, 2005
were approximately the same as the previous policy year. Effective August
1, 2006, the Company's self-insured retention levels and aggregate amounts
of liability for personal injury and property damage claims will stay the
same. The Company expects its liability insurance premiums for the policy
year beginning August 1, 2006 to be slightly higher than the previous
policy year.
Depreciation expense for the truckload segment increased 0.8 cents on
a per-mile basis in second quarter 2006 due primarily to higher costs of
new tractors with the post-October 2002 engines, the impact of lower
average miles per truck, and a higher percentage of company-owned trucks
versus owner-operators. As of June 30, 2006, nearly 100% of the company-
owned truck fleet consisted of trucks with the post-October 2002 engines
compared to 68% at June 30, 2005.
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 15, 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
generated by the segment. As a percentage of VAS revenues, VAS rent and
purchased transportation expense decreased to 90.4% in second quarter 2006
compared to 90.7% in second quarter 2005. During fourth quarter 2005, VAS
entered into an agreement with Union Pacific ("UP") to manage UP-owned
containers for intermodal freight shipments. During second quarter 2006,
VAS Intermodal was managing a fleet of 400 of these assigned containers.
VAS Intermodal has the option to, and may, increase the number of UP
assigned containers in 2006 as it further develops its intermodal freight
program.
Rent and purchased transportation for the truckload segment increased
0.3 cents per total mile in second quarter 2006. Higher fuel prices
necessitated higher reimbursements to owner-operators for fuel ($9.0
million for second quarter 2006 compared to $6.2 million for second quarter
2005), which resulted in a 1.1 cent per total mile increase. This increase
in owner-operator fuel reimbursement was offset by the decrease in the
number of owner-operator trucks and the decrease in corresponding owner-
operator 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; thus, the increase in owner-operator
fuel reimbursements is included with Company fuel expenses in calculating
the per-share impact of higher fuel prices on earnings.
19
Over the past year, the Company has experienced difficulty attracting
and retaining owner-operator drivers due to the increasingly challenging
operating conditions including inflationary cost increases that are the
responsibility of the owner-operators. The number of owner-operators
decreased to 805 as of June 30, 2006 from a total of 930 as of June 30,
2005 (a 13% decrease). The Company increased the van and regional
over-the-road owner-operators' settlement rate by two cents per mile
effective May 1, 2006. This increase applies to 84% of the Company's
owner-operators and increased costs by $0.3 million in second quarter 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 0.9 cents
per mile in second quarter 2006. Gains on sales of assets, primarily
trucks and trailers, increased to $7.1 million in second quarter 2006
compared to $3.6 million in second quarter 2005. In second quarter 2006,
the Company spent less on repairs per truck sold than in second quarter
2005. The Company continued to sell its oldest van trailers that have
already reached the end of their depreciable life. These trailer sales
contributed to the improved equipment gains in second quarter 2006. The
Company expects to continue to sell its oldest van trailers during the
remainder of 2006 as it replaces them with new van trailers. Rising fuel
prices in second quarter 2006 affected used truck buyers and reduced the
number of trucks sold in second quarter 2006 compared to first quarter
2006, when gains on sales were $8.8 million. In addition, the pace of
truck sales slowed during the latter part of second quarter 2006 and
through July 2006. If fuel prices remain high going forward, the Company
expects this could significantly limit truck sales and, to a lesser extent,
trailer sales. The number of trucks planned for sale during 2007 is
expected to be lower than the number planned to be sold in 2006, and the
Company intends to continue to replace its oldest van trailers into 2007.
The Company's effective income tax rate (income taxes expressed as a
percentage of income before income taxes) was 41.0% for second quarter 2006
and 2005.
Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
-------------------------------------------------------------------------
Operating Revenues
Operating revenues increased by 8.5% for the six months ended June 30,
2006, compared to the same period of the previous year. Excluding fuel
surcharge revenues, trucking revenues increased 2.0%, due primarily to a
4.7% increase in average revenues per total mile, offset by a 1.8% decrease
in average monthly miles per tractor and a 0.7% decrease in the average
number of tractors in service. Average revenues per total mile, excluding
fuel surcharges, increased due primarily to customer rate increases secured
during late 2005 and early 2006. VAS revenues increased by $19.3 million
(18.2%) due to ongoing growth in the brokerage and intermodal groups, and
fuel surcharge revenues increased by $47.2 million (50.8%) due to higher
average diesel fuel prices for the first six months of 2006 as compared to
the same period of 2005.
Operating Expenses
Operating expenses, expressed as a percentage of operating revenues,
were 91.9% for the six months ended June 30, 2006, compared to 92.0% for
the same period of the previous year. As explained in the previous pages,
the significant increase in fuel expense and related fuel surcharge
revenues had the effect of increasing the operating ratio. Because the
Company's VAS business operates with a lower operating margin and a higher
return on assets than the trucking business, the growth in VAS business in
the first six months of 2006 compared to the first six months of 2005 also
increased the Company's overall operating ratio. The tables on page 15
20
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 decreased to 11.7%
for the six months ended June 30, 2006, from 12.8% for the six months ended
June 30, 2005. This decrease in owner-operator miles as a percentage of
total miles shifted costs from the rent and purchased transportation
category to other expense categories. The Company estimates that rent and
purchased transportation expense for the truckload segment was lower by
approximately 1.3 cents per total mile due to this decrease, and other
expense categories had offsetting increases on a total-mile basis, as
follows: salaries, wages and benefits (0.5 cents), fuel (0.4 cents),
depreciation (0.2 cents), supplies and maintenance (0.1 cent), and taxes
and licenses (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 4.0 cents on a per-mile basis due to higher driver pay
per mile resulting from the increase in the percentage of company truck
miles versus owner-operator miles (see above) and driver pay increases in
some dedicated fleets, as well as higher workers' compensation and group
health insurance costs. Non-driver salaries, wages and benefits for the
truckload segment also increased due to an increase in the number of
maintenance employees, approximately $1.3 million of stock compensation
expense, and the effect of the lower average miles per tractor. Fuel
increased 9.5 cents per total mile due primarily to higher fuel prices, and
to a lesser extent, the increase in the percentage of company truck miles
versus owner-operator miles (see above). Average fuel prices for the first
six months of 2006 were 50 cents per gallon, or 32%, higher than the first
six months of 2005. Insurance decreased 0.5 cents on a per-mile basis due
to better claims experience. Depreciation increased 0.8 cents per total
mile due to higher costs of new tractors with the post-October 2002 engines
and the decrease in the number of owner-operator tractors and corresponding
increase in company-owned tractors. Rent and purchased transportation for
the truckload segment increased only 0.1 cent per total mile as higher fuel
reimbursements to owner-operators due to higher fuel prices were offset by
the decrease in the number of owner-operator tractors and the corresponding
decrease in owner-operator miles. Rent and purchased transportation
expense for the VAS segment increased in response to higher VAS revenues.
Other operating expenses increased 0.2 cents per total mile as higher gains
on sales of assets 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 customers, APX Logistics, Inc. The Company's
effective income tax rate was 41.1% and 41.0% for the six months ended June
30, 2006 and 2005, respectively.
Liquidity and Capital Resources:
During the six months ended June 30, 2006, the Company generated cash
flow from operations of $147.1 million, a 52.8% increase ($50.8 million) in
cash flow compared to the same six-month period a year ago. The increase
in cash flow from operations is due to lower income tax payments during the
first six months of 2006 and better collections of accounts receivable.
The increase in the allowance for doubtful accounts from December 31, 2005
to June 30, 2006 includes $7.2 million related to the APX bankruptcy,
resulting in a decrease in net accounts receivable. Deferred taxes
decreased by $37.7 million during the six months ended June 30, 2005
related to tax law changes resulting in the reversal of certain tax
strategies implemented in 2001 and lower income tax depreciation in 2005
due to the bonus tax depreciation provision that expired on December 31,
2004. The Company made federal income tax payments of $22.5 million in
second quarter 2005 related to the reversal of the tax strategies. The cash
flow from operations enabled the Company to make net capital expenditures,
repay debt, and repurchase common stock as discussed below.
Net cash used in investing activities for the six-month period ended
June 30, 2006 decreased by $111.3 million, from $150.6 million for the six-
month period ended June 30, 2005 to $39.3 million for the six-month period
ended June 30, 2006. Net property additions, primarily revenue equipment,
were $41.8 million for the six-month period ended June 30, 2006 versus
$152.7 million during the same period of 2005. The large decrease was due
21
primarily to the Company purchasing more tractors in the first half of 2005
to reduce the average age of its truck fleet and purchasing fewer tractors
in the first six months of 2006. The average age of the Company's truck
fleet is 1.32 years at June 30, 2006 compared to 1.44 years as of June 30,
2005. The Company intends to continue to keep its truck fleet as new as
possible during 2006, in advance of phase two of the federally mandated
engine emission standards that will become effective for newly manufactured
trucks beginning in January 2007. During the second half of 2006, the
Company will be taking delivery of a substantial number of new trucks which
will increase capital expenditures during this period. As a result, 2007
capital expenditures are expected to be lower than normal.
As of June 30, 2006, the Company has committed to property and
equipment purchases, net of trades, of approximately $122.9 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 $100.6 million and $3.9 million during
the six months ended June 30, 2006 and 2005, respectively. During first
quarter 2006, the Company repaid outstanding debt totaling $60.0 million
that was originally borrowed in the fourth quarter of 2005 to fund a
portion of the Company's net capital expenditures. The Company paid
dividends of $6.3 million in the six-month period ended June 30, 2006 and
$5.6 million in the six-month period ended June 30, 2005. The Company
increased its quarterly dividend rate by $.005 per share beginning with the
dividend paid in July 2005 and by an additional $.005 per share beginning
with the dividend paid in July 2006. Financing activities also included
common stock repurchases of $39.5 million and $0.3 million in the six-month
periods ended June 30, 2006 and 2005, 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. On April 14, 2006, the Company's Board of Directors
approved an increase to its authorization for common stock repurchases of
6,000,000 shares. The previous authorization announced on November 23,
2003, authorized the Company to repurchase 3,965,838 shares. As of June
30, 2006, the Company had purchased 2,257,038 shares pursuant to this
authorization and had 7,708,800 shares remaining available for repurchase.
Management believes the Company's financial position at June 30, 2006
is strong. As of June 30, 2006, the Company had $42.8 million of cash and
cash equivalents, no debt, and $871.9 million of stockholders' equity. In
June 2006, the Company amended both of its existing credit facilities to
increase the available credit by a total of $75.0 million, bringing its
available credit pursuant to credit facilities to $200.0 million as of June
30, 2006, on which no borrowings were outstanding. The credit available
under these facilities is reduced by the $37.2 million in letters of credit
the Company maintains. These letters of credit are primarily required as
security for insurance policies. As of June 30, 2006, the Company had no
non-cancelable revenue equipment operating leases, and, therefore had no
off-balance sheet revenue equipment debt. Based on the Company's strong
financial position, management foresees no significant barriers to
obtaining sufficient financing, if necessary.
Off-Balance Sheet Arrangements:
The Company does not have arrangements that meet the definition of an
off-balance sheet arrangement.
22
Regulations:
Effective October 1, 2005, all truckload carriers became subject to
revised hours of service ("HOS") regulations. The only significant change
from the previous regulations is that a driver 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
and had a negative impact on mileage productivity. The greatest impact was
for those customers with multiple-stop shipments or those shipments with
pickup or delivery delays.
In June 1998, the Company became the first, and only, trucking company
in the United States to receive authorization from the U.S. Department of
Transportation ("DOT"), under a pilot program, 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.
On September 21, 2004, the Federal Motor Carrier Safety Administration
("FMCSA") approved the Company's exemption for its paperless log system
that moves this exemption from the FMCSA-approved pilot program to
permanent status. The exemption is to be renewed every two years. The
Company has applied for its two-year renewal of the paperless log program.
Beginning in January 2007, a new set of more stringent engine
emissions standards mandated by the EPA will become effective for all newly
manufactured trucks. The Company has already reduced the average age of
its truck fleet to 1.32 years in advance of the new standards. 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. Truckload
carriers will be required to transition from low sulfur diesel fuel to
ULSD, as refiners gradually meet the October 15, 2006 transition date
mandated by the EPA. Preliminary estimates are that ULSD will result in a
1% to 3% degradation of fuel mpg for all trucks, due to the lower energy
content (btu) of ULSD. A 2% mpg degradation would have a cost impact of
1.1 cents per loaded mile at current fuel price levels.
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
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
23
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 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 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 February 2006, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments-An
Amendment of FASB Statements No. 133 and 140. This Statement amends FASB
Statements No. 133, Accounting for Derivative Instruments and Hedging
Activities, and No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities and eliminates the
exemption from applying Statement 133 to interests in securitized financial
assets so that similar items are accounted for in the same way. The
24
provisions of SFAS No. 155 are effective for all financial instruments
acquired or issued after the beginning of the first fiscal year that begins
after September 15, 2006. As of June 30, 2006, management believes that
SFAS No. 155 will have no effect on the financial position, results of
operations, and cash flows of the Company.
In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing
of Financial Assets-An Amendment of FASB Statement No. 140. This Statement
amends FASB Statement No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities and requires that all
separately recognized servicing assets and servicing liabilities be
initially measured at fair value, if practicable. The provisions of SFAS
No. 156 are effective as of the beginning of the first fiscal year that
begins after September 15, 2006. As of June 30, 2006, management believes
that SFAS No. 156 will have no effect on the financial position, results of
operations, and cash flows of the Company.
In July 2006, the FASB issued FASB Interpretation No. 48 ("FIN 48"),
Accounting for Uncertainty in Income Taxes-an Interpretation of FASB
Statement No. 109. This interpretation prescribes a recognition threshold
and measurement process for recording in the financial statements uncertain
tax positions taken or expected to be taken in a tax return. Additionally,
this interpretation provides guidance on the derecognition, classification,
accounting in interim periods and disclosure requirements for uncertain tax
positions. The provisions of FIN 48 will be effective at the beginning of
the first fiscal year that begins after December 15, 2006. The Company
will be evaluating the effect, if any, the adoption of FIN 48 will have on
its financial statements.
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 majority 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, 2006, 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. Foreign currency
transaction gains and losses were not material to the Company's results of
operations for second quarter 2006 and prior periods. To date, almost all
foreign revenues are denominated in U.S. dollars, and the Company receives
payment for freight services performed in Mexico and Canada 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.
25
Interest Rate Risk
The Company had no debt outstanding at June 30, 2006. Interest rates
on the Company's unused credit facilities are based on the London Interbank
Offered Rate ("LIBOR"). Increases in interest rates could impact the
Company's annual interest expense on future borrowings.
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.
26
PART II
OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On November 24, 2003, the Company announced that its Board of
Directors approved an increase to its authorization for common stock
repurchases of 3,965,838 shares. On April 14, 2006, the Company's Board of
Directors approved an increase to the November 2003 authorization of
6,000,000 shares. As of June 30, 2006, the Company had purchased 2,257,038
shares pursuant to this authorization and had 7,708,800 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 until withdrawn by the Board of Directors.
The following table summarizes the Company's common stock repurchases
during the second quarter of 2006 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".
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, 2006 350,000 $19.8671 350,000 8,358,800
May 1-31, 2006 490,700 $19.5774 490,700 7,868,100
June 1-30, 2006 159,300 $19.4103 159,300 7,708,800
----------------- -----------------
Total 1,000,000 $19.6522 1,000,000 7,708,800
================= =================
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders of Werner Enterprises, Inc. was
held on May 9, 2006 for the purpose of electing three directors for three-
year terms. Proxies for the meeting were solicited pursuant to Regulation
14A of the Securities Exchange Act of 1934, and there was no solicitation
in opposition to management's nominees and all such nominees were elected.
Of the 79,021,537 shares entitled to vote, stockholders representing
70,664,766 shares (89.4%) were present in person or by proxy. The voting
tabulation was as follows:
Shares Voted Shares Voted
"FOR" "ABSTAIN"
-------------- --------------
Clarence L. Werner 68,536,180 2,128,586
Patrick J. Jung 66,954,492 3,710,274
Duane K. Sather 70,336,247 328,519
27
Item 6. Exhibits.
Index of Exhibits
Exhibit 3(i)(A) Revised and Amended Articles of Incorporation
(Incorporated by reference to Exhibit 3(i) to the Company's report
on Form 10-K for the year ended December 31, 2005)
Exhibit 3(i)(B) Articles of Amendment to Articles of Incorporation
(Incorporated by reference to Exhibit 3(i) to the Company's report
on Form 10-Q for the quarter ended May 31, 1994)
Exhibit 3(i)(C) Articles of Amendment to Articles of Incorporation
(Incorporated by reference to Exhibit 3(i) to the Company's report
on Form 10-K for the year ended December 31, 1998)
Exhibit 3(i)(D) Articles of Amendment to Articles of Incorporation
(Incorporated by reference to Exhibit 3(i)(D) to the Company's
report on Form 10-Q for the quarter ended June 30, 2005)
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, 2004)
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)
28
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, 2006 By: /s/ John J. Steele
---------------------- ---------------------------------------
John J. Steele
Executive Vice President, Treasurer and
Chief Financial Officer
Date: August 2, 2006 By: /s/ James L. Johnson
---------------------- ---------------------------------------
James L. Johnson
Senior Vice President, Controller and
Corporate Secretary
29