UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2007
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
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
incorporation or organization) Identification No.)
14507 FRONTIER ROAD 68145-0308
POST OFFICE BOX 45308 (Zip code)
OMAHA, NEBRASKA
(Address of principal executive offices)
Registrant's telephone number, including area code: (402) 895-6640
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common Stock, $.01 Par Value The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
--------------
NONE
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
YES X NO
--- ---
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act.
YES NO X
--- ---
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
---
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer (as defined in Rule 12b-2 of the Act).
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 Act). YES NO X
--- ---
The aggregate market value of the common equity held by non-
affiliates of the Registrant (assuming for these purposes that
all executive officers and Directors are "affiliates" of the
Registrant) as of June 29, 2007, the last business day of the
Registrant's most recently completed second fiscal quarter, was
approximately $912 million (based on the closing sale price of
the Registrant's Common Stock on that date as reported by
Nasdaq).
As of February 15, 2008, 70,630,511 shares of the registrant's
common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of Registrant for the Annual
Meeting of Stockholders to be held May 13, 2008, are incorporated
in Part III of this report.
TABLE OF CONTENTS
Page
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PART I
Item 1. Business 1
Item 1A. Risk Factors 8
Item 1B. Unresolved Staff Comments 11
Item 2. Properties 11
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Stockholders 13
PART II
Item 5. Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities 14
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk 31
Item 8. Financial Statements and Supplementary Data 33
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 51
Item 9A. Controls and Procedures 51
Item 9B. Other Information 53
PART III
Item 10. Directors, Executive Officers and Corporate
Governance 53
Item 11. Executive Compensation 54
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 54
Item 13. Certain Relationships and Related Transactions, and
Director Independence 54
Item 14. Principal Accounting Fees and Services 54
PART IV
Item 15. Exhibits and Financial Statement Schedules 54
PART I
ITEM 1. BUSINESS
General
Werner Enterprises, Inc. (the "Company") is a transportation
and logistics company engaged primarily in hauling truckload
shipments of general commodities in both interstate and
intrastate commerce. We also provide logistics services through
our Value Added Services ("VAS") division. We are one of the
five largest truckload carriers in the United States (based on
total operating revenues), and our headquarters are located in
Omaha, Nebraska, near the geographic center of our truckload
service area. We were founded in 1956 by Chairman Clarence L.
Werner, who started the business with one truck at the age of 19.
We were incorporated in the State of Nebraska on September 14,
1982. We completed our initial public offering in June 1986 with
a fleet of 632 trucks as of February 28, 1986. At the end of
2007, we had a fleet of 8,250 trucks, of which 7,470 were owned
by us and 780 were owned and operated by owner-operators
(independent contractors).
We have two reportable segments - Truckload Transportation
Services ("Truckload") and VAS. You can find financial
information regarding these segments and the geographic areas in
which we conduct business in the Notes to Consolidated Financial
Statements under Item 8 of this Annual Report on Form 10-K for
the year ended December 31, 2007 ("Form 10-K"). Our truckload
fleets operate throughout the 48 contiguous U.S. states pursuant
to operating authority, both common and contract, granted by the
United States Department of Transportation ("DOT") and pursuant
to intrastate authority granted by various U.S. states. We also
have authority to operate in several provinces of Canada and to
provide through-trailer service in and out of Mexico. The
principal types of freight we transport include retail store
merchandise, consumer products, manufactured products and grocery
products. Our focus is to transport consumer nondurable products
that ship more consistently throughout the year and whose volumes
are more stable during a slowdown in the economy.
Our VAS division is a non-asset-based transportation and
logistics provider. Our truck brokerage division has contracts
with over 8,500 carriers as of December 2007. VAS includes
truck brokerage, freight management (single-source logistics),
intermodal and international freight forwarding. In July 2006,
we formed Werner Global Logistics ("WGL"), an operating division
within the VAS segment consisting of several subsidiary
companies, including a Wholly Owned Foreign Entity ("WOFE")
headquartered in Shanghai, China. The WGL subsidiaries obtained
business licenses to operate as a U.S. Non-Vessel Operating
Common Carrier ("NVOCC"), U.S. Customs Broker, licensed Freight
Forwarder in China, licensed China NVOCC, a Transportation
Security Administration ("TSA") approved Indirect Air Carrier and
an International Air Transport Association ("IATA") Accredited
Cargo Agent.
Marketing and Operations
Our business philosophy is to provide superior on-time
service to our customers at a competitive cost. To accomplish
this, we operate premium modern tractors and trailers. This
equipment has a lower frequency of breakdowns and helps attract
and retain qualified drivers. We have continually developed
technology to improve customer service and driver retention. We
focus on shippers who value the broad geographic coverage,
diversified truck and logistics service offerings, equipment
capacity, technology, customized services and flexibility
available from a large financially-stable carrier. These
shippers are generally less sensitive to rate levels and prefer
to have their freight handled by core carriers with whom they can
establish service-based, long-term relationships.
We operate in the truckload sector of the trucking industry.
Our Truckload segment provides specialized services to customers
based on their (i) trailer needs (such as van, flatbed and
temperature-controlled trailers), (ii) geographic area (including
medium-to-long-haul throughout the 48 contiguous U.S. states,
Mexico, Canada and regional areas), (iii) time-sensitive nature
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of shipments (expedited shipments) or (iv) conversion of their
private fleet to the Company (dedicated services). In 2007,
trucking revenues accounted for 86% of our total revenues, and
non-trucking and other operating revenues (primarily brokerage
revenues) accounted for 14% of our total revenues. Our VAS
segment manages the transportation and logistics requirements for
individual customers, providing customers with additional sources
of capacity and access to alternative modes of transportation.
VAS services include (i) truck brokerage, (ii) freight
management, (iii) intermodal, (iv) load/mode and network
optimization and (v) international. The VAS international
services include (i) site selection analysis, (ii) vendor and
purchase order management, (iii) full container load
consolidation and warehousing, (iv) door-to-door freight
forwarding and (v) customs brokerage. These VAS international
services are provided throughout North America, Asia, Europe and
South America. VAS is a non-asset-based business that is highly
dependent on qualified employees, information systems and the
services of qualified third-party capacity providers. Compared
to trucking operations that require a significant capital
equipment investment, VAS' operating income percentage is lower
and its return on assets is substantially higher. You can find
revenues generated by services accounting for more than 10% of
consolidated revenues, consisting of Truckload and VAS, for the
last three years under Item 7 of this Form 10-K.
We have a diversified freight base but are dependent on a
small group of customers for a significant portion of our
freight. During 2007, our largest 5, 10, 25 and 50 customers
comprised 25%, 40%, 62% and 75% of our revenues, respectively.
Our largest customer, Dollar General, accounted for 8% of our
revenues in 2007, of which approximately three-fourths is
dedicated fleet business and the remainder is primarily VAS. No
other customer exceeded 6% of revenues in 2007. By industry
group, our top 50 customers consist of 46% retail and consumer
products, 27% grocery products, 18% manufacturing/industrial and
9% logistics and other. Many of our non-dedicated customer
contracts may be terminated upon 30 days' notice, which is
standard in the trucking industry. Most dedicated customer
contracts are one to three years in length and may be terminated
upon 90 days' notice following the expiration of the contract's
first year.
Virtually all of our company and owner-operator tractors are
equipped with satellite communication devices manufactured by
QualcommT. These devices enable us and our drivers to conduct
two-way communication using standardized and freeform messages.
This satellite technology, installed in trucks beginning in 1992,
also allows us to plan and monitor shipment progress. We obtain
specific data on the location of all trucks in the fleet at least
every hour of every day. Using the real-time data obtained from
the satellite devices, we have developed advanced application
systems to improve customer and driver service. Examples of such
application systems include: (i) our proprietary paperless log
system used to electronically preplan driver shipment assignments
based on real-time available driving hours and to automatically
monitor truck movement and drivers' hours of service; (ii)
software which preplans shipments that drivers can trade enroute
to meet driver home-time needs without compromising on-time
delivery schedules; (iii) automated "possible late load" tracking
that informs the operations department of trucks possibly
operating behind schedule, allowing us to take preventive
measures to avoid late deliveries; and (iv) automated engine
diagnostics that continually monitor mechanical fault tolerances.
In June 1998, we began a successful pilot program and
subsequently became the first, and only, trucking company in the
United States to receive an exemption from the DOT to use a
global positioning system-based paperless log system in place of
the paper logbooks traditionally used by truck drivers to track
their daily work activities. On September 21, 2004, the DOT's
Federal Motor Carrier Safety Administration ("FMCSA") agency
approved the exemption for our paperless log system and moved
this exemption from the FMCSA-approved pilot program to permanent
status. The exemption is to be renewed every two years. On
September 7, 2006, the FMCSA announced in the Federal Register
its decision to renew for two additional years our exemption from
the FMCSA's requirement that drivers of commercial motor vehicles
operating in interstate commerce prepare handwritten records of
duty status (logs).
Seasonality
In the trucking industry, revenues generally show a seasonal
pattern because some customers reduce shipments during and after
the winter holiday season. Our operating expenses have
historically been higher in the winter months due primarily to
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decreased fuel efficiency, increased cold weather-related
maintenance costs of revenue equipment and increased insurance
and claims costs attributed to adverse winter weather conditions.
We attempt to minimize the impact of seasonality through our
marketing program by seeking additional freight from certain
customers during traditionally slower shipping periods. Revenue
can also be affected by bad weather, holidays and the number of
business days during a quarterly period because revenue is
directly related to the available working days of shippers.
Employees and Owner-Operator Drivers
As of December 31, 2007, we employed 10,664 drivers; 912
mechanics and maintenance personnel; 1,726 office personnel for
the trucking operation; and 306 personnel for VAS and other non-
trucking operations. We also had 780 service contracts with
owner-operators who provide both a tractor and a qualified driver
or drivers. None of our U.S., Canadian or Chinese employees are
represented by a collective bargaining unit, and we consider
relations with all of our employees to be good.
We recognize that our professional driver workforce is one
of our most valuable assets. Most of our driver compensation is
based upon miles driven. For company-employed drivers, the rate
per mile generally increases with the drivers' length of service.
Drivers may earn additional compensation through a mileage bonus,
annual achievement bonus and for extra work associated with their
job (such as loading and unloading, extra stops and shorter
mileage trips).
At times, there are driver shortages in the trucking
industry. In past years, the number of qualified drivers has not
kept pace with freight growth because of (i) changes in the
demographic composition of the workforce; (ii) alternative
employment opportunities other than truck driving that become
available in a growing economy; and (iii) individual drivers'
desire to be home more often. While the driver recruiting and
retention market remained challenging in 2007, it was less
difficult than the driver market experienced in the first half of
2006. Weakness in the housing market and the medium-to-long-haul
Van fleet reduction contributed favorably to our recruiting and
retention efforts for much of 2007. We anticipate that
competition for qualified drivers will remain high and cannot
predict whether we will experience future shortages. If such a
shortage were to occur and a driver pay rate increase became
necessary to attract and retain drivers, our results of
operations would be negatively impacted to the extent that we
could not obtain corresponding freight rate increases.
On December 26, 2007, the FMCSA published a Notice of
Proposed Rulemaking ("NPRM") in the Federal Register regarding
minimum requirements for Entry Level Driver Training. Under the
proposed rule, a Commercial driver's license ("CDL") applicant
would be required to present a valid driver training certificate
obtained from an accredited institution or program. Entry-level
drivers applying for a Class A CDL would be required to complete
a minimum of 120 hours of training, consisting of 76 classroom
hours and 44 driving hours. The current regulations do not
require a minimum number of training hours and require only
classroom education. Drivers who obtain their first CDL during
the three-year period after the FMCSA issues a final rule would
be exempt. Comments on the NPRM are to be received by March 25,
2008. If the NPRM is approved as written, this rule could
materially impact the number of potential new drivers entering
the industry.
We also recognize that carefully selected owner-operators
complement our company-employed drivers. Owner-operators are
independent contractors who supply their own tractor and
qualified driver and are responsible for their operating
expenses. Because owner-operators provide their own tractors,
less financial capital is required from us. Also, owner-operators
provide us with another source of drivers to support our fleet.
We intend to maintain our emphasis on owner-operator recruiting,
in addition to company driver recruitment. The Company and the
trucking industry, however, continue to experience owner-operator
recruitment and retention difficulties that have persisted over
the past several years. We attribute these difficulties to
several factors, including higher fuel prices, tightened
equipment financing standards, rising truck prices, revised hours
of service regulations issued by the FMCSA and a slowing U.S.
economy in 2007.
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Revenue Equipment
As of December 31, 2007, we operated 7,470 company tractors
and had contracts for 780 tractors owned by owner-operators. The
company-owned tractors were manufactured by Freightliner, a
subsidiary of DaimlerChrysler, and by Peterbilt and Kenworth,
divisions of PACCAR. This standardization of our company-owned
tractor fleet decreases downtime by simplifying maintenance. We
adhere to a comprehensive maintenance program for both company-
owned tractors and trailers. We inspect owner-operator tractors
prior to acceptance for compliance with Company and DOT
operational and safety requirements. We periodically inspect
these tractors, in a manner similar to company tractor
inspections, to monitor continued compliance. We also regulate
the vehicle speed of company-owned trucks to a maximum of 65
miles per hour to improve safety and fuel efficiency.
We operated 24,855 trailers at December 31, 2007. This
total is comprised of 23,109 dry vans; 501 flatbeds; and 1,245
temperature-controlled trailers. Most of our trailers were
manufactured by Wabash National Corporation. As of December 31,
2007, of our dry van trailer fleet, 98% consisted of 53-foot
trailers, and 100% was comprised of aluminum plate or composite
(DuraPlate) trailers. We also provide other trailer lengths,
such as 48-foot and 57-foot trailers, to meet the specialized
needs of certain customers.
The Environmental Protection Agency ("EPA") mandated a new
set of more stringent engine emission standards for all newly
manufactured truck engines. These standards became effective in
January 2007. Compared to trucks with engines manufactured
before 2007 and not subject to the new standards, the trucks
manufactured with the new engines have higher purchase prices
(approximately $5,000 to $10,000 more per truck), and we expect
them to be less fuel-efficient and result in increased
maintenance costs. To delay the cost impact of these new
emission standards, in 2005 and 2006 we purchased significantly
more new trucks than we normally buy each year, and we maintained
a newer truck fleet at December 31, 2006 relative to historical
company and industry standards. The average age of our truck
fleet as of December 31, 2007 is 2.1 years. Our newer truck
fleet has allowed us to delay purchases of trucks with the new
2007-standard engines until 2008. In January 2010, a final set
of more rigorous EPA-mandated emissions standards will become
effective for all new engines manufactured after that date.
Fuel
We purchase approximately 95% of our fuel from a network of
fuel stops throughout the United States. We negotiated
discounted pricing based on historical purchase volumes with
these fuel stops. Bulk fueling facilities are maintained at
seven of our terminals and three dedicated fleet locations.
Shortages of fuel, increases in fuel prices and rationing of
petroleum products can have a material adverse effect on our
operations and profitability. Our customer fuel surcharge
reimbursement programs have historically enabled us to recover
from our customers a significant portion of the higher fuel
prices compared to normalized average fuel prices. These fuel
surcharges, which automatically adjust depending on the
Department of Energy ("DOE") weekly retail on-highway diesel fuel
prices, enable us to recoup much of the higher cost of fuel when
prices increase. We do not generally recoup higher fuel costs
for miles not billable to customers, out-of-route miles and truck
engine idling. During 2007, our fuel expense and fuel
reimbursements to owner-operators attributed to higher fuel
prices resulted in an additional cost of $23.0 million. We
collected an additional $14.9 million in fuel surcharge revenues
in 2007 to offset most of the fuel cost increase. We cannot
predict whether fuel prices will increase or decrease in the
future or the extent to which fuel surcharges will be collected
from customers. As of December 31, 2007, we had no derivative
financial instruments to reduce our exposure to fuel price
fluctuations.
During fourth quarter 2006, the trucking industry began
using ultra-low sulfur diesel ("ULSD") fuel and transitioned
industry diesel fuel consumption from low sulfur diesel to ULSD.
This change stemmed from an EPA-mandated 80% ULSD threshold by
the transition date of October 15, 2006. Since that time, this
change resulted in an approximate 2% degradation of fuel miles
per gallon ("mpg") for all trucks because of the lower energy
content (btu) of ULSD. We believe that other factors which
4
impact mpg, including increasing the percentage of aerodynamic
trucks in our company-owned truck fleet, have offset the negative
mpg impact of ULSD in 2007, compared to 2006.
We maintain aboveground and underground fuel storage tanks
at many of our terminals. Leakage or damage to these facilities
could expose us to environmental clean-up costs. The tanks are
routinely inspected to help prevent and detect such problems.
Regulation
We are a motor carrier regulated by the DOT, the Federal and
Provincial Transportation Departments in Canada and the Secretary
of Communication and Transportation ("SCT") in Mexico. The DOT
generally governs matters such as safety requirements,
registration to engage in motor carrier operations, accounting
systems, certain mergers, consolidations, acquisitions and
periodic financial reporting. We currently have a satisfactory
DOT safety rating, which is the highest available rating. A
conditional or unsatisfactory DOT safety rating could adversely
affect us because some of our customer contracts require a
satisfactory rating. Equipment weight and dimensions are also
subject to federal, state and international regulations.
Effective October 1, 2005, all truckload carriers became
subject to revised hours of service ("HOS") regulations issued by
the FMCSA ("2005 HOS Regulations"). The most significant change
for us from the previous regulations is that drivers using the
sleeper berth provision must take at least eight consecutive
hours off-duty during their ten hours off-duty. Previously,
drivers using a sleeper berth were allowed to split their ten-
hour off-duty time 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 2005 HOS Regulations also had a negative impact on our
mileage efficiency, resulting in lower mileage productivity for
those customers with multiple-stop shipments or those shipments
with pick-up or delivery delays.
The Owner-Operator Independent Drivers Association ("OOIDA")
and Public Citizen (a consumer safety organization) each filed
separate petitions for review of the 2005 HOS Regulations with
the U.S. Court of Appeals for the District of Columbia in August
2005 and February 2006. The OOIDA petition contested several
issues relating to the 2005 HOS Regulations, including FMCSA
justification for the eight-hour sleeper berth requirements
described above. The Public Citizen petition disputed an 11-hour
daily driving limitation and the 34-hour restart rule (which
permits drivers who are off duty for 34 consecutive hours to
reset their eight-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 for the District of Columbia issued its decision on the
challenges made by OOIDA and Public Citizen regarding the 2005
HOS Regulations. The Court rejected the OOIDA claims, including
OOIDA's opposition to the eight-hour sleeper berth requirements,
but ruled in favor of Public Citizen on the 11-hour daily driving
limit and 34-hour restart rules. The Court described its
concerns as procedural and vacated only the 11-hour daily driving
limit and 34-hour restart provisions, leaving the remainder of
the 2005 HOS Regulations 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 34-hour restart rules. On
September 6, 2007, ATA filed a Motion for Stay of Mandate asking
the Court to delay the effective date of its July 24, 2007
decision. Subsequently, FMCSA filed a brief in support of the
ATA's motion. On September 28, 2007, the Court issued a 90-day
stay of the effective date of the Court's decision.
Effective December 27, 2007, the FMCSA issued an interim
final rule that amended the HOS regulations to (i) allow drivers
up to 11 hours of driving time within a 14-hour, non-extendable
window from the start of the workday (this driving time must
follow 10 consecutive hours of off-duty time) and (ii) restart
calculations of the weekly on-duty time limits after the driver
has at least 34 consecutive hours off duty. This interim rule
made essentially no changes to the 11-hour driving limit and 34-
hour restart rules. The FMCSA solicited comments on the interim
final rule until February 15, 2008, and intends to issue a final
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rule in 2008 that addresses the issues identified by the Court.
On January 23, 2008, the Court denied Public Citizen's motion to
invalidate the interim final rule.
On January 18, 2007, the FMCSA published a Notice of
Proposed Rulemaking ("NPRM") in the Federal Register on the
trucking industry's use of Electronic On-Board Recorders
("EOBRs") for compliance with HOS rules. The intent of this
proposed rule is to (i) improve highway safety by fostering
development of new EOBR technology for HOS compliance; (ii)
encourage EOBR use by motor carriers through incentives; and
(iii) require EOBR use by operators with serious and continuing
HOS compliance problems. Comments on the NPRM were to be
received by April 18, 2007. In 1998, we became the first, and
only, trucking company in the United States to receive a DOT
exemption to use a global positioning system-based paperless log
system as an alternative to the paper logbooks traditionally used
by truck drivers to track their daily work activities. While we
do not believe the rule, as proposed, would have a significant
effect on our operations and profitability, we will continue to
monitor future developments.
We have unlimited authority to carry general commodities in
interstate commerce throughout the 48 contiguous U.S. states. We
also have authority to carry freight on an intrastate basis in 43
states. The Federal Aviation Administration Authorization Act of
1994 (the "FAAA Act") amended sections of the Interstate Commerce
Act to prevent states from regulating motor carrier rates, routes
or service after January 1, 1995. The FAAA Act did not address
state oversight of motor carrier safety and financial
responsibility or state taxation of transportation. If a carrier
wishes to operate in intrastate commerce in a state where the
carrier did not previously have intrastate authority, the carrier
must, in most cases, still apply for authority.
WGL and its subsidiaries have obtained business licenses to
operate as a U.S. NVOCC, U.S. Customs Broker, licensed Freight
Forwarder in China, licensed China NVOCC, a TSA approved Indirect
Air Carrier and an IATA Accredited Cargo Agent.
With respect to our activities in the air transportation
industry, we are subject to regulation by the TSA of the U.S.
Department of Homeland Security as an Indirect Air Carrier and by
IATA as an Accredited Cargo Agent. IATA is a voluntary
association of airlines which prescribes certain operating
procedures for air freight forwarders acting as agents for its
members. We expect that a majority of our air freight forwarding
business will be conducted with airlines that are IATA members.
We are licensed as a customs broker by Customs and Border
Protection ("CBP") of the U.S. Department of Homeland Security in
each U.S. customs district in which we conduct business. All
U.S. customs brokers are required to maintain prescribed records
and are subject to periodic audits by CBP. In other
jurisdictions in which we perform clearance services, we are
licensed by the appropriate governmental authority.
We are also registered as an Ocean Transportation
Intermediary by the Federal Maritime Commission ("FMC"). The FMC
has established certain qualifications for shipping agents,
including surety bonding requirements. The FMC is also
responsible for the economic regulation of NVOCC activity
originating or terminating in the United States. To comply with
these economic regulations, vessel operators and NVOCCs are
required to electronically file tariffs, and these tariffs
establish the rates to be charged for movement of specified
commodities into and out of the United States. The FMC may
enforce these regulations by assessing penalties.
Our operations are subject to various federal, state and
local environmental laws and regulations, many of which are
implemented by the EPA and similar state regulatory agencies.
These laws and regulations govern the management of hazardous
wastes, the discharge of pollutants into the air and surface and
underground waters and the disposal of certain substances. We do
not believe that compliance with these regulations has a material
effect on our capital expenditures, earnings, and competitive
position.
Several U.S. states, counties and cities have enacted
legislation or ordinances restricting idling of trucks to short
periods of time. This action is significant when it impacts the
driver's ability to idle the truck for purposes of operating air
6
conditioning and heating systems particularly while in the
sleeper berth. Many of the statutes or ordinances recognize the
need of the drivers to have a comfortable environment in which to
sleep and include exceptions for those circumstances. California
had such an exemption; however, since January 1, 2008, the
California sleeper berth exemption no longer exists. We have
taken steps to address this issue in California. California has
also enacted restrictions on Transport Refrigeration Unit ("TRU")
emissions, which are scheduled to be phased in over several years
beginning year-end 2008. Although legal challenges may be
mounted against California's regulations, if the TRU emissions
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 we are
currently evaluating.
Various provisions of the North American Free Trade
Agreement ("NAFTA") may alter the competitive environment for
shipping into and out of Mexico. We believe we are sufficiently
prepared to respond to the potential changes in cross-border
trucking if there was an opening of the southern border. We
conduct a substantial amount of business in international freight
shipments to and from the United States and Mexico (see Note 8
"Segment Information" in the Notes to Consolidated Financial
Statements under Item 8 of this Form 10-K) and continue preparing
for various scenarios that may result. We believe we are one of
the five largest truckload carriers in terms of the volume of
freight shipments to and from the United States and Mexico.
Competition
The trucking industry is highly competitive and includes
thousands of trucking companies. The annual revenue of domestic
trucking is estimated to be approximately $600 billion per year.
We have a small share (estimated at approximately 1%) of the
markets we target. We compete primarily with other truckload
carriers. Logistics companies, railroads, less-than-truckload
carriers and private carriers also provide competition, but to a
lesser degree.
Competition for the freight we transport is based primarily
on service and efficiency and, to some degree, on freight rates
alone. We believe that few other truckload carriers have greater
financial resources, own more equipment or carry a larger volume
of freight than ours. We are one of the five largest carriers in
the truckload transportation industry based on total operating
revenues.
The significant industry-wide accelerated purchase of new
trucks in advance of the January 2007 EPA emissions standards for
newly manufactured trucks contributed to excess truck capacity.
This excess capacity partially disrupted the supply and demand
balance for trucks in the second half of 2006 and in 2007. The
recent softness in the housing and automotive sectors (not
principally served by us) caused carriers dependent on these
freight markets to aggressively compete in other freight markets
we serve. Other demand-related factors that may have contributed
to lower freight demand and flat to lower freight rates in 2006
and 2007 were (i) inventory tightening by some large retailers,
(ii) some shippers shifting to more intermodal intact container
shipments for lower value freight and (iii) moderating economic
growth in the retail sector. Since April 2007, Class 8 truck
production declined dramatically, and we expect 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 challenged truckload carriers, particularly
highly leveraged private carriers. If this environment
continues, an increase in trucking company failures is more
likely, which could also help to balance the supply of trucks
over time.
Internet Website
We maintain an Internet website where you can find
additional information regarding our business and operations.
The website address is www.werner.com. On the website, we make
certain investor information available free of charge, including
our annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, Forms 3, 4 and 5 filed on behalf of
directors and executive officers and any amendments to such
reports filed or furnished pursuant to Section 13(a) or 15(d) of
7
the Securities Exchange Act of 1934, as amended ("Exchange Act").
This information is included on our website as soon as reasonably
practicable after we electronically file or furnish such
materials to the Securities and Exchange Commission ("SEC"). We
also provide our corporate governance materials, such as Board
committee charters and Code of Corporate Conduct, on our website
free of charge, and we may occasionally update these materials
when necessary to comply with SEC and NASDAQ rules or to promote
the effective and efficient governance of our company.
Information provided on our website is not incorporated by
reference into this Form 10-K.
ITEM 1A. RISK FACTORS
The following risks and uncertainties may cause actual
results to materially differ from those anticipated in the
forward-looking statements included in this Form 10-K. 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. We undertake 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.
Our business is subject to overall economic conditions that could
have a material adverse effect on our results of operations.
We are sensitive to changes in overall economic conditions
that impact customer shipping volumes. Beginning in 2003 and
continuing throughout 2005, general economic improvements led to
improved freight demand. Factors that may have contributed to
lower freight demand and flat to lower freight rates in the
second half of 2006 and in 2007 were (i) inventory tightening by
some large retailers, (ii) some shippers shifting to more
intermodal intact container shipments for lower value freight and
(iii) moderating economic growth in the retail sector. The
significant truck pre-buy, prompted by changes to the EPA engine
emission regulations that became effective for newly manufactured
engines beginning January 2007, added a total of approximately
170,000 more trucks (or an estimated 6% more trucks in the Class
8 for-hire market) in the years 2005 and 2006 than are normally
produced. We may be affected by future economic conditions
including employment levels, business conditions, fuel and energy
costs, interest rates and tax rates.
Increases in fuel prices and shortages of fuel can have a
material adverse effect on the results of operations and
profitability.
Fuel prices climbed steadily through 2007, averaging 20
cents per gallon higher than 2006. Fuel shortages, increases in
fuel prices, and petroleum product rationing can have a material
adverse impact on our operations and profitability. To the
extent that we cannot recover the higher cost of fuel through
customer fuel surcharges, our financial results would be
negatively impacted. For the first eight months of 2007, average
fuel prices were nearly the same as during the first eight months
of 2006. However, during the last four months of 2007, average
fuel prices increased to record levels while prices declined in
the last four months of 2006. Fuel prices averaged 65 cents more
per gallon in the last four months of 2007 versus the same period
in 2006.
Difficulty in recruiting and retaining drivers and owner-
operators could impact our results of operations and limit growth
opportunities.
At times, the trucking industry has experienced driver
shortages. The market for recruiting and retaining drivers has
become more difficult the last several years due to changing
workforce demographics and alternative employment opportunities
in an improving economy. However, near the end of 2006 and
continuing through 2007, the driver recruiting and retention
market was less difficult than the extremely challenging market
experienced earlier in 2006 due to the weakness in the housing
market and the medium-to-long-haul Van fleet reduction. During
the last several years, it was more difficult to recruit and
retain owner-operator drivers due to challenging operating
conditions, including high fuel prices. We anticipate that
competition for company drivers and owner-operator drivers will
remain high and cannot predict whether we will experience future
shortages. If a shortage of company drivers and owner-operators
occurs, it may be necessary to increase driver pay rates and
owner-operator settlement rates in order to attract these
8
drivers. This could negatively affect our results of operations
to the extent that corresponding freight rate increases were not
obtained.
We operate in a highly competitive industry, which may limit
growth opportunities and reduce profitability.
The trucking industry is highly competitive and includes
thousands of trucking companies. We estimate the ten largest
truckload carriers have about 9% of the approximate $180 billion
U.S. market we target. This competition could limit our growth
opportunities and reduce our profitability. We compete primarily
with other truckload carriers in our Truckload segment.
Logistics companies, railroads, less-than-truckload carriers and
private carriers also provide a lesser degree of competition in
our Truckload segment, but are more direct competitors in our VAS
segment. Competition for the freight we transport is based
primarily on service and efficiency and, to some degree, on
freight rates alone.
We operate in a highly regulated industry. Changes in existing
regulations or violations of existing or future regulations could
adversely affect our operations and profitability.
We are regulated by the DOT, the Federal and Provincial
Transportation Departments in Canada and the SCT in Mexico and
may become subject to new or more comprehensive regulations
mandated by these agencies. These regulatory agencies have the
authority and power to govern transportation-related activities,
such as safety, financial reporting, authorization to conduct
motor carrier operations and other matters. In 2006, we formed
WGL, an operating division within the VAS segment consisting of
several subsidiary companies, including a WOFE headquartered in
Shanghai, China. The WGL subsidiaries obtained business licenses
to operate as a U.S. NVOCC, U.S. Customs Broker, licensed Freight
Forwarder in China, licensed China NVOCC, a TSA approved Indirect
Air Carrier and an IATA Accredited Cargo Agent. The loss of any
of these business licenses could impact the operations of WGL.
On January 18, 2007, the FMCSA published an NPRM in the
Federal Register on the trucking industry's use of EOBRs for
compliance with HOS rules. Comments on the NPRM were to be
received by April 18, 2007. We do not believe the rule, as
proposed, would significantly affect our operations and
profitability, and we will continue to monitor future
developments.
As of January 2007, all newly manufactured truck engines
must comply with the EPA's stringent engine emission standards.
Engines produced under these 2007 standards have higher purchase
prices, and we expect them to be less fuel-efficient and result
in increased maintenance costs. A final set of more rigorous EPA
emissions standards will become effective in January 2010 and
apply to all new truck engines manufactured after that time.
The seasonal pattern generally experienced in the trucking
industry may affect our periodic results during traditionally
slower shipping periods and during the winter months.
Our business is modestly seasonal with peak freight demand
occurring generally in the months of September, October and
November. After the December holiday season and during the
remaining winter months, our freight volumes are typically lower
because some customers have reduced shipment levels. Our
operating expenses have historically been higher in winter months
primarily due to decreased fuel efficiency, increased cold
weather-related maintenance costs of revenue equipment and
increased insurance and claims costs due to adverse winter
weather conditions. We attempt to minimize the impact of
seasonality by seeking additional freight from certain customers
during traditionally slower shipping periods. Bad weather,
holidays and number of business days during a quarterly period
can also affect revenue because revenue is directly related to
available working days of shippers.
We depend on key customers, the loss or financial failure of
which may have a material adverse effect on our operations and
profitability.
A significant portion of our revenue is generated from
several key customers. During 2007, our top 5, 10 and 25
customers accounted for 25%, 40% and 62% of revenues,
respectively. Our largest customer, Dollar General, accounted
for 8% of our revenues in 2007. We do not have long-term
contractual relationships with many of our key non-dedicated
customers. Our contractual relationships with our dedicated
customers are typically one to three years in length and may be
terminated upon 90 days' notice following the expiration of the
contract's first year. We cannot provide any assurance that key
customer relationships will continue at the same levels. If a
significant customer reduced or terminated our services, it could
9
have a material adverse effect on our business and results of
operations. We review our customers' financial condition prior
to granting credit, monitor changes in financial condition on an
on-going basis, review individual past-due balances and
collection concerns and maintain credit insurance for some
customer accounts. However, a customer's financial failure may
still negatively affect our results of operations.
We depend on the services of third-party capacity providers, the
availability of which could affect our profitability and limit
growth in our VAS division.
Our VAS division is highly dependent on the services of
third-party capacity providers, such as other truckload carriers,
less-than-truckload carriers, railroads, ocean carriers and
airlines. Many of those providers face the same economic
challenges as us. Continued freight demand softness and the
temporary increase in the supply of trucks caused by the industry
truck pre-buy made it somewhat easier to find qualified truckload
capacity to meet customer freight needs for our truck brokerage
operation. If these market conditions change and we are unable
to secure the services of these third-party capacity providers,
our results of operations could be adversely affected.
Our earnings could be reduced by increases in the number of
insurance claims, the cost per claim, the costs of insurance
premiums or the availability of insurance coverage.
We self-insure for a significant portion of liability
resulting from bodily injury, property damage, cargo loss and
workers' compensation. This is supplemented by premium insurance
with licensed and highly-rated insurance companies above our
self-insurance level for each type of coverage. To the extent we
experience a significant increase in the number of claims, cost
per claim or costs of insurance premiums for coverage in excess
of our retention amounts, our operating results would be
negatively affected.
Decreased demand for our used revenue equipment could result in
lower unit sales, resale values and gains on sales of assets.
We are sensitive to changes in used equipment prices,
especially tractors. We have been in the business of selling our
company-owned trucks since 1992, when we formed our wholly-owned
subsidiary Fleet Truck Sales. We have 17 Fleet Truck Sales
locations throughout the United States. Due to the weaker
freight market and high fuel prices, Fleet Truck Sales demand
softened in fourth quarter 2007. This is expected to continue
for at least the first half of 2008, which will likely have a
continued negative impact on the amount of our gains on sales.
During 2007, we continued to sell our oldest van trailers that
are fully depreciated and replaced them with new trailers, and we
expect to continue doing so in 2008. Gains on sales of assets
are reflected as a reduction of other operating expenses in our
income statement and amounted to gains of $22.9 million in 2007,
$28.4 million in 2006 and $11.0 million in 2005.
Our operations are subject to various environmental laws and
regulations, the violation of which could result in substantial
fines or penalties.
In addition to direct regulation by the DOT and other
agencies, we are subject to various environmental laws and
regulations dealing with the handling of hazardous materials,
underground fuel storage tanks, and discharge and retention of
storm-water. We operate in industrial areas, where truck
terminals and other industrial activities are located, and where
groundwater or other forms of environmental contamination have
occurred. Our operations involve the risks of fuel spillage or
seepage, environmental damage, and hazardous waste disposal,
among others. We also maintain bulk fuel storage at several of
our facilities. If we are involved in a spill or other accident
involving hazardous substances, or if we are found to be in
violation of applicable laws or regulations, it could have a
materially adverse effect on our business and operating results.
If we should fail to comply with applicable environmental
regulations, we could be subject to substantial fines or
penalties and to civil and criminal liability.
We rely on the services of key personnel, the loss of which could
impact our future success.
We are highly dependent on the services of key personnel
including Clarence L. Werner, Gary L. Werner, Gregory L. Werner
and other executive officers. Although we believe we have an
experienced and highly qualified management group, the loss of
the services of these executive officers could have a material
adverse impact on us and our future profitability.
10
Difficulty in obtaining goods and services from our vendors and
suppliers could adversely affect our business.
We are dependent on our vendors and suppliers. We believe
we have good vendor relationships and that we are generally able
to obtain attractive pricing and other terms from vendors and
suppliers. If we fail to maintain satisfactory relationships
with our vendors and suppliers or if our vendors and suppliers
experience significant financial problems, we could experience
difficulty in obtaining needed goods and services because of
production interruptions or other reasons. Consequently, our
business could be adversely affected.
We use our information systems extensively for day-to-day
operations, and service disruptions could have an adverse impact
on our operations.
The efficient operation of our business is highly dependent
on our information systems. Much of our software was developed
internally or by adapting purchased software applications to our
needs. We purchased redundant computer hardware systems and have
our own off-site disaster recovery facility approximately ten
miles from our offices for use in the event of a disaster. We
took these steps to reduce the risk of disruption to our business
operation if a disaster occurred.
ITEM 1B. UNRESOLVED STAFF COMMENTS
We have not received any written comments from SEC staff
regarding our periodic or current reports that were issued 180
days or more preceding the end of our 2007 fiscal year and that
remain unresolved.
ITEM 2. PROPERTIES
Our headquarters are located near U.S. Interstate 80 west of
Omaha, Nebraska, on approximately 197 acres, 107 of which are
held for future expansion. Our headquarters office building
includes a computer center, drivers' lounge areas, cafeteria and
company store. The Omaha headquarters also includes a driver
training facility and equipment maintenance and repair
facilities. These maintenance facilities contain a central parts
warehouse, frame straightening and alignment machine, truck and
trailer wash areas, equipment safety lanes, body shops for
tractors and trailers, paint booth and reclaim center. Our
headquarter facilities have suitable space available to
accommodate planned needs for at least the next three to five
years.
11
We also have several terminals throughout the United States,
consisting of office and/or maintenance facilities. Our terminal
locations are described below:
Location Owned or Leased Description Segment
----------------------- --------------- ------------------------------------ -------------------------
Omaha, Nebraska Owned Corporate headquarters, maintenance Truckload, VAS, Corporate
Omaha, Nebraska Owned Disaster recovery, warehouse Corporate
Phoenix, Arizona Owned Office, maintenance Truckload
Fontana, California Owned Office, maintenance Truckload
Denver, Colorado Owned Office, maintenance Truckload
Atlanta, Georgia Owned Office, maintenance Truckload, VAS
Indianapolis, Indiana Leased Office, maintenance Truckload
Springfield, Ohio Owned Office, maintenance Truckload
Allentown, Pennsylvania Leased Office, maintenance Truckload
Dallas, Texas Owned Office, maintenance Truckload, VAS
Laredo, Texas Owned Office, maintenance, transloading Truckload, VAS
Lakeland, Florida Leased Office Truckload
Portland, Oregon Leased Office, maintenance Truckload
El Paso, Texas Leased Office, maintenance Truckload
Ardmore, Oklahoma Leased Maintenance Truckload, VAS
Indianola, Mississippi Leased Maintenance Truckload, VAS
Scottsville, Kentucky Leased Maintenance Truckload, VAS
Fulton, Missouri Leased Maintenance Truckload, VAS
Tomah, Wisconsin Leased Maintenance Truckload
Newbern, Tennessee Leased Maintenance Truckload
Chicago, Illinois Leased Maintenance Truckload
Alachua, Florida Leased Maintenance Truckload, VAS
South Boston, Virginia Leased Maintenance Truckload, VAS
Garrett, Indiana Leased Maintenance Truckload
We currently lease (i) approximately 60 small sales offices,
brokerage offices and trailer parking yards in various locations
throughout the United States and (ii) office space in Mexico,
Canada and China. We own (i) a 96-room motel located near our
Omaha headquarters; (ii) a 71-room private lodging facility at
our Dallas terminal; (iii) four low-income housing apartment
complexes in the Omaha area; (iv) a warehouse facility in Omaha;
and (v) a terminal facility in Queretaro, Mexico, which we lease
to a related party (see Note 7 "Related Party Transactions" in
the Notes to Consolidated Financial Statements under Item 8 of
this Form 10-K). We also have 50% ownership in a 125,000
square-foot warehouse located near our headquarters in Omaha.
The Fleet Truck Sales network currently has 17 locations. Fleet
Truck Sales, a wholly-owned subsidiary, sells our used trucks and
trailers and is believed to be one of the largest domestic Class
8 truck sales entities in the United States.
ITEM 3. LEGAL PROCEEDINGS
We are a party subject to routine litigation incidental to
our business, primarily involving claims for bodily injury,
property damage and workers' compensation incurred in the
transportation of freight. We have maintained a self-insurance
program with a qualified department of risk management
professionals since 1988. These employees manage our property
damage, cargo, liability and workers' compensation claims. An
actuary reviews our self-insurance reserves for bodily injury and
property damage claims and workers' compensation claims every six
months.
12
We were responsible for liability claims up to $500,000,
plus administrative expenses, for each occurrence involving
bodily injury or property damage since August 1, 1992. For the
policy year beginning August 1, 2004, we increased our self-
insured retention ("SIR") and deductible amount to $2.0 million
per occurrence. We are also responsible for varying annual
aggregate amounts of liability for claims in excess of the
SIR/deductible. The following table reflects the SIR/deductible
levels and aggregate amounts of liability for bodily injury and
property damage claims since August 1, 2004:
Primary Coverage
Coverage Period Primary Coverage SIR/Deductible
------------------------------ ---------------- ----------------
August 1, 2004 - July 31, 2005 $5.0 million $2.0 million (1)
August 1, 2005 - July 31, 2006 $5.0 million $2.0 million (2)
August 1, 2006 - July 31, 2007 $5.0 million $2.0 million (2)
August 1, 2007 - July 31, 2008 $5.0 million $2.0 million (3)
(1) Subject to an additional $3.0 million aggregate in the $2.0
to $3.0 million layer, no aggregate (meaning that we were fully
insured) in the $3.0 to $5.0 million layer, and a $5.0 million
aggregate in the $5.0 to $10.0 million layer.
(2) Subject to an additional $2.0 million aggregate in the $2.0
to $3.0 million layer, no aggregate (meaning that we were fully
insured) in the $3.0 to $5.0 million layer, and a $5.0 million
aggregate in the $5.0 to $10.0 million layer.
(3) Subject to an additional $8.0 million aggregate in the $2.0
to $5.0 million layer and a $5.0 million aggregate in the $5.0
to $10.0 million layer.
We are responsible for workers' compensation up to $1.0
million per claim. Effective April 2007, we were no longer
responsible for the additional $1.0 million aggregate for claims
between $1.0 million and $2.0 million. For the years 2005 and
2006 we were responsible for a $1.0 million aggregate for claims
between $1.0 million and $2.0 million. We also maintain a $25.4
million bond and have insurance for individual claims above $1.0
million.
Our primary insurance covers the range of liability under
which we expect most claims to occur. If any liability claims
are substantially in excess of coverage amounts listed in the
table above, such claims are covered under premium-based policies
(issued by financially stable insurance companies) to coverage
levels that our management considers adequate. We are also
responsible for administrative expenses for each occurrence
involving bodily injury or property damage. See also Note 1
"Insurance and Claims Accruals" and Note 6 "Commitments and
Contingencies" in the Notes to Consolidated Financial Statements
under Item 8 of this Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
During the fourth quarter of 2007, no matters were submitted
to a vote of stockholders.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Price Range of Common Stock
Our Common Stock trades on the NASDAQ Global Select MarketSM
tier of the NASDAQ Stock Market under the symbol "WERN". The
following table sets forth, for the quarters indicated, (i) the
high and low trade prices per share of our Common Stock quoted on
the NASDAQ Global Select MarketSM and (ii) our dividends declared
per Common share from January 1, 2006, through December 31, 2007.
Dividends
Declared Per
High Low Common Share
-------- -------- ------------
2007
Quarter ended:
March 31 $ 20.92 $ 17.58 $.045
June 30 20.40 17.99 .050
September 30 22.00 16.71 .050
December 31 19.66 16.66 .050
Dividends
Declared Per
High Low Common Share
-------- -------- ------------
2006
Quarter ended:
March 31 $ 21.84 $ 18.16 $.040
June 30 21.01 18.32 .045
September 30 20.89 17.16 .045
December 31 20.76 17.30 .045
As of February 15, 2008, our Common Stock was held by 196
stockholders of record. Because many of our shares of Common
Stock are held by brokers and other institutions on behalf of
stockholders, we are unable to estimate the total number of
stockholders represented by these record holders. The high and
low trade prices per share of our Common Stock in the NASDAQ
Global Select MarketSM as of February 15, 2008 were $18.76 and
$17.85, respectively.
Dividend Policy
We have paid cash dividends on our Common Stock following
each fiscal quarter since the first payment in July 1987. We
currently intend to continue paying dividends on a quarterly
basis and do not currently anticipate any restrictions on our
future ability to pay such dividends. However, we cannot give
any assurance that dividends will be paid in the future because
they are dependent on earnings, our financial condition and other
factors.
Equity Compensation Plan Information
For information on our equity compensation plans, please
refer to Item 12, "Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters."
14
Performance Graph
Comparison of Five-Year Cumulative Total Return
The following graph is not deemed to be "soliciting
material" or to be "filed" with the SEC or subject to the
liabilities of Section 18 of the Securities Exchange Act of 1934,
and the report shall not be deemed to be incorporated by
reference into any prior or subsequent filing by us under the
Securities Act of 1933 or the Securities Exchange Act of 1934
except to the extent we specifically request that such
information be incorporated by reference or treated as soliciting
material.
[PERFORMANCE GRAPH APPEARS HERE]
12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07
-------- -------- -------- -------- -------- --------
Werner Enterprises, Inc. (WERN) $ 100.00 $ 113.67 $ 132.84 $ 116.51 $ 104.29 $ 102.63
Standard & Poor's 500 $ 100.00 $ 128.68 $ 142.69 $ 149.70 $ 173.34 $ 182.87
NASDAQ Trucking Group (SIC Code 42) $ 100.00 $ 122.07 $ 149.61 $ 137.41 $ 134.69 $ 128.71
Assuming the investment of $100.00 on December 31, 2002, and
reinvestment of all dividends, the graph above compares the
cumulative total stockholder return on our Common Stock for the
last five fiscal years with the cumulative total return of
Standard & Poor's 500 Market Index and an index of other
companies included in the trucking industry (NASDAQ Trucking
Group - Standard Industrial Classification Code 42) over the same
period. Our stock price was $17.03 as of December 31, 2007.
This amount was used for purposes of calculating the total return
on our Common Stock for the year ended December 31, 2007.
Purchases of Equity Securities by the Issuer and Affiliated
Purchasers
On October 15, 2007, we announced that on October 11, 2007
our Board of Directors approved an increase in the number of
shares of our Common Stock that the Company is authorized to
repurchase. Under this new authorization, the Company is
permitted to repurchase an additional 8,000,000 shares. The
previous authorization, announced on April 17, 2006, authorized
the Company to repurchase 6,000,000 shares and was completed in
fourth quarter 2007. As of December 31, 2007, the Company had
purchased 791,200 shares pursuant to the October 2007
authorization and had 7,208,800 shares remaining available for
repurchase. The Company may purchase shares from time to time
depending on market, economic and other factors. The
authorization will continue unless withdrawn by the Board of
Directors.
15
The following table summarizes our Common Stock repurchases
during the fourth quarter of 2007 made pursuant to the 2006
(708,800 shares) and October 2007 (791,200) authorizations. The
Company did not purchase any shares during the fourth quarter of
2007 other than through this program. All stock repurchases were
made by the Company or on its behalf and not by any "affiliated
purchaser," as defined by Rule 10b-18 of the Exchange Act.
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 Average Price Paid Publicly Announced Purchased Under the
Period (or Units) Purchased per Share (or Unit) Plans or Programs Plans or Programs
---------------------------------------------------------------------------------------
October 1-31, 2007 265,500 $18.21 265,500 8,443,300
November 1-30, 2007 1,234,500 $17.77 1,234,500 7,208,800
December 1-31, 2007 - - - 7,208,800
-------------------- --------------------
Total 1,500,000 $17.85 1,500,000 7,208,800
==================== ====================
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in
conjunction with the consolidated financial statements and notes
under Item 8 of this Form 10-K.
(In thousands, except per share amounts)
2007 2006 2005 2004 2003
---------- ---------- ---------- ---------- ----------
Operating revenues $2,071,187 $2,080,555 $1,971,847 $1,678,043 $1,457,766
Net income 75,357 98,643 98,534 87,310 73,727
Diluted earnings per share* 1.02 1.25 1.22 1.08 0.90
Cash dividends declared per share* .195 .175 .155 .130 .090
Return on average stockholders' equity (1) 8.8% 11.3% 12.1% 11.9% 10.9%
Return on average total assets (2) 5.4% 7.1% 7.6% 7.5% 6.7%
Operating ratio (consolidated) (3) 93.4% 92.1% 91.7% 91.6% 91.9%
Book value per share* (4) 11.83 11.55 10.86 9.76 8.90
Total assets 1,321,408 1,478,173 1,385,762 1,225,775 1,121,527
Total debt - 100,000 60,000 - -
Stockholders' equity 832,788 870,351 862,451 773,169 709,111
*After giving retroactive effect for the September 30, 2003 five-
for-four stock split (all years presented).
(1) Net income expressed as a percentage of average stockholders'
equity. Return on equity is a measure of a corporation's
profitability relative to recorded shareholder investment.
(2) Net income expressed as a percentage of average total assets.
Return on assets is a measure of a corporation's profitability
relative to recorded assets.
(3) Operating expenses expressed as a percentage of operating
revenues. Operating ratio is a common measure in the trucking
industry used to evaluate profitability.
(4) Stockholders' equity divided by common shares outstanding as
of the end of the period. Book value per share indicates the
dollar value remaining for common shareholders if all assets were
liquidated and all debts were paid at the recorded amounts.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 our
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
* Contractual Obligations and Commercial Commitments
* Off-Balance Sheet Arrangements
* Critical Accounting Policies
* Inflation
Cautionary Note Regarding Forward-Looking Statements:
This annual report on Form 10-K contains historical
information and forward-looking statements based on information
currently available to our management. The forward-looking
statements in this report, including those made in this Item 7,
"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. 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. We believe the forward-looking
statements are reasonable based on currently available
information. However, forward-looking statements involve risks,
uncertainties and assumptions, whether known or unknown, that
could cause actual results to differ materially from the
anticipated results expressed in the forward-looking statements.
A discussion of important factors relating to forward-looking
statements is included in Item 1A, "Risk Factors." Readers
should not unduly rely on the forward-looking statements included
in this Form 10-K because such statements speak only to the date
they were made. Unless otherwise required by applicable
securities laws, we assume no obligation to update forward-
looking statements to reflect subsequent events or circumstances.
Overview:
We operate in the truckload sector of the trucking industry,
with a focus on transporting consumer nondurable products that
ship more consistently throughout the year. Our success depends
on our ability to efficiently manage our resources in the
delivery of truckload transportation and logistics services to
our customers. Resource requirements vary with customer demand,
which may be subject to seasonal or general economic conditions.
Our ability to adapt to changes in customer transportation
requirements is essential to efficiently deploy resources and
make capital investments in tractors and trailers (with respect
to our Truckload segment) or obtain qualified third-party
capacity at a reasonable price (with respect to our VAS segment).
Although our business volume is not highly concentrated, we may
also be occasionally affected by our customers' financial
failures or loss of customer business.
Operating revenues consist of (i) trucking revenues
generated by the six operating fleets in the Truckload segment
(dedicated, medium-to-long-haul van, regional short-haul,
expedited, temperature-controlled and flatbed) and (ii) non-
trucking revenues generated primarily by our VAS segment. Our
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 86% of total operating revenues in 2007, and non-
trucking and other operating revenues accounted for 14%.
17
Trucking services typically generate revenues on a per-mile
basis. Other sources of trucking revenues include fuel
surcharges and accessorial revenues (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. We do this so that we can
calculate the revenue statistics in the operating statistics
table using only the revenue generated by company-owned and
owner-operator trucks. The key statistics used to evaluate
trucking revenues (excluding fuel surcharges) are (i) average
revenues per tractor per week, (ii) per-mile rates charged to
customers, (iii) average monthly miles generated per tractor,
(iv) average percentage of empty miles (miles without trailer
cargo), (v) average trip length and (vi) average number of
tractors in service. General economic conditions, seasonal
freight patterns in the trucking industry and industry capacity
are important factors that impact these statistics.
Our most significant resource requirements are company
drivers, owner-operators, tractors, trailers and equipment
operating costs (such as fuel and related fuel taxes, driver pay,
insurance and supplies and maintenance). We have historically
been successful mitigating our risk to fuel price increases by
recovering additional fuel surcharges from our customers that
recoup a majority of the increased fuel costs; however, we cannot
assure that current recovery levels will continue in future
periods. Our financial results are also affected by company
driver and owner-operator availability and the market for new and
used revenue equipment. We are self-insured for a significant
portion of bodily injury, property damage and cargo claims and
for workers' compensation benefits for our employees
(supplemented by premium-based coverage above certain dollar
levels). For that reason, our financial results may also be
affected by driver safety, medical costs, weather, legal and
regulatory environments and insurance coverage costs to protect
against catastrophic losses.
The operating ratio is a common industry measure used to
evaluate our profitability and that of our 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, we also
evaluate 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 2007 to 2006, several
industry-wide issues could cause costs to increase in 2008.
These issues include a softer freight market and fluctuating fuel
prices. Our main fixed costs include depreciation expense for
tractors and trailers and equipment licensing fees (included in
taxes and licenses expense). Depreciation expense was
historically affected by the EPA engine emission standards that
became effective in October 2002 and applied to all new trucks
purchased after that time, resulting in increased truck purchase
costs. Depreciation expense will also be affected in the future
because in January 2007 a second set of more strict EPA engine
emissions standards became effective for all newly manufactured
truck engines. Compared to trucks with engines produced before
2007, the trucks with new engines manufactured under the 2007
standards have higher purchase prices, and we expect them to be
less fuel-efficient and result in increased maintenance costs.
The trucking operations require substantial cash expenditures for
tractor and trailer purchases. In 2005 and 2006, we accelerated
our normal three-year replacement cycle for company-owned
tractors. We funded these purchases with net cash from
operations and financing available under our existing credit
facilities, as management deemed necessary. The additional
number of new trucks purchased in 2005 and 2006 has allowed us to
delay purchases of trucks with the new 2007-standard engines
until 2008.
The weak freight market is placing increasing pressure on
rates during first quarter 2008. Costs for the Truckload segment
were much higher in January 2008 compared to January 2007 due to:
(i) significantly higher fuel prices, (ii) much higher
maintenance due in part to worse than normal winter weather and
(iii) higher insurance. Based on January 2008 results, it is
18
likely that our earnings per share for first quarter 2008 will be
significantly lower than our earnings per share for first quarter
2007.
We provide non-trucking services primarily through our VAS
division. These services include truck brokerage, freight
management (single-source logistics), intermodal and
international. Unlike our trucking operations, the non-trucking
operations are less asset-intensive and are instead dependent
upon qualified employees, information systems and qualified
third-party capacity providers. The most significant expense item
related to these non-trucking services is the cost of
transportation we pay 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. We evaluate our
non-trucking operations by reviewing the gross margin percentage
(revenues less rent and purchased transportation expenses
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.
Results of Operations
The following table sets forth certain industry data
regarding our freight revenues and operations for the periods
indicated.
2007 2006 2005 2004 2003
----------- ----------- ----------- ----------- -----------
Trucking revenues, net of
fuel surcharge (1) $ 1,483,164 $ 1,502,827 $ 1,493,826 $ 1,378,705 $ 1,286,674
Trucking fuel surcharge
revenues (1) 301,789 286,843 235,690 114,135 61,571
Non-trucking revenues,
including VAS (1) 268,388 277,181 230,863 175,490 100,916
Other operating revenues (1) 17,846 13,704 11,468 9,713 8,605
----------- ----------- ----------- ----------- -----------
Operating revenues (1) $ 2,071,187 $ 2,080,555 $ 1,971,847 $ 1,678,043 $ 1,457,766
=========== =========== =========== =========== ===========
Operating ratio
(consolidated) (2) 93.4% 92.1% 91.7% 91.6% 91.9%
Average revenues per tractor
per week (3) $ 3,341 $ 3,300 $ 3,286 $ 3,136 $ 2,988
Average annual miles per
tractor 118,656 117,072 120,912 121,644 121,716
Average annual trips per
tractor 184 175 187 185 173
Average trip length in
miles (loaded) 558 581 568 583 627
Total miles (loaded and
empty) (1) 1,012,964 1,025,129 1,057,062 1,028,458 1,008,024
Average revenues per total
mile (3) $ 1.464 $ 1.466 $ 1.413 $ 1.341 $ 1.277
Average revenues per loaded
mile (3) $ 1.692 $ 1.686 $ 1.609 $ 1.511 $ 1.431
Average percentage of empty
miles (4) 13.5% 13.1% 12.2% 11.3% 10.8%
Average tractors in service 8,537 8,757 8,742 8,455 8,282
Total tractors (at year end):
Company 7,470 8,180 7,920 7,675 7,430
Owner-operator 780 820 830 925 920
----------- ----------- ----------- ----------- -----------
Total tractors 8,250 9,000 8,750 8,600 8,350
=========== =========== =========== =========== ===========
Total trailers (truck and
intermodal, at year end) 24,855 25,200 25,210 23,540 22,800
=========== =========== =========== =========== ===========
(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.
19
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 $10.0 million in 2007, $11.2 million in 2006 and $12.2 million
in 2005, as described on page 17.
2007 2006 2005
------------------ ------------------ ------------------
Truckload Transportation Services (amounts in 000's) $ % $ % $ %
---------------------------------------------------- ------------------ ------------------ ------------------
Revenues $ 1,795,227 100.0 $ 1,801,090 100.0 $ 1,741,828 100.0
Operating expenses 1,673,619 93.2 1,644,581 91.3 1,585,706 91.0
----------- ----------- -----------
Operating income $ 121,608 6.8 $ 156,509 8.7 $ 156,122 9.0
=========== =========== ===========
Higher fuel prices and higher fuel surcharge collections
increase our 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 are excluded from revenue and instead
reported as a reduction of operating expenses.
2007 2006 2005
------------------ ------------------ ------------------
Truckload Transportation Services (amounts in 000's) $ % $ % $ %
---------------------------------------------------- ------------------ ------------------ ------------------
Revenues $ 1,795,227 $ 1,801,090 $ 1,741,828
Less: trucking fuel surcharge revenues 301,789 286,843 235,690
----------- ----------- -----------
Revenues, net of fuel surcharges 1,493,438 100.0 1,514,247 100.0 1,506,138 100.0
----------- ----------- -----------
Operating expenses 1,673,619 1,644,581 1,585,706
Less: trucking fuel surcharge revenues 301,789 286,843 235,690
----------- ----------- -----------
Operating expenses, net of fuel surcharges 1,371,830 91.9 1,357,738 89.7 1,350,016 89.6
----------- ----------- -----------
Operating income $ 121,608 8.1 $ 156,509 10.3 $ 156,122 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.
2007 2006 2005
------------------ ------------------ ------------------
Value Added Services (amounts in 000's) $ % $ % $ %
--------------------------------------- ------------------ ------------------ ------------------
Revenues $ 258,433 100.0 $ 265,968 100.0 $ 218,620 100.0
Rent and purchased transportation expense 224,667 86.9 240,800 90.5 196,972 90.1
----------- ----------- -----------
Gross margin 33,766 13.1 25,168 9.5 21,648 9.9
Other operating expenses 21,348 8.3 17,747 6.7 13,203 6.0
----------- ----------- -----------
Operating income $ 12,418 4.8 $ 7,421 2.8 $ 8,445 3.9
=========== =========== ===========
2007 Compared to 2006
---------------------
Operating Revenues
Operating revenues decreased 0.5% in 2007 compared to 2006.
Excluding fuel surcharge revenues, trucking revenues decreased
1.3% due primarily to a 2.5% decrease in the average number of
tractors in service (as discussed further below), offset
partially by a 1.4% increase in average annual miles per tractor.
The truckload freight market was softer during most of 2007
compared to 2006. Additionally, the significant industry-wide
accelerated purchase of new trucks in advance of the new 2007 EPA
engine emissions standards contributed to excess truck capacity
that partially disrupted the supply and demand balance during
2007. These combined factors negatively affected revenues per
total mile, which decreased 0.1% in 2007 compared to 2006.
20
Freight demand softness and the temporary increase in the
supply of trucks caused by the industry truck pre-buy made for
challenging freight market conditions during 2007. In mid-March
2007, we began reducing our medium-to-long-haul Van fleet by a
total of 250 trucks to better match the volume of freight with
the capacity of trucks and to improve profitability. This fleet
has the greatest exposure to the spot freight market and faced
the most operational and competitive challenges. By the latter
part of April 2007, this initial medium-to-long-haul Van fleet
reduction goal was achieved, but we had not yet achieved the
desired balance of trucks and freight. As a result, we decided
to further reduce our medium-to-long-haul Van fleet by an
additional 400 trucks, which we completed by the end of June
2007. We were able to transfer a portion of our medium-to-long-
haul Van fleet trucks to other more profitable fleets. The net
impact to our total fleet was an approximate 500-truck reduction
from mid-March 2007 to the end of June 2007. Beginning in the
second week of November 2007, we reduced our medium-to-long-haul
Van fleet by an additional 100 trucks due to further weakness in
the Van market. This resulted in a cumulative 750-truck
reduction of our medium-to-long-haul Van fleet from mid-March
2007 to December 2007. After experiencing disappointing load
counts during the first three weeks of January 2008, we reduced
our medium-to-long-haul Van fleet by another 200 trucks in order
to achieve the operational efficiencies and profitability
expectations for this fleet.
Load volumes were lower for the medium-to-long-haul Van
fleet during the first eight weeks of 2008 compared to the same
period of 2007. Prebook percentages of loads to trucks for the
medium-to-long-haul Van fleet were lower in January 2008 compared
to January 2007. After the 200 truck medium-to-long-haul Van
fleet reduction in January 2008, prebook percentages of loads to
trucks in the first three weeks of February 2008 were still lower
than the first three weeks of February 2007.
The average percentage of empty miles increased to 13.5% in
2007 from 13.1% in 2006. This increase resulted from the weaker
freight market, a higher percentage of dedicated trucks in the
total fleet and more regional shipments with shorter lengths of
haul. Over the past few years, we have grown our dedicated
fleets. These fleets generally operate according to arrangements
under which we provide trucks and/or trailers for a specific
customer's exclusive use. Under nearly all of these arrangements,
dedicated customers pay us on an all-mile basis (regardless of
whether trailers or trucks are loaded or empty) to obtain
guaranteed truck and/or trailer capacity. For freight management
and statistical reporting purposes, we classify a mile without
cargo in the trailer as an "empty mile" or "deadhead mile." The
growth of our dedicated fleet business and the higher percentage
of miles without cargo in the trailer attributed to dedicated
fleets have each contributed to an increase in our reported
average empty miles percentage. If we excluded the dedicated
fleet, the average empty mile percentage would be 11.8% in 2007
and 10.8% in 2006.
Fuel surcharge revenues represent collections from customers
for the higher cost of fuel. These revenues increased to $301.8
million in 2007 from $286.8 million in 2006 in response to higher
average fuel prices in 2007. To lessen the effect of fluctuating
fuel prices on our margins, we collect fuel surcharge revenues
from our customers. Our fuel surcharge programs are designed to
(i) recoup high fuel costs from customers when fuel prices rise
and (ii) provide customers with the benefit of lower costs when
fuel prices decline. The Company's fuel surcharge standard is a
one (1.0) cent per mile rate increase for every five (5.0) cent
per gallon increase in the DOE weekly retail on-highway diesel
prices. This standard is used for many fuel surcharge programs.
These programs have historically enabled us to recover
approximately 70-90% of the fuel price increases. The remaining
10-30% is generally not recoverable because of empty miles not
billable to customers, out-of-route miles, truck idle time and
the volatility of fuel prices when prices change rapidly in short
time periods. Also, in a rapidly rising fuel price market, there
is generally a several week delay between the payment of higher
fuel prices and surcharge recovery. In a rapidly declining fuel
price market, the opposite generally occurs, and there is a
temporary higher surcharge recovery compared to the price paid
for fuel.
VAS revenues decreased 2.8% to $258.4 million in 2007 from
$266.0 million in 2006 due to a customer structural change
(discussed below), offset partially by an increase in Brokerage
and International revenues. VAS gross margin dollars increased
34.2% for the same period due to an improvement in the gross
margin percentage in the Brokerage and Intermodal divisions. VAS
revenues are generated by the following VAS operating divisions:
Brokerage, Freight Management (single-source logistics),
Intermodal and International. Beginning in third quarter 2007,
21
we negotiated with a large VAS customer 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, we began
reporting VAS revenues for this customer on a net basis (revenues
net of purchased transportation expense) rather than on a gross
basis. This reporting change resulted in a reduction in VAS
revenues and VAS rent and purchased transportation expense of
$38.5 million comparing the second half of 2006 to the second
half of 2007. This reporting 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
13% in 2007 compared to 2006.
Brokerage continued to produce strong results with 26%
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 additional freight opportunities
across all company business units. Intermodal revenues declined
by design, yet produced significant operating income improvement
as we benefited from intermodal strategy changes that management
began implementing during the latter part of 2006.
Werner Global Logistics ("WGL"), formed in July 2006, is
actively assisting customers with innovative global supply chain
solutions. Customer development efforts are progressing, and WGL
continues to secure several new and meaningful customer business
awards. We are, through our subsidiaries and affiliates, a
licensed U.S. NVOCC, U.S. Customs Broker, licensed Freight
Forwarder in China, licensed China NVOCC, a TSA approved Indirect
Air Carrier, and an IATA Accredited Cargo Agent.
Operating Expenses
Our operating ratio (operating expenses expressed as a
percentage of operating revenues) was 93.4% in 2007 compared to
92.1% in 2006. Expense items that impacted the overall operating
ratio are described on the following pages. As explained on page
20, the total company 2007 operating ratio was 110 basis points
higher due to the significant increase in fuel expense and
recording the related fuel surcharge revenues on a gross basis.
The tables on page 20 show the operating ratios and operating
margins for our two reportable segments, Truckload and VAS.
The following table sets forth the cost per total mile of
operating expense items for the Truckload segment for the periods
indicated. We evaluate 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.
Increase
(Decrease)
2007 2006 per Mile
------------------------------
Salaries, wages and benefits $.571 $.564 $.007
Fuel .401 .377 .024
Supplies and maintenance .150 .145 .005
Taxes and licenses .115 .114 .001
Insurance and claims .092 .090 .002
Depreciation .159 .158 .001
Rent and purchased transportation .160 .150 .010
Communications and utilities .020 .019 .001
Other (.016) (.013) (.003)
Owner-operator costs are included in rent and purchased
transportation expense. Owner-operator miles as a percentage of
total miles were 12.3% in 2007 compared to 11.8% in 2006. Owner-
operators are independent contractors who supply their own
tractor and driver and are responsible for their operating
expenses (including driver pay, 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. We
estimate that rent and purchased transportation expense for the
Truckload segment was higher by approximately 0.7 cents per total
22
mile due to this increase, and other expense categories had
offsetting decreases on a total-mile basis as follows: (i)
salaries, wages and benefits, 0.3 cents; (ii) fuel, 0.2 cents;
(iii) taxes and licenses, 0.1 cent; and (iv) depreciation, 0.1
cent.
Salaries, wages and benefits for non-drivers increased in
2007 compared to 2006 due to a larger number of employees
required to support the growth in the non-trucking VAS segment.
Non-driver salaries for the Truckload segment were flat in 2007
compared to 2006. The increase in salaries, wages and benefits
per mile of 0.7 cents for the Truckload segment is primarily
attributed to (i) an increase in student driver pay as the
average number of student trainer teams was higher in 2007 than
in 2006; (ii) an increase in the dedicated fleet truck percentage
as dedicated drivers typically earn a higher rate per mile than
drivers in our other truck fleets; and (iii) higher group health
insurance costs. These cost increases for the Truckload segment
were partially offset by a decrease in workers' compensation
expense, lower state unemployment tax expense and a decrease in
equipment maintenance personnel.
The driver recruiting and retention market remains
challenging, but was less difficult in 2007 than in the 2006 due
to improved driver availability. The weakness in the housing
market and the medium-to-long-haul Van fleet reduction
contributed favorably to our driver recruiting and retention
efforts. We anticipate that competition for qualified drivers
will remain high and cannot predict whether we will experience
future shortages. If such a shortage did occur and additional
driver pay rate increases were necessary to attract and retain
drivers, our results of operations would be negatively impacted
to the extent that corresponding freight rate increases were not
obtained.
Fuel increased 2.4 cents per mile for the Truckload segment
due primarily to higher average diesel fuel prices. Average fuel
prices in 2007 were 20 cents per gallon, or 10%, higher than in
2006. For the first eight months of 2007, average fuel prices
were nearly the same as they were during the first eight months
of 2006. However, during the last four months of 2007, average
fuel prices continued to increase to record levels, while prices
declined in the last four months of 2006. Fuel prices averaged
65 cents more per gallon in the last four months of 2007 versus
the same period in 2006. Higher net fuel costs had a 9.0 cent
negative impact on earnings per share in 2007 compared to 2006.
Fuel prices have remained high to date in 2008. As of today,
diesel fuel prices are 98 cents per gallon higher than on the
same date a year ago, and average prices to date in 2008 are 88
cents per gallon higher than in the same period of 2007. We
include all of the following items when calculating fuel's impact
on earnings for both periods: (i) average fuel price per gallon,
(ii) fuel reimbursements paid to owner-operator drivers, (iii)
miles per gallon and (iv) offsetting fuel surcharge revenues from
customers.
During third quarter 2006, truckload carriers transitioned a
gradually increasing portion of their diesel fuel consumption
from low sulfur diesel fuel to ULSD fuel. This transition
occurred because fuel refiners were required to meet the EPA-
mandated 80% ULSD threshold by October 15, 2006. Preliminary
estimates indicated that ULSD would result in a 1-3% degradation
in mpg for all trucks due to the lower energy content (btu) of
ULSD. Since the transition occurred, the result is an
approximate 2% degradation of mpg. We believe that other factors
which impact mpg, including increasing the percentage of
aerodynamic trucks in our company truck fleet, have offset the
negative mpg impact of ULSD.
We have historically been successful recouping approximately
70-90% of fuel cost increases through our fuel surcharge program.
The remaining 10-30% difference is caused by the impact of
operational costs such as truck idling, empty miles, out-of-route
miles, and the government mandated conversion to ULSD. In the
past, we met with our customers to obtain recovery for this
shortfall in base rates per mile. However, because of the
current softer freight market, we have been unable to recover
this shortfall in base rates. As a result, increases in the cost
of fuel are expected to continue impacting our earnings per share
until freight market conditions may allow us to recover this
shortfall from customers. We are continuing to take actions to
aggressively manage the controllable aspects of our fuel costs.
23
Shortages of fuel, increases in fuel prices and petroleum
product rationing can have a materially adverse effect on our
operations and profitability. We are 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 December 31, 2007, we had no derivative financial
instruments to reduce our exposure to fuel price fluctuations.
Supplies and maintenance for the Truckload segment increased
0.5 cents (3%) per total mile in 2007 compared to 2006. Higher
over-the-road tractor repairs and maintenance were the primary
cause of this increase because the increased percentage of
dedicated fleet trucks requires more repairs to be performed off-
site rather than at our terminals. In addition, the average age
of our company-owned truck fleet increased to 2.1 years at
December 31, 2007 compared to 1.3 years at December 31, 2006. A
portion of this increase was offset by lower non-driver salaries,
wages and benefits from a decrease in maintenance personnel, as
previously noted. Our trailer repair costs were slightly lower
in 2007 than in 2006 because our ongoing purchases of new van
trailers lowered the average age of our trailer fleet.
Insurance and claims for the Truckload segment did not
change significantly from 2006 to 2007, increasing just 0.2 cents
(2%) on a per-mile basis. We renewed our liability insurance
policies on August 1, 2007 and became responsible for an annual
$8.0 million aggregate for claims between $2.0 million and $5.0
million. During the policy year that ended July 31, 2007, we
were responsible for a lower $2.0 million aggregate for claims
between $2.0 million and $3.0 million and no aggregate (meaning
that we were fully insured) for claims between $3.0 million and
$5.0 million. See Item 3 "Legal Proceedings" for information on
our bodily injury and property damage coverage levels since
August 1, 2004. Our liability insurance premiums for the policy
year beginning August 1, 2007 are slightly lower than the
previous policy year.
Rent and purchased transportation expense consists mainly of
payments to third-party capacity providers in the VAS segment and
other non-trucking operations and payments to owner-operators in
the Truckload segment. As discussed on page 21, 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
(i) $20.0 million from third quarter 2006 to third quarter 2007
and (ii) $18.5 million from fourth quarter 2006 to fourth 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. As a percentage of VAS revenues, VAS
rent and purchased transportation expense decreased to 86.9% in
2007 compared to 90.5% in 2006.
Rent and purchased transportation for the Truckload segment
increased 1.0 cent per total mile in 2007 due primarily to the
increase in the percentage of owner-operator truck miles versus
company truck miles. Increased fuel prices also necessitated
higher reimbursements to owner-operators for fuel ($36.0 million
in 2007 compared to $32.7 million in 2006). These reimbursements
resulted in an increase of 0.3 cents per total mile. Our
customer fuel surcharge programs do not differentiate between
miles generated by company-owned and owner-operator trucks.
Rather, we include the increase in owner-operator fuel
reimbursements with our fuel expenses in calculating the per-
share impact of higher fuel costs on earnings. Challenging
operating conditions continue to make owner-operator recruitment
and retention difficult for us. Such conditions include
inflationary cost increases that are the responsibility of owner-
operators. We have historically been able to add company-owned
tractors and recruit additional company drivers to offset any
owner-operator decreases. If a shortage of owner-operators and
company drivers occurs, increases in per mile settlement rates
(for owner-operators) and driver pay rates (for company drivers)
may become necessary to attract and retain these drivers. This
could negatively affect our results of operations to the extent
that we did not obtain corresponding freight rate increases.
Other operating expenses for the Truckload segment decreased
0.3 cents per mile in 2007. Gains on sales of assets (primarily
trucks and trailers) are reflected as a reduction of other
operating expenses and are reported net of sales-related
expenses, including costs to prepare the equipment for sale.
Gains on sales of assets decreased to $22.9 million in 2007 from
24
$28.4 million in 2006. Due to the softer freight market and
higher fuel prices, Fleet Truck Sales demand softened in fourth
quarter 2007. We expect this to continue for at least the first
half of 2008, which will likely have a continued negative impact
on the amount of our gains on sales. We continued to sell our
oldest van trailers that are fully depreciated and replaced them
with new trailers, and we expect to continue doing so in 2008.
Our wholly-owned used truck retail network, Fleet Truck Sales, is
one of the largest Class 8 truck sales entities in the United
States. Fleet Truck Sales continues to be our resource for
remarketing our used trucks. Other operating expenses also
include bad debt expense. In 2006, we recorded an additional
$7.2 million related to the bankruptcy of one of our former
customers.
We recorded $3.0 million of interest expense in 2007 versus
$1.2 million of interest expense in 2006 because our average debt
levels were higher in 2007. We had no debt outstanding at
December 31, 2007. Our interest income decreased to $4.0 million
in 2007 from $4.4 million in 2006.
Our effective income tax rate (income taxes expressed as a
percentage of income before income taxes) was 45.1% for 2007
versus 41.1% for 2006, as described in Note 4 of the Notes to
Consolidated Financial Statements under Item 8 of this Form 10-K.
During fourth quarter 2007, we reached a tentative settlement
agreement with an Internal Revenue Service appeals officer
regarding a significant timing difference between financial
reporting and tax reporting for our 2000 to 2004 federal income
tax returns. We accrued the estimated cumulative interest
charges, net of income taxes, of $4.0 million for the anticipated
settlement of this matter. Our policy is to recognize interest
and penalties directly related to income taxes as additional
income tax expense.
2006 Compared to 2005
---------------------
Operating Revenues
Operating revenues increased 5.5% in 2006 compared to 2005.
Excluding fuel surcharge revenues, trucking revenues increased
0.6% due primarily to a 3.8% increase in average revenues per
total mile, excluding fuel surcharges, offset by a 3.2% decrease
in average annual miles per tractor. The truckload freight
market was sluggish during much of 2006, particularly from mid-
August through December when the normal freight volume peak
seasonal increase did not occur. Additionally, the significant
industry-wide accelerated purchase of new trucks in advance of
the new 2007 engine emissions standards contributed to excess
truck capacity that partially disrupted the supply and demand
balance in the second half of 2006. These combined factors
resulted in the decrease in annual miles per tractor and also
negatively affected revenues per total mile. While revenues per
total mile increased 3.8% year-over-year, the percentage increase
over the comparable 2005 periods was lower in the last two
quarters of 2006 than in the first two quarters of 2006. Most of
the revenues per total mile increase is due to base rate
increases negotiated with customers, offset by an increase in the
empty mile percentage.
A substantial portion of our freight base is under contract
with customers and provides for annual pricing increases, with
much of our non-dedicated contractual business renewing in the
latter part of third quarter and fourth quarter. The challenging
freight market in the second half of 2006 made it much more
difficult for us to obtain base rate increases at levels
comparable to the 2005 and 2004 renewal periods.
The average percentage of empty miles increased to 13.1% in
2006 from 12.2% in 2005. This increase partially resulted from
higher percentages of dedicated trucks in the fleet and regional
shipments with a shorter length of haul. If we excluded the
dedicated fleet, the average empty mile percentage would be 10.8%
in 2006 and 10.0% in 2005.
Fuel surcharge revenues increased to $286.8 million in 2006
from $235.7 million in 2005 in response to higher average fuel
prices in 2006.
25
VAS revenues increased 21.7% to $266.0 million in 2006 from
$218.6 million in 2005, and gross margin increased 16.3% for the
same period. Most of the revenue growth came from our Brokerage
and Intermodal divisions within VAS.
Operating Expenses
Our operating ratio was 92.1% in 2006 versus 91.7% in 2005.
Expense items that impacted the overall operating ratio are
described on the following pages. As explained on page 20, the
operating ratio increased due to the significant rise in fuel
expense and recording the related fuel surcharge revenues on a
gross basis. Because the VAS operating margin is lower than that
of the trucking business, the growth in VAS business in 2006
compared to 2005 also increased our overall operating ratio. The
tables on page 20 show the operating ratios and operating margins
for our two reportable segments, Truckload and VAS.
The following table sets forth the cost per total mile of
operating expense items for the Truckload segment for the periods
indicated. We evaluate 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.
Increase
(Decrease)
2006 2005 per Mile
------------------------------
Salaries, wages and benefits $.564 $.532 $.032
Fuel .377 .321 .056
Supplies and maintenance .145 .143 .002
Taxes and licenses .114 .112 .002
Insurance and claims .090 .083 .007
Depreciation .158 .149 .009
Rent and purchased transportation .150 .149 .001
Communications and utilities .019 .019 .000
Other (.013) (.008) (.005)
Owner-operator miles as a percentage of total miles were
11.8% in 2006 compared to 12.5% in 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. We estimate that rent and purchased transportation
expense for the Truckload segment was lower by approximately 1.0
cent per total mile due to this decrease, and other expense
categories had offsetting increases on a total-mile basis, as
follows: (i) salaries, wages and benefits, 0.4 cents; (ii) fuel,
0.3 cents; (iii) supplies and maintenance, 0.1 cent; (iv) taxes
and licenses, 0.1 cent; and (v) depreciation, 0.1 cent.
Salaries, wages and benefits for non-drivers increased in
2006 compared to 2005 due to a larger number of employees
required to support the growth in the VAS segment. The increase
in salaries, wages and benefits per mile of 3.2 cents for the
Truckload segment is primarily attributed to higher driver pay
per mile resulting from (i) an increased percentage of company
truck miles versus owner-operator miles (see above); (ii) an
increase in the dedicated fleet truck percentage; (iii)
additional amounts paid to drivers to help offset the impact of
lower miles in a sluggish freight market; and (iv) higher group
health insurance costs, offset by a decrease in workers'
compensation expense. Non-driver salaries, wages and benefits
rose due to (i) an increase in equipment maintenance personnel
and (ii) $2.3 million of stock compensation expense related to
the our adoption of Statement of Financial Accounting Standards
("SFAS") No. 123 (Revised 2004), Share-Based Payment ("No.
123R"), on January 1, 2006. See Note 5 to the Notes to
Consolidated Financial Statements for more explanation of SFAS
No. 123R.
Effective January 1, 2006, we adopted SFAS 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,
26
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 for the year ended December
31, 2006 was $2.3 million, or 1.7 cents per share net of taxes.
There was no cumulative effect of initially adopting SFAS No.
123R.
The driver recruiting and retention market remained
challenging during 2006. We had two quarters of sequential
decreases in the average number of tractors in service during the
first half of 2006. Following these decreases, our ongoing focus
to lower driver turnover yielded positive results in the second
half of the year. The improvements in the latter part of the
year offset the decreases experienced during the first half of
the year, resulting in essentially no change in average tractors
in 2006 compared to 2005.
Fuel increased 5.6 cents per mile for the Truckload segment
due primarily to higher average diesel fuel prices. Average fuel
prices in 2006 were 28 cents per gallon, or 16%, higher than in
2005. Higher net fuel costs had a four (4.0) cent negative
impact on earnings per share in 2006 compared to 2005. As of
December 31, 2006, we had no derivative financial instruments to
reduce our exposure to fuel price fluctuations.
Insurance and claims for the Truckload segment increased 0.7
cents on a per-mile basis. This increase was primarily related to
higher negative development on existing liability insurance
claims and an increase in larger claims. We renewed our
liability insurance policies on August 1, 2006. See Item 3
"Legal Proceedings" for information on our bodily injury and
property damage coverage levels since August 1, 2004. Our
liability insurance premiums for the policy year beginning August
1, 2006 were slightly higher than the previous policy year.
Depreciation expense for the Truckload segment increased 0.9
cents on a per-mile basis in 2006. This increase is mainly due
to (i) higher costs of new tractors having post-October 2002
engines, (ii) the impact of fewer average miles per truck and
(iii) an increased percentage of company-owned trucks compared to
owner-operators. As of December 31, 2006, nearly 100% of the
company-owned truck fleet consisted of trucks having post-October
2002 engines, compared to 89% at December 31, 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. 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 increased
to 90.5% in 2006 compared to 90.1% in 2005. Intermodal's gross
profits and operating income declined because of the softer
freight market and the influence of higher fixed costs and
repositioning costs.
Rent and purchased transportation for the Truckload segment
increased 0.1 cent per total mile in 2006. Higher fuel prices
necessitated higher reimbursements to owner-operators for fuel
($32.7 million in 2006 compared to $26.6 million in 2005). These
higher owner-operator reimbursements resulted in an increase of
0.7 cents per total mile. We also increased the van and regional
over-the-road owner-operators' settlement rate by two (2.0) cents
per mile effective May 1, 2006. These increases were offset by
the decrease in the number of owner-operator trucks and the
corresponding decrease in owner-operator miles. Payments to
third-party capacity providers related to the small amount of
non-trucking revenues recorded by the Truckload segment also
decreased by 0.1 cent per mile, partially offsetting the
Truckload segment's overall increase.
Other operating expenses for the Truckload segment decreased
0.5 cents per mile in 2006. Gains on sales of assets increased
to $28.4 million in 2006 from $11.0 million in 2005. During
2006, we began selling our oldest van trailers that reached the
end of their depreciable life, which increased gains in 2006.
The number of trucks sold in 2006 and the average gain per truck
sold (before costs to prepare the equipment for sale) both
decreased slightly in comparison to 2005. We spent less on
repairs per truck sold in 2006 as compared to 2005, which also
contributed to the improvement in gains on sale. Other operating
27
expenses also include bad debt expense and professional service
fees. In first quarter 2006, we recorded an additional $7.2
million related to the bankruptcy of one of our former customers.
We recorded $1.2 million of interest expense in 2006
compared to $0.7 million of interest expense in 2005. We had $100
million of debt outstanding at December 31, 2006. This debt was
incurred in the second half of 2006 for the purchase of new
trucks. In first quarter 2006, we repaid the $60 million of debt
that was outstanding at December 31, 2005. Our interest income
increased to $4.4 million in 2006 from $3.4 million in 2005 due
to improved interest rates, partially offset by a declining cash
balance throughout 2006.
Our effective income tax rate was 41.1% for 2006 versus
41.0% for 2005, as described in Note 4 of the Notes to
Consolidated Financial Statements under Item 8 of this Form 10-K.
Liquidity and Capital Resources
During the year ended December 31, 2007, we generated cash
flow from operations of $228.0 million, a 19.7% decrease ($56.1
million), in cash flow compared to the year ended December 31,
2006. This decrease is due primarily to (i) a $33.8 change in
accounts payable for revenue equipment caused by a $16.1 million
increase in accounts payable for revenue equipment from December
2005 to December 2006 (compared to a $17.7 million decrease in
accounts payable for revenue equipment from December 2006 to
December 2007) as we delayed the purchase of trucks with 2007
engines during 2007 and (ii) lower net income in 2007. These
cash flow decreases were offset partially by working capital
improvements in accounts receivable. Cash flow from operations
increased $111.6 million in 2006 compared to 2005, or 64.7%. The
increase in cash flow from operations in 2006 compared to 2005
was due primarily to lower income tax payments during 2006,
higher payables for revenue equipment of $17.1 million and
improved collections of accounts receivable. In addition, we
wrote off a $7.2 million receivable related to the bankruptcy of
a former customer during 2006, resulting in a decrease in net
accounts receivable. Income taxes paid during 2006 totaled $68.9
million compared to $99.2 million in 2005. The higher tax
payments in 2005 were related to tax law changes that resulted in
the reversal of certain tax strategies implemented in 2001 and
the effect of lower income tax depreciation in 2005 due to the
bonus tax depreciation provision that expired on December 31,
2004. We made federal income tax payments of $22.5 million
related to the reversal of the tax strategies in second quarter
2005. We were able to make net capital expenditures, repay debt,
repurchase stock and pay dividends because of the cash flow from
operations and existing cash balances, supplemented by net
borrowings under our existing credit facilities.
Net cash used in investing activities decreased 91.5%
($216.1 million) to $20.1 million in 2007 from $236.2 million in
2006. Net property additions (primarily revenue equipment) were
$26.1 million for the year ended December 31, 2007 compared to
$241.8 million during the same period of 2006. The decrease
occurred because we took delivery of substantially fewer new
trucks during 2007 to delay purchases of more expensive trucks
with 2007 engines. The $58.0 million, or 19.7%, decrease in
investing cash flows from 2006 to 2005 was due primarily to (i)
the purchase of more tractors in 2005 as we began to reduce the
average age of our truck fleet and (ii) purchasing fewer tractors
and selling more trailers in 2006. The average age of our truck
fleet is 2.1 years at December 31, 2007 compared to 1.3 years at
December 31, 2006. As of December 31, 2007, we committed to
property and equipment purchases of approximately $48.7 million.
We intend to fund these net capital expenditures through cash
flow from operations and financing available under our existing
credit facilities, as management deems necessary.
Net financing activities used $214.4 million in 2007, used
$52.8 million in 2006 and provided $48.9 million in 2005. The
change from 2006 to 2007 included debt repayments (net of
borrowings) of $100.0 million in 2007 compared to net borrowings
of $40.0 million in 2006. We borrowed $60.0 million in 2005. We
paid dividends of $14.0 million in 2007, $13.3 million in 2006
and $11.9 million in 2005. We increased our quarterly dividend
rate by $0.005 per share beginning with the dividend paid in July
2007 and the dividend paid in July 2006. Financing activities
also included Common Stock repurchases of $113.8 million in 2007,
$85.1 million in 2006 and $1.6 million in 2005. From time to
28
time, we have repurchased, and may continue to repurchase, shares
of our Common Stock. The timing and amount of such purchases
depends on market and other factors. On October 11, 2007, our
Board of Directors approved an increase in the number of shares
of our Common Stock that the Company is authorized to repurchase.
This new authorization permits us to repurchase an additional
8,000,000 shares. As of December 31, 2007, the Company had
purchased 791,200 shares pursuant to this authorization and had
7,208,800 shares remaining available for repurchase.
Management believes our financial position at December 31,
2007 is strong. As of December 31, 2007, we had $25.1 million of
cash and cash equivalents and $832.8 million of stockholders'
equity. As of December 31, 2007, we had $225.0 million of credit
pursuant to credit facilities, of which we had no outstanding
borrowings. The $225.0 million of credit available under these
facilities is further reduced by the $33.6 million in letters of
credit we maintain. These letters of credit are primarily
required as security for insurance policies. As of December 31,
2007, we did not have any non-cancelable revenue equipment
operating leases and therefore had no off-balance sheet revenue
equipment debt. Based on our strong financial position,
management does not foresee any significant barriers to obtaining
sufficient financing, if necessary.
Contractual Obligations and Commercial Commitments
The following tables set forth our contractual obligations
and commercial commitments as of December 31, 2007.
Payments Due by Period
(in millions)
Less than Over 5
Total 1 year 1-3 years 4-5 years years Other
------------------------------------------------------------------------------------------------------
Contractual Obligations
Unrecognized tax benefits $ 12.6 $ - $ - $ - $ - $ 12.6
Equipment purchase commitments 48.7 48.7 - - - -
-------- -------- -------- -------- -------- --------
Total contractual cash obligations $ 61.3 $ 48.7 $ - $ - $ - $ 12.6
======== ======== ======== ======== ======== ========
Other Commercial
Commitments
Unused lines of credit $ 191.4 $ - $ 191.4 $ - $ - $ -
Standby letters of credit 33.6 33.6 - - - -
-------- -------- -------- -------- -------- --------
Total commercial commitments $ 225.0 $ 33.6 $ 191.4 $ - $ - $ -
======== ======== ======== ======== ======== ========
Total obligations $ 286.3 $ 82.3 $ 191.4 $ - $ - $ 12.6
======== ======== ======== ======== ======== ========
We have committed credit facilities with two banks totaling
$225.0 million, of which we had no outstanding borrowings. These
credit facilities bear variable interest based on the London
Interbank Offered Rate ("LIBOR"). The credit available under
these facilities is further reduced by the amount of standby
letters of credit under which we are obligated. The unused lines
of credit are available to us in the event we need financing for
the growth of our fleet. Given our strong financial position, we
expect that we could obtain additional financing, if necessary,
at favorable terms. The standby letters of credit are primarily
required for insurance policies. The equipment purchase
commitments relate to committed equipment expenditures. On
January 1, 2007, we adopted FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes-an Interpretation of
FASB Statement No. 109 ("FIN 48"), and have recorded $12.6
million of unrecognized tax benefits. We are unable to
reasonably determine when these amounts will be settled.
Off-Balance Sheet Arrangements
We do not have arrangements that meet the definition of an
off-balance sheet arrangement.
29
Critical Accounting Policies
We operate in the truckload sector of the trucking industry,
with a focus on transporting consumer nondurable products that
ship more consistently throughout the year and when changes occur
in the economy. Our success depends on our ability to
efficiently manage our resources in the delivery of truckload
transportation and logistics services to our customers. Resource
requirements vary with customer demand and may be subject to
seasonal or general economic conditions. Our ability to adapt to
changes in customer transportation requirements is a key element
in efficient resource deployment and in making capital
investments in tractors and trailers. Although our business
volume is not highly concentrated, we may also be affected by the
financial failure of customers or a loss of a customer's
business.
Our most significant resource requirements are qualified
drivers, tractors, trailers and related equipment operating costs
(such as fuel and related fuel taxes, driver pay, insurance and
supplies and maintenance). Historically, we have successfully
mitigated our risk to fuel price increases by recovering from our
customers additional fuel surcharges that recoup a majority of
the increased fuel costs; however, we cannot assure that current
recovery levels will continue in future periods. Our financial
results are also affected by company driver and owner-operator
availability and the new and used revenue equipment market.
Because we are self-insured for a significant portion of bodily
injury, property damage and cargo claims and for workers'
compensation benefits for our employees (supplemented by premium-
based coverage above certain dollar levels), financial results
may also be affected by driver safety, medical costs, weather,
legal and regulatory environments and insurance coverage costs to
protect against catastrophic losses.
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 our normal
replacement cycle for tractors is three years, we
calculate 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) 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.
We continually monitor the adequacy of the lives and
salvage values used in calculating depreciation expense
and adjust these assumptions appropriately when warranted.
* Impairment of long-lived assets. We review our 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. We do 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 our 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 of our assets. 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 noncurrent) are recorded at the estimated ultimate
30
payment amounts and are based upon individual case
estimates (including negative development) and estimates
of incurred-but-not-reported losses using loss
development factors based upon past experience. An
actuary reviews our self-insurance reserves for bodily
injury and property damage claims and workers'
compensation claims 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-operators under contract with us) is
utilized to provide some or all of the service and we (i)
are the primary obligor in regard to the shipment
delivery, (ii) establish customer pricing separately from
carrier rate negotiations, (iii) generally have
discretion in carrier selection and/or (iv) have credit
risk on the shipment, we record both revenues for the
dollar value of services we bill to the customer and rent
and purchased transportation expense for transportation
costs we pay to the third-party provider upon the
shipment's delivery. In the absence of the conditions
listed above, we record revenues net of those expenses
related to third-party providers.
* Accounting for income taxes. Significant management
judgment is required to determine the provision for
income taxes, to determine whether deferred income taxes
will be realized in full or in part and to determine the
liability for unrecognized tax benefits in accordance
with the provisions of FIN 48 (which we adopted January
1, 2007). Deferred income tax assets and liabilities are
measured using enacted tax rates that are expected to
apply to taxable income in the years when 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 our
profitable operations. Accordingly, if facts or
financial circumstances changed and consequently impacted
the likelihood of realizing the deferred income tax
assets, we would need to apply management's judgment to
determine the amount of valuation allowance required in
any given period.
Management periodically re-evaluates these estimates as
events and circumstances change. Together with the effects of
the matters discussed above, these factors may significantly
impact our results of operations from period-to-period.
Inflation
Inflation may impact our operating costs. A prolonged
inflation period could cause rises in interest rates, fuel, wages
and other costs. These inflationary increases could adversely
affect our results of operations unless freight rates could be
increased correspondingly. However, the effect of inflation has
been minimal over the past three years.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
We are exposed to market risk from changes in interest
rates, commodity prices and foreign currency exchange rates.
Interest Rate Risk
We had no debt outstanding at December 31, 2007. Interest
rates on our unused credit facilities are based on the LIBOR.
Increases in interest rates could impact our annual interest
expense on future borrowings. As of December 31, 2007, we do not
have any derivative financial instruments to reduce our exposure
to interest rate increases.
31
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, we have recovered a significant
portion of fuel price increases from customers in the form of
fuel surcharges. We implemented customer fuel surcharge programs
with most of our revenue base to offset much of the higher fuel
cost per gallon. We 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 December 31, 2007, we had no derivative
financial instruments to reduce our exposure to fuel price
fluctuations.
Foreign Currency Exchange Rate Risk
We conduct business in Mexico, Canada and Asia. Foreign
currency transaction gains and losses were not material to our
results of operations for 2007 and prior years. To date, most
foreign revenues are denominated in U.S. Dollars, and we receive
payment for foreign freight services primarily in U.S. Dollars to
reduce direct foreign currency risk. Accordingly, we are not
currently subject to material risks involving any foreign
currency exchange rate and the effects that such exchange rate
movements would have on our future costs or future cash flows.
32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Werner Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets
of Werner Enterprises, Inc. and subsidiaries as of December 31,
2007 and 2006, and the related consolidated statements of income,
stockholders' equity and comprehensive income, and cash flows for
each of the years in the three-year period ended December 31,
2007. In connection with our audits of the consolidated
financial statements, we have also audited the financial
statement schedule for each of the years in the three-year period
ended December 31, 2007, listed in Item 15(a)(2) of this Form 10-
K. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Werner Enterprises, Inc. and subsidiaries
as of December 31, 2007 and 2006, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2007, in conformity with
U.S. generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
We also have audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United States),
Werner Enterprises, Inc.'s internal control over financial
reporting as of December 31, 2007, based on criteria established
in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated February 18, 2008 expressed an
unqualified opinion on the effectiveness of the Company's
internal control over financial reporting.
KPMG LLP
Omaha, Nebraska
February 18, 2008
33
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Years Ended December 31,
--------------------------------------
2007 2006 2005
---------- ---------- ----------
Operating revenues $2,071,187 $2,080,555 $1,971,847
---------- ---------- ----------
Operating expenses:
Salaries, wages and benefits 598,837 594,783 574,893
Fuel 408,410 388,710 340,622
Supplies and maintenance 159,843 155,304 154,719
Taxes and licenses 117,170 117,570 118,853
Insurance and claims 93,769 92,580 88,595
Depreciation 166,994 167,516 162,462
Rent and purchased transportation 387,564 395,660 354,335
Communications and utilities 20,098 19,651 20,468
Other (18,015) (15,720) (7,711)
---------- ---------- ----------
Total operating expenses 1,934,670 1,916,054 1,807,236
---------- ---------- ----------
Operating income 136,517 164,501 164,611
---------- ---------- ----------
Other expense (income):
Interest expense 2,977 1,196 672
Interest income (3,989) (4,407) (3,381)
Other 247 319 261
---------- ---------- ----------
Total other income (765) (2,892) (2,448)
---------- ---------- ----------
Income before income taxes 137,282 167,393 167,059
Income taxes 61,925 68,750 68,525
---------- ---------- ----------
Net income $ 75,357 $ 98,643 $ 98,534
========== ========== ==========
Earnings per share:
Basic $ 1.03 $ 1.27 $ 1.24
========== ========== ==========
Diluted $ 1.02 $ 1.25 $ 1.22
========== ========== ==========
Weighted-average common shares outstanding:
Basic 72,858 77,653 79,393
========== ========== ==========
Diluted 74,114 79,101 80,701
========== ========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
34
WERNER ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
December 31,
------------------------
ASSETS 2007 2006
---------- ----------
Current assets:
Cash and cash equivalents $ 25,090 $ 31,613
Accounts receivable, trade, less allowance
of $9,765 and $9,417, respectively 213,496 232,794
Other receivables 14,587 17,933
Inventories and supplies 10,747 10,850
Prepaid taxes, licenses, and permits 17,045 18,457
Current deferred income taxes 26,702 25,251
Other current assets 21,500 24,143
---------- ----------
Total current assets 329,167 361,041
---------- ----------
Property and equipment, at cost:
Land 27,947 26,945
Buildings and improvements 121,788 118,910
Revenue equipment 1,284,418 1,372,768
Service equipment and other 171,292 168,597
---------- ----------
Total property and equipment 1,605,445 1,687,220
Less - accumulated depreciation 633,504 590,880
---------- ----------
Property and equipment, net 971,941 1,096,340
---------- ----------
Other non-current assets 20,300 20,792
---------- ----------
$1,321,408 $1,478,173
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 49,652 $ 75,821
Insurance and claims accruals 76,189 73,782
Accrued payroll 21,753 21,344
Other current liabilities 19,395 19,963
---------- ----------
Total current liabilities 166,989 190,910
---------- ----------
Long-term debt, net of current portion - 100,000
Other long-term liabilities 14,165 999
Deferred income taxes 196,966 216,413
Insurance and claims accruals, net of current
portion 110,500 99,500
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value, 200,000,000
shares authorized; 80,533,536
shares issued; 70,373,189 and 75,339,297
shares outstanding, respectively 805 805
Paid-in capital 101,024 105,193
Retained earnings 923,411 862,403
Accumulated other comprehensive loss (169) (207)
Treasury stock, at cost; 10,160,347 and
5,194,239 shares, respectively (192,283) (97,843)
---------- ----------
Total stockholders' equity 832,788 870,351
---------- ----------
$1,321,408 $1,478,173
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
35
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
-------------------------------------
2007 2006 2005
--------- --------- ---------
Cash flows from operating activities:
Net income $ 75,357 $ 98,643 $ 98,534
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation 166,994 167,516 162,462
Deferred income taxes (8,571) 2,234 (37,380)
Gain on disposal of operating
equipment (22,915) (28,393) (11,026)
Stock based compensation 1,878 2,258 -
Tax benefit from exercise of
stock options - - 1,617
Other long-term assets 918 (1,878) (795)
Insurance and claims accruals,
net of current portion 11,000 4,500 11,000
Other long-term liabilities 571 473 225
Changes in certain working
capital items:
Accounts receivable, net 19,298 7,430 (53,453)
Prepaid expenses and other
current assets 7,504 (1,498) (14,207)
Accounts payable (26,169) 23,434 2,769
Accrued and other current 2,120 9,346 12,746
liabilities --------- --------- ---------
Net cash provided by operating
activities 227,985 284,065 172,492
--------- --------- ---------
Cash flows from investing activities:
Additions to property and equipment (133,124) (400,548) (414,112)
Retirements of property and equipment 107,056 158,727 114,903
Decrease in notes receivable 5,962 5,574 4,957
--------- --------- ---------
Net cash used in investing
activities (20,106) (236,247) (294,252)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of short-term
debt - - 60,000
Proceeds from issuance of long-term
debt 10,000 100,000 -
Repayments of short-term debt (30,000) (60,000) -
Repayments of long-term debt (80,000) - -
Dividends on common stock (13,953) (13,287) (11,904)
Repurchases of common stock (113,821) (85,132) (1,573)
Stock options exercised 8,789 3,377 2,411
Excess tax benefits from exercise
of stock options 4,545 2,202 -
--------- --------- ---------
Net cash provided by (used in)
financing activities (214,440) (52,840) 48,934
--------- --------- ---------
Effect of exchange rate fluctuations
on cash 38 52 602
Net decrease in cash and cash
equivalents (6,523) (4,970) (72,224)
Cash and cash equivalents, beginning
of year 31,613 36,583 108,807
--------- --------- ---------
Cash and cash equivalents, end of year $ 25,090 $ 31,613 $ 36,583
========= ========= =========
Supplemental disclosures of cash flow
information:
Cash paid during year for:
Interest $ 3,717 $ 566 $ 561
Income taxes 65,111 68,941 99,170
Supplemental disclosures of non-cash
investing activities:
Notes receivable issued upon sale
of revenue equipment $ 6,388 $ 8,965 $ 8,164
The accompanying notes are an integral part of these consolidated
financial statements.
36
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE
INCOME
(In thousands, except share and per share amounts)
Accumulated
Other Total
Common Paid-In Retained Comprehensive Treasury Stockholders'
Stock Capital Earnings Income (Loss) Stock Equity
--------------------------------------------------------------------------
BALANCE, December 31, 2004 $805 $106,695 $691,035 $(861) $ (24,505) $773,169
Purchases of 88,000 shares
of common stock - - - - (1,573) (1,573)
Dividends on common stock
($.155 per share) - - (12,309) - - (12,309)
Exercise of stock options,
310,696 shares,
including tax benefits - (1,621) - - 5,649 4,028
Comprehensive income (loss):
Net income - - 98,534 - - 98,534
Foreign currency
translation adjustments - - - 602 - 602
------- -------- -------- ----- --------- --------
Total comprehensive
income (loss) - - 98,534 602 - 99,136
------- -------- -------- ----- --------- --------
BALANCE, December 31, 2005 805 105,074 777,260 (259) (20,429) 862,451
Purchases of 4,500,000 shares
of common stock - - - - (85,132) (85,132)
Dividends on common stock
($.175 per share) - - (13,500) - - (13,500)
Exercise of stock options,
418,854 shares, including
excess tax benefits - (2,139) - - 7,718 5,579
Stock-based compensation
expense - 2,258 - - - 2,258
Comprehensive income (loss):
Net income - - 98,643 - - 98,643
Foreign currency
translation adjustments - - - 52 - 52
------- -------- -------- ----- --------- --------
Total comprehensive
income (loss) - - 98,643 52 - 98,695
------- -------- -------- ----- --------- --------
BALANCE, December 31, 2006 805 105,193 862,403 (207) (97,843) 870,351
Purchases of 6,000,000 shares
of common stock - - - - (113,821) (113,821)
Dividends on common stock
($.195 per share) - - (14,081) - - (14,081)
Exercise of stock options,
1,033,892 shares, including
excess tax benefits - (6,047) - - 19,381 13,334
Stock-based compensation
expense - 1,878 - - - 1,878
Adoption of FIN 48 - - (268) - - (268)
Comprehensive income (loss):
Net income - - 75,357 - - 75,357
Foreign currency
translation adjustments - - - 38 - 38
------- -------- -------- ----- --------- --------
Total comprehensive
income (loss) - - 75,357 38 - 75,395
------- -------- -------- ----- --------- --------
BALANCE, December 31, 2007 $805 $101,024 $923,411 $(169) $(192,283) $832,788
======= ======== ======== ===== ========= ========
The accompanying notes are an integral part of these consolidated
financial statements.
37
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Werner Enterprises, Inc. (the "Company") is a truckload
transportation and logistics company operating under the
jurisdiction of the U.S. Department of Transportation, the
federal and provincial Transportation Departments in Canada, the
Secretary of Communication and Transportation in Mexico and
various U.S. state regulatory commissions. We maintain a
diversified freight base and are not dependent on a specific
industry for a majority of our freight, which limits
concentrations of credit risk. One customer generated
approximately 8% of total revenues in 2007, 11% in 2006 and 10%
in 2005.
Principles of Consolidation
The accompanying consolidated financial statements include
the accounts of Werner Enterprises, Inc. and our majority-owned
subsidiaries. All significant intercompany accounts and
transactions relating to these majority-owned entities have been
eliminated.
Use of Management Estimates
The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the (i) reported amounts of assets
and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements
and (ii) reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
We consider all highly liquid investments, purchased with a
maturity of three months or less, to be cash equivalents.
Trade Accounts Receivable
We record trade accounts receivable at the invoiced amounts,
net of an allowance for doubtful accounts. The allowance for
doubtful accounts is our best estimate of the amount of probable
credit losses in our existing accounts receivable. We review the
financial condition of customers prior to granting credit. We
determine the allowance based on historical write-off experience
and national economic data. We evaluate the adequacy of our
allowance for doubtful accounts quarterly. Past due balances
over 90 days and exceeding a specified amount are reviewed
individually for collectibility. Account balances are charged
off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote.
We do not have any off-balance-sheet credit exposure related to
our customers.
Inventories and Supplies
Inventories and supplies are stated at the lower of average
cost or market and consist primarily of revenue equipment parts,
tires, fuel, supplies and company store merchandise. Tires
placed on new revenue equipment are capitalized as a part of the
equipment cost. Replacement tires are expensed when placed in
service.
38
Property, Equipment, and Depreciation
Additions and improvements to property and equipment are
capitalized at cost, while maintenance and repair expenditures
are charged to operations as incurred. Gains and losses on the
sale or exchange of equipment are recorded in other operating
expenses. Prior to July 1, 2005, if equipment was traded rather
than sold and cash involved in the exchange was less than 25% of
the exchange's fair value, the cost of new equipment was recorded
at an amount equal to the lower of the (i) monetary consideration
paid plus the net book value of the traded property or (ii) fair
value of the new equipment.
Depreciation is calculated based on the cost of the asset,
reduced by the asset's estimated salvage value, using the
straight-line method. Accelerated depreciation methods are used
for income tax purposes. The lives and salvage values assigned
to certain assets for financial reporting purposes are different
than for income tax purposes. For financial reporting purposes,
assets are depreciated using the following estimated useful lives
and salvage values:
Lives Salvage Values
----------- ------------------
Building and improvements 30 years 0%
Tractors 5 years 25%
Trailers 12 years $1,000
Service and other equipment 3-10 years 0%
Although our normal replacement cycle for tractors is three
years, we calculate 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 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. As a
result, there is no difference in recorded depreciation expense
on a quarterly or annual basis with our five-year life and 25%
salvage value, as compared to a three-year life and 55% salvage
value.
Long-Lived Assets
We review our 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. We do
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 our 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
of our assets. Long-lived assets classified as "held for sale"
are reported at the lower of their carrying amount or fair value
less costs to sell.
Insurance and Claims Accruals
Insurance and claims accruals (both current and noncurrent)
reflect the estimated cost (including estimated loss development
and loss adjustment expenses) for (i) cargo loss and damage, (ii)
bodily injury and property damage ("BI/PD"), (iii) group health
and (iv) workers' compensation claims not covered by insurance.
The costs for cargo and BI/PD insurance and claims are included
in insurance and claims expense in the Consolidated Statements of
Income; the costs of group health and workers' compensation
claims are included in salaries, wages and benefits expense. The
insurance and claims accruals are recorded at the estimated
ultimate payment amounts. Such insurance and claims accruals are
based upon individual case estimates (including negative
development) and estimates of incurred-but-not-reported losses
using loss development factors based upon past experience.
Actual costs related to insurance and claims have not differed
39
materially from estimated accrued amounts for all years
presented. An actuary reviews our self-insurance reserves for
bodily injury and property damage claims and workers'
compensation claims every six months.
We were responsible for liability claims up to $500,000,
plus administrative expenses, for each occurrence involving
bodily injury or property damage since August 1, 1992. For the
policy year beginning August 1, 2004, we increased our self-
insured retention ("SIR") and deductible amount to $2.0 million
per occurrence. We are also responsible for varying annual
aggregate amounts of liability for claims in excess of the
SIR/deductible. The following table reflects the SIR/deductible
levels and aggregate amounts of liability for bodily injury and
property damage claims since August 1, 2004:
Primary Coverage
Coverage Period Primary Coverage SIR/Deductible
-------------------------------- ---------------- ----------------
August 1, 2004 - July 31, 2005 $5.0 million $2.0 million (1)
August 1, 2005 - July 31, 2006 $5.0 million $2.0 million (2)
August 1, 2006 - July 31, 2007 $5.0 million $2.0 million (2)
August 1, 2007 - July 31, 2008 $5.0 million $2.0 million (3)
(1) Subject to an additional $3.0 million aggregate in the $2.0
to $3.0 million layer, no aggregate (meaning that we were fully
insured) in the $3.0 to $5.0 million layer, and a $5.0 million
aggregate in the $5.0 to $10.0 million layer.
(2) Subject to an additional $2.0 million aggregate in the $2.0
to $3.0 million layer, no aggregate (meaning that we were fully
insured) in the $3.0 to $5.0 million layer, and a $5.0 million
aggregate in the $5.0 to $10.0 million layer.
(3) Subject to an additional $8.0 million aggregate in the $2.0
to $5.0 million layer and a $5.0 million aggregate in the $5.0
to $10.0 million layer.
Our primary insurance covers the range of liability under
which we expect most claims to occur. If any liability claims
are substantially in excess of coverage amounts listed in the
table above, such claims are covered under premium-based policies
(issued by reputable insurance companies) to coverage levels that
our management considers adequate. We are also responsible for
administrative expenses for each occurrence involving bodily
injury or property damage.
We assumed responsibility for workers' compensation up to
$1.0 million per claim. Effective April 2007, we were no longer
responsible for the additional $1.0 million aggregate for claims
between $1.0 million and $2.0 million. For the years 2005 and
2006 we were responsible for a $1.0 million aggregate for claims
between $1.0 million and $2.0 million. We also maintain a $25.4
million bond and obtained insurance for individual claims above
$1.0 million.
Under these insurance arrangements, we maintain $33.6
million in letters of credit as of December 31, 2007.
Revenue Recognition
The Consolidated Statements of Income reflect recognition of
operating revenues (including fuel surcharge revenues) and
related direct costs when the shipment is delivered. For
shipments where a third-party capacity provider (including owner-
operators under contract with us) is utilized to provide some or
all of the service and we (i) are the primary obligor in regard
to the shipment delivery, (ii) establish customer pricing
separately from carrier rate negotiations, (iii) generally have
discretion in carrier selection and/or (iv) have credit risk on
the shipment, we record both revenues for the dollar value of
services we bill to the customer and rent and purchased
transportation expense for transportation costs we pay to the
third-party provider upon the shipment's delivery. In the
absence of the conditions listed above, we record revenues net of
those expenses related to third-party providers.
Foreign Currency Translation
Local currencies are generally considered the functional
currencies outside the United States. Assets and liabilities are
translated at year-end exchange rates for operations in local
currency environments. Most foreign revenues are denominated in
U.S. Dollars. Expense items are translated at the average rates
of exchange prevailing during the year. Foreign currency
translation adjustments reflect the changes in foreign currency
exchange rates applicable to the net assets of the foreign
operations for the years ended December 31, 2007, 2006, and 2005.
The amounts of such translation adjustments were not significant
40
for all years presented (see the Consolidated Statements of
Stockholders' Equity and Comprehensive Income).
Income Taxes
We use the asset and liability method of Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for
Income Taxes, in accounting for income taxes. Under this method,
deferred tax assets and liabilities are recognized for the future
tax consequences attributable to temporary differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using the enacted tax rates that are
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
Common Stock and Earnings Per Share
We compute and present earnings per share ("EPS") in
accordance with SFAS No. 128, 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.
There are no differences in the numerator of our computations of
basic and diluted EPS for any period presented. The computation
of basic and diluted earnings per share is shown below (in
thousands, except per share amounts).
Years Ended December 31,
----------------------------------
2007 2006 2005
-------- -------- --------
Net income $ 75,357 $ 98,643 $ 98,534
======== ======== ========
Weighted-average common shares
outstanding 72,858 77,653 79,393
Common stock equivalents 1,256 1,448 1,308
-------- -------- --------
Shares used in computing
diluted earnings per share 74,114 79,101 80,701
======== ======== ========
Basic earnings per share $ 1.03 $ 1.27 $ 1.24
======== ======== ========
Diluted earnings per share $ 1.02 $ 1.25 $ 1.22
======== ======== ========
Options to purchase shares of Common Stock that 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:
Years Ended December 31,
------------------------------------------
2007 2006 2005
------------ ------------ ------------
Number of shares under option 29,500 24,500 19,500
Option purchase price $19.26-20.36 $19.84-20.36 $ 19.84
Comprehensive Income
Comprehensive income consists of net income and other
comprehensive income (loss). Other comprehensive income (loss)
refers to revenues, expenses, gains and losses that are not
included in net income, but rather are recorded directly in
stockholders' equity. For the years ended December 31, 2007,
2006, and 2005, comprehensive income consists of net income and
foreign currency translation adjustments.
41
Accounting Standards
In February 2006, the FASB issued SFAS No. 155, Accounting
for Certain Hybrid Financial Instruments-An Amendment of FASB
Statements No. 133 and 140 ("No. 155"). This Statement amends
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities ("No. 133"), and SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities ("No. 140"). SFAS No. 155 eliminates the
exemption from applying SFAS No. 133 to interests in securitized
financial assets so that similar items are accounted for in the
same way. The provisions of SFAS No. 155 were effective for all
financial instruments acquired or issued after the beginning of
the first fiscal year that began after September 15, 2006. Upon
adoption, SFAS No. 155 had no effect on our financial position,
results of operations and cash flows.
In March 2006, the FASB issued SFAS No. 156, Accounting for
Servicing of Financial Assets-An Amendment of FASB Statement No.
140 ("No. 156"). This Statement amends SFAS No. 140 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 were effective as of the beginning
of the first fiscal year that began after September 15, 2006.
Upon adoption, SFAS No. 156 had no effect on our financial
position, results of operations and cash flows.
In July 2006, the FASB issued FIN 48. 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, FIN
48 provides guidance on the derecognition, classification,
accounting in interim periods, and disclosure requirements for
uncertain tax positions. We adopted the provisions of FIN 48 on
January 1, 2007 and as a result, recognized an additional $0.3
million liability for unrecognized tax benefits, which was
accounted for as a reduction of retained earnings.
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 December 31, 2007, management
believes that SFAS No. 157 will not have a material effect on our
financial position, results of operations and cash flows.
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
December 31, 2007, management believes that SFAS No. 159 will not
have a material effect on our financial position, results of
operations and cash flows.
In December 2007, the FASB issued SFAS No. 141 (revised
2007), Business Combinations ("No. 141R"). This statement
establishes requirements for (i) recognizing and measuring in an
acquiring company's financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree, (ii) recognizing and measuring the
goodwill acquired in the business combination or a gain from a
bargain purchase, and (iii) determining what information to
disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination.
The provisions of SFAS No. 141R are effective for business
combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or
after December 15, 2008. As of December 31, 2007, management
believes that SFAS No. 141R will not have a material effect on
our financial position, results of operations and cash flows.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statements-an
amendment of ARB No. 51 ("No. 160"). This statement amends ARB
No. 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. The provisions of SFAS No. 160
42
are effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2008. As of
December 31, 2007, management believes that SFAS No. 160 will not
have a material effect on our financial position, results of
operations and cash flows.
(2) LONG-TERM DEBT
Long-term debt consisted of the following at December 31 (in
thousands):
2007 2006
--------- ---------
Notes payable to banks under
committed credit facilities $ - $ 100,000
--------- ---------
- 100,000
Less current portion - -
--------- ---------
Long-term debt, net $ - $ 100,000
========= =========
As of December 31, 2007 we have two credit facilities with
banks totaling $225.0 million which mature in May 2009 ($50.0
million) and May 2011 ($175.0 million). Borrowings under these
credit facilities bear variable interest based on the London
Interbank Offered Rate ("LIBOR"). As of December 31, 2007, we
had no borrowings outstanding under these credit facilities with
banks. The $225.0 million of credit available under these
facilities is further reduced by $33.6 million in letters of
credit under which we are obligated. Each of the debt agreements
include, among other things, two financial covenants requiring us
(i) not to exceed a maximum ratio of total debt to total
capitalization and (ii) not to 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). We were in compliance with these covenants at
December 31, 2007.
(3) NOTES RECEIVABLE
Notes receivable are included in other current assets and
other non-current assets in the Consolidated Balance Sheets. At
December 31, notes receivable consisted of the following (in
thousands):
2007 2006
-------- --------
Owner-operator notes receivable $ 13,177 $ 13,298
TDR Transportes, S.A. de C.V. 3,600 3,600
Other notes receivable 5,124 4,786
-------- --------
21,901 21,684
Less current portion 5,074 5,283
-------- --------
Notes receivable - non-current $ 16,827 $ 16,401
======== ========
We provide financing to some independent contractors who
want to become owner-operators by purchasing a tractor from us
and leasing their truck to us. At December 31, 2007, we had 307
notes receivable totaling $13,177 (in thousands) from these
owner-operators. At December 31, 2006, we had 315 such notes
receivable that totaled $13,298 (in thousands). See Note 7 for
information regarding notes from related parties. We maintain a
first security interest in the tractor until the owner-operator
pays the note balance in full. We also retain recourse exposure
related to owner-operators who purchased tractors from us with
third-party financing we arranged.
During 2002, we loaned $3,600 (in thousands) to TDR
Transportes, S.A. de C.V. ("TDR"), a truckload carrier in the
Republic of Mexico. The loan has a nine-year term with principal
payable at the end of the term. Such loan (i) is subject to
acceleration if certain conditions are met, (ii) bears interest
at a rate of 5% per annum (which is payable quarterly), (iii)
contains certain financial and other covenants and (iv) is
collateralized by the assets of TDR. We had a receivable for
interest on this note of $31 (in thousands) as of December 31,
2007 and 2006. See Note 7 for information regarding related
party transactions.
43
(4) INCOME TAXES
Income tax expense consisted of the following (in
thousands):
2007 2006 2005
-------- -------- --------
Current:
Federal $ 62,026 $ 59,021 $ 93,715
State 8,470 7,495 12,190
-------- -------- --------
70,496 66,516 105,905
-------- -------- --------
Deferred:
Federal (6,698) 1,149 (32,910)
State (1,873) 1,085 (4,470)
-------- -------- --------
(8,571) 2,234 (37,380)
-------- -------- --------
Total income tax expense $ 61,925 $ 68,750 $ 68,525
======== ======== ========
The effective income tax rate differs from the federal
corporate tax rate of 35% in 2007, 2006 and 2005 as follows (in
thousands):
2007 2006 2005
-------- -------- --------
Tax at statutory rate $ 48,049 $ 58,588 $ 58,471
State income taxes, net of
federal tax benefits 4,288 5,577 5,018
Non-deductible meals and
entertainment 4,799 4,329 4,340
Anticipated income tax
settlement 4,000 - -
Income tax credits (790) (740) (895)
Other, net 1,579 996 1,591
-------- -------- --------
$ 61,925 $ 68,750 $ 68,525
======== ======== ========
At December 31, deferred tax assets and liabilities
consisted of the following (in thousands):
2007 2006
--------- ---------
Deferred tax assets:
Insurance and claims accruals $ 73,276 $ 67,432
Allowance for uncollectible accounts 4,777 4,517
Other 9,226 4,041
--------- ---------
Gross deferred tax assets 87,279 75,990
--------- ---------
Deferred tax liabilities:
Property and equipment 247,133 253,192
Prepaid expenses 7,693 8,241
Other 2,717 5,719
--------- ---------
Gross deferred tax liabilities 257,543 267,152
--------- ---------
Net deferred tax liability $ 170,264 $ 191,162
========= =========
These amounts (in thousands) are presented in the
accompanying Consolidated Balance Sheets as of December 31 as
follows:
2007 2006
--------- ---------
Current deferred tax asset $ 26,702 $ 25,251
Noncurrent deferred tax liability 196,966 216,413
--------- ---------
Net deferred tax liability $ 170,264 $ 191,162
========= =========
We have not recorded a valuation allowance as we believe
that all deferred tax assets are more likely than not to be
realized as a result of our history of profitability, taxable
income and reversal of deferred tax liabilities.
44
During first quarter 2006, in connection with an audit of
our federal income tax returns for the years 1999 to 2002, we
received a notice from the IRS proposing to disallow a
significant tax deduction. This deduction was based on a timing
difference between financial reporting and tax reporting, and
would result in interest charges, which we record as a component
of income tax expense in the Consolidated Statements of Income.
This timing difference deduction reversed in our 2004 income tax
return. We formally protested this matter in April 2006. During
fourth quarter 2007, we reached a tentative settlement agreement
with an Internal Revenue Service appeals officer. During fourth
quarter 2007, we accrued in income taxes expense in our
Consolidated Statements of Income the estimated cumulative
interest charges for the anticipated settlement of this matter,
net of income taxes, which amounts to $4.0 million, or $.05 per
share.
We adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes-an Interpretation of
FASB Statement No. 109 ("FIN 48"), on January 1, 2007. As a
result of the adoption of FIN 48, we recognized an additional
$0.3 million net liability for unrecognized tax benefits, which
was accounted for as a reduction of retained earnings. After
recognizing the additional liability, we 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 our effective tax rate. Interest of $1.4 million has been
reflected as a component of the total liability. It is our
policy to recognize as additional income tax expense the items of
interest and penalties directly related to income taxes.
For the twelve-month period ended December 31, 2007, we
recognized an additional $4.4 million net liability for
unrecognized tax benefits, which was accounted for as income tax
expense and which increased our effective tax rate. The amount is
due primarily to a tentative settlement agreement with the IRS
for tax years 1999 through 2002, as discussed above. We accrued
interest of $7.2 million during 2007. Our total gross liability
for unrecognized tax benefits at December 31, 2007 is $12.6
million. If recognized, $7.8 million of unrecognized tax
benefits would impact our effective tax rate. Interest of $8.6
million has been reflected as a component of the total liability.
We do not expect any other significant increases or decreases for
uncertain tax positions during the next twelve months.
We file U.S. federal income tax returns, as well as income
tax returns in various states and several foreign jurisdictions.
The years 2003 through 2007 are subject to examination by the
IRS, and various years are subject to examination by state and
foreign tax authorities. The reconciliation of beginning and
ending gross balances of unrecognized tax benefits for the year
ended December 31, 2007 is shown below (in thousands).
Unrecognized tax benefits, opening balance $ 5,338
Gross increases - tax positions in prior period 7,256
Gross decreases - tax positions in prior period -
Gross increases - current-period tax positions -
Settlements -
Lapse of statute of limitations -
----------
Unrecognized tax benefits, ending balance $ 12,594
==========
(5) EQUITY COMPENSATION AND EMPLOYEE BENEFIT PLANS
Equity Plan
Our 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
45
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 December 31, 2007, there were 8,568,007 shares available for
granting additional awards.
Effective January 1, 2006, we adopted 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 that were not
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, (as originally issued) 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 $1.9 million in
2007 and $2.3 million in 2006 and is included in salaries, wages
and benefits within the Consolidated Statements of Income. The
total income tax benefit recognized in the Consolidated
Statements of Income for stock-based compensation arrangements
was $0.8 million in 2007 and $0.9 million in 2006. There was no
cumulative effect of initially adopting SFAS No. 123R.
The following table summarizes Stock Option Plan activity
for the year ended December 31, 2007:
Number Weighted Average Aggregate
of Average Remaining Intrinsic
Options Exercise Contractual Value
(in 000's) Price ($) Term (Years) (in 000's)
----------------------------------------------------
Outstanding at beginning of period 4,565 $11.03
Options granted 330 $17.18
Options exercised (1,034) $ 8.50
Options forfeited (5) $17.05
Options expired (2) $ 8.65
--------
Outstanding at end of period 3,854 $12.23 4.82 $19,594
========
Exercisable at end of period 2,825 $10.28 3.69 $19,499
========
We granted 329,500 stock options during the year ended
December 31, 2007; 5,000 in 2006; and 415,500 in 2005. The fair
value of granted stock options was estimated using a Black-
Scholes valuation model with the following weighted-average
assumptions:
Years Ended December 31,
------------------------------
2007 2006 2005
-------- -------- --------
Risk-free interest rate 4.3% 4.7% 4.1%
Expected dividend yield 1.16% 0.88% 0.94%
Expected volatility 34% 36% 36%
Expected term (in years) 6.5 4.9 4.8
Grant-date fair value $6.44 $7.37 $5.86
The risk-free interest rate assumptions were based on
average five-year and ten-year U.S. Treasury note yields. We
based expected volatility on (i) historical daily price changes
of our stock since June 2001 for the options granted in 2007 and
2006 and (ii) historical monthly price changes of our stock since
January 1990 for the options granted in 2005. The expected term
was the average number of years we estimated these options will
be outstanding. We considered groups of employees having similar
historical exercise behavior separately for valuation purposes.
The total intrinsic value of share options exercised during
2007 was $11.0 million, $5.4 million in 2006 and $3.9 million in
2005. As of December 31, 2007, the total unrecognized
compensation cost related to nonvested stock option awards was
approximately $3.4 million and is expected to be recognized over
a weighted average period of 1.7 years.
46
In periods prior to January 1, 2006, we applied the
intrinsic value-based method of APB Opinion No. 25, Accounting
for Stock Issued to Employees, including related accounting
interpretations for our Equity Plan. No stock-based employee
compensation cost was reflected in net income because all options
granted under the Equity Plan had an exercise price equal to the
market value of the underlying Common Stock on the grant date.
Our 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 for the year ended December 31, 2005:
Net income, as reported $ 98,534
Less: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects 1,758
--------
Net income, pro forma $ 96,776
========
Earnings per share:
Basic - as reported $ 1.24
========
Basic - pro forma $ 1.22
========
Diluted - as reported $ 1.22
========
Diluted - pro forma $ 1.20
========
We do not a have a formal policy for issuing shares upon
exercise of stock options, so such shares are generally issued
from treasury stock. From time to time, we repurchase shares of
our 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 us with
sufficient quantities of stock to issue upon exercises of stock
options. Based on current treasury stock levels, we do not
expect the need to repurchase additional shares specifically for
stock option exercises during 2008.
Employee Stock Purchase Plan
Employees that meet certain eligibility requirements may
participate in our Employee Stock Purchase Plan (the "Purchase
Plan"). Eligible participants designate the amount of regular
payroll deductions and/or a single annual payment (each subject
to a yearly maximum amount) that is used to purchase shares of
our Common Stock on the over-the-counter market. These purchases
are subject to the terms of the Purchase Plan. We contribute an
amount equal to 15% of each participant's contributions under the
Purchase Plan. Our contributions for the Purchase Plan (in
thousands) were $162 for 2007, $170 for 2006 and $119 for 2005.
Interest accrues on Purchase Plan contributions at a rate of
5.25% until the purchase is made. We pay the broker's
commissions and administrative charges related to purchases of
Common Stock under the Purchase Plan.
401(k) Retirement Savings Plan
We have an Employees' 401(k) Retirement Savings Plan (the
"401(k) Plan"). Employees are eligible to participate in the
401(k) Plan if they have been continuously employed with us or
one of our subsidiaries for six months or more. We match a
portion of each employee's 401(k) Plan elective deferrals. We
may, at our discretion, make an additional annual contribution
for employees so that our total annual contribution for employees
could equal up to 2.5% of net income (exclusive of extraordinary
items). Salaries, wages and benefits expense in the accompanying
Consolidated Statements of Income includes our 401(k) Plan
contributions and administrative expenses (in thousands) of
$1,364 for 2007, $2,270 for 2006 and $2,268 for 2005.
47
Nonqualified Deferred Compensation Plan
We have a nonqualified deferred compensation plan for the
benefit of eligible key managerial employees whose 401(k) Plan
contributions are limited because of Internal Revenue Service
("IRS") regulations affecting highly compensated employees.
Under the terms of the plan, participants may elect to defer
compensation on a pre-tax basis within annual dollar limits we
establish. At December 31, 2007, there were 67 participants in
the nonqualified deferred compensation plan. The current annual
limit is determined so that a participant's combined deferrals in
both the nonqualified deferred compensation plan and the 401(k)
Plan approximate the maximum annual deferral amount available to
non-highly compensated employees in the 401(k) Plan. Although
our current intention is not to do so, we may also make matching
credits and/or profit sharing credits to the participants'
accounts as we so determine each year. Each participant is fully
vested in all deferred compensation and earnings; however, these
amounts are subject to general creditor claims until distributed
to the participant. Under current tax law, we are not allowed a
current income tax deduction for the compensation deferred by
participants, but we are allowed a tax deduction when a
distribution payment is made to a participant from the plan. The
accumulated benefit obligation (in thousands) was $1,270 as of
December 31, 2007 and $698 as of December 31, 2006. This
accumulated benefit obligation is included in other long-term
liabilities in the Consolidated Balance Sheets. We purchased
life insurance policies to fund the future liability. The life
insurance policies had an aggregate market value (in thousands)
of $1,223 as of December 31, 2007 and $688 as of December 31,
2006. These policy amounts are included in other non-current
assets in the Consolidated Balance Sheets.
(6) COMMITMENTS AND CONTINGENCIES
We have committed to property and equipment purchases of
approximately $48.7 million.
We are involved in certain claims and pending litigation
arising in the normal course of business. Management believes
the ultimate resolution of these matters will not materially
affect our consolidated financial statements.
(7) RELATED PARTY TRANSACTIONS
The Company leases land from a trust in which the Company's
principal stockholder is the sole trustee. The annual rent
payments under this lease are $1.00 per year. The Company is
responsible for all real estate taxes and maintenance costs
related to the property, which are recorded as expenses in the
Consolidated Statements of Income. The Company has made
leasehold improvements to the land totaling approximately $6.1
million for facilities used for business meetings and customer
promotion.
The Company's principal stockholder was the sole trustee of
a trust that previously owned a one-third interest in an entity
that operates a motel located near one of the Company's
terminals, and the Company had committed to rent a guaranteed
number of rooms from that motel. The trust assigned its one-
third interest in this entity to the Company at a nominal cost in
February 2005. The Company paid (in thousands) $264 in 2006 and
$945 in 2005 for lodging services for company drivers at this
motel. On June 30, 2005, the Company sold 0.783 acres of land to
this entity for approximately $90 (in thousands), in accordance
with a purchase option clause contained in a separate agreement
entered into by the Company and the entity in April 2000. The
Company realized a gain of approximately $35 (in thousands) on
the transaction. On April 10, 2006, the Company purchased the
remaining two-thirds interest in the entity from its two owners
(who are unrelated to us) for $3.0 million. The purchase price
was based on an appraisal of the property by an independent
appraiser. The Company continues to use this property as a
private lodging facility for company drivers.
The brother and sister-in-law of the Company's principal
stockholder own an entity with a fleet of tractors that operates
as an owner-operator. The Company paid this owner-operator (in
thousands) $7,502 in 2007, $7,271 in 2006 and $6,291 in 2005.
This fleet is compensated using the same owner-operator pay
package as the Company's other comparable third-party owner-
operators. The Company also sells used revenue equipment to this
entity. These sales totaled (in thousands) $622 in 2007, $789 in
48
2006 and $1,019 in 2005. The Company recognized gains (in
thousands) of $88 in 2007, $68 in 2006 and $130 in 2005. From
this entity, the Company also had notes receivable related to the
revenue equipment sales (in thousands) totaling (i) $1,374 at
December 31, 2007 for 40 such notes and (ii) $1,381 at December
31, 2006 for 40 such notes.
The brother of the Company's principal stockholder had a 50%
ownership interest in an entity with a fleet of tractors that
operated as an owner-operator. The Company paid this owner-
operator (in thousands) $161 in 2006 and $476 in 2005 for
purchased transportation services. This fleet ceased operations
during 2006. During 2007, the brother of the Company's principal
stockholder formed a new entity (of which he is the sole owner)
with a fleet of tractors that operates as an owner-operator. The
Company paid this owner-operator (in thousands) $425 in 2007 for
purchased transportation services. The Company also sold used
revenue equipment to this new entity in 2007. These sales
totaled (in thousands) $219, and the Company recognized gains (in
thousands) of $23. The Company has no notes receivable related
to these revenue equipment sales. These fleets are compensated
using the same owner-operator pay package as the Company's other
comparable third-party owner-operators.
The Company transacts business with TDR for certain
purchased transportation needs. The Company recorded operating
revenues (in thousands) from TDR of approximately $107 in 2007,
$308 in 2006 and $227 in 2005. The Company recorded purchased
transportation expense (in thousands) to TDR of approximately
$1,052 in 2007, $870 in 2006 and $521 in 2005. In addition, the
Company recorded operating revenues (in thousands) from TDR of
approximately $7,768 in 2007, $4,691 in 2006 and $3,582 in 2005
related to primarily revenue equipment leasing. Leasing revenues
for 2007 include $274 (in thousands) for leasing a terminal
building in Queretaro, Mexico. The Company also sells used
revenue equipment to this entity. These sales (in thousands)
totaled $1,145 in 2007, $3,697 in 2006 and $358 in 2005, and the
Company recognized net losses (in thousands) of $28 in 2007, and
net gains (in thousands) of $170 in 2006 and $19 in 2005. The
Company had receivables related to the equipment leases and
revenue equipment sales (in thousands) of $5,048 at December 31,
2007 and $2,853 at December 31, 2006. See Note 3 for information
regarding the note receivable from TDR.
At December 31, 2007, the Company has a 5% ownership
interest in Transplace ("TPC"), a logistics joint venture of five
large transportation companies. The Company enters into
transactions with TPC for certain purchased transportation needs.
The Company recorded operating revenue (in thousands) from TPC of
approximately $826 in 2007, $2,300 in 2006 and $4,800 in 2005.
The Company did not record any purchased transportation expense
to TPC in 2007, 2006, or 2005.
The Company believes these transactions are on terms no less
favorable to the Company than those that could be obtained from
unrelated third parties on an arm's length basis.
(8) SEGMENT INFORMATION
We have two reportable segments - Truckload Transportation
Services ("Truckload") and Value Added Services ("VAS"). The
Truckload segment consists of six operating fleets that are
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 $10.0 million for 2007,
$11.2 million for 2006 and $12.2 million for 2005. These
revenues consist primarily of the portion of shipments delivered
to or from Mexico where we utilize a third-party capacity
provider.
49
The VAS segment generates the majority of our non-trucking
revenues. The services provided by the VAS segment include truck
brokerage, freight management (single-source logistics),
intermodal and international services.
We generate 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 table below.
"Corporate" includes revenues and expenses that are incidental to
our activities and are not attributable to any of our operating
segments. We do not prepare separate balance sheets by segment
and, as a result, assets are not separately identifiable by
segment. We have no significant intersegment sales or expense
transactions that would require the elimination of revenue
between our segments in the table below.
The following tables summarize our segment information (in
thousands):
Revenues
---------
2007 2006 2005
---------- ---------- ----------
Truckload Transportation Services $1,795,227 $1,801,090 $1,741,828
Value Added Services 258,433 265,968 218,620
Other 15,303 10,536 7,777
Corporate 2,224 2,961 3,622
---------- ---------- ----------
Total $2,071,187 $2,080,555 $1,971,847
========== ========== ==========
Operating Income
--------------------
2007 2006 2005
---------- ---------- ----------
Truckload Transportation Services $ 121,608 $ 156,509 $ 156,122
Value Added Services 12,418 7,421 8,445
Other 3,644 1,731 2,850
Corporate (1,153) (1,160) (2,806)
---------- ---------- ----------
Total $ 136,517 $ 164,501 $ 164,611
========== ========== ==========
Information about the geographic areas in which we conduct
business is summarized below (in thousands). Operating revenues
for foreign countries include revenues for (i) shipments with an
origin or destination in that country and (ii) other services
provided in that country. If both the origin and destination are
in a foreign country, the revenues are attributed to the country
of origin.
Revenues
----------------
2007 2006 2005
---------- ---------- ----------
United States $1,855,686 $1,872,775 $1,782,501
---------- ---------- ----------
Foreign countries
Mexico 160,988 168,846 145,678
Other 54,513 38,934 43,668
---------- ---------- ----------
Total foreign countries 215,501 207,780 189,346
---------- ---------- ----------
Total $2,071,187 $2,080,555 $1,971,847
========== ========== ==========
Long-lived Assets
-----------------
2007 2006 2005
---------- ---------- ----------
United States $ 935,883 $1,067,716 $ 990,439
---------- ---------- ----------
Foreign countries
Mexico 35,776 28,452 11,867
Other 282 172 301
---------- ---------- ----------
Total foreign countries 36,058 28,624 12,168
---------- ---------- ----------
Total $ 971,941 $1,096,340 $1,002,607
========== ========== ==========
50
We generate substantially all of our revenues within the
United States or from North American shipments with origins or
destinations in the United States. One customer generated
approximately 8% of our total revenues for 2007, approximately
11% of total revenues for 2006 and approximately 10% of total
revenues for 2005.
(9) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share amounts)
First Quarter Second Quarter Third Quarter Fourth Quarter
---------------------------------------------------------------
2007:
Operating revenues $ 503,913 $ 531,286 $ 510,260 $ 525,728
Operating income 27,266 38,386 37,064 33,801
Net income 15,668 22,254 21,850 15,585
Basic earnings per share .21 .30 .30 .22
Diluted earnings per share .21 .30 .30 .22
First Quarter Second Quarter Third Quarter Fourth Quarter
---------------------------------------------------------------
2006:
Operating revenues $ 491,922 $ 528,889 $ 541,297 $ 518,447
Operating income 36,822 46,351 40,686 40,642
Net income 22,029 28,021 24,551 24,042
Basic earnings per share .28 .36 .32 .32
Diluted earnings per share .27 .35 .31 .31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
No disclosure under this item was required within the two
most recent fiscal years ended December 31, 2007, or any
subsequent period, involving a change of accountants or
disagreements on accounting and financial disclosure.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we
carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures,
as defined in the Securities Exchange Act of 1934 Rule 15d-15(e).
Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and
procedures are effective in enabling us to record, process,
summarize and report information required to be included in our
periodic SEC filings within the required time period.
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining
adequate internal control over our financial reporting. Internal
control over financial reporting is a process designed to provide
reasonable assurance to our management and Board of Directors
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting principles.
Internal control over financial reporting includes (i)
maintaining records that in reasonable detail accurately and
fairly reflect our transactions; (ii) providing reasonable
assurance that transactions are recorded as necessary for
preparation of our financial statements; (iii) providing
reasonable assurance that receipts and expenditures of company
assets are made in accordance with management authorization; and
51
(iv) providing reasonable assurance that unauthorized
acquisition, use or disposition of company assets that could have
a material effect on our financial statements would be prevented
or detected on a timely basis.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because (i) changes in conditions may occur or (ii)
the degree of compliance with the policies or procedures may
deteriorate.
Management assessed the effectiveness of our internal
control over financial reporting as of December 31, 2007. This
assessment is based on the criteria for effective internal
control described in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on its assessment, management
concluded that our internal control over financial reporting was
effective as of December 31, 2007.
Management has engaged KPMG LLP ("KPMG"), the independent
registered public accounting firm that audited the consolidated
financial statements included in this Annual Report on Form 10-K,
to attest to and report on the effectiveness of our internal
control over financial reporting. KPMG's report is included
herein.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Werner Enterprises, Inc.:
We have audited Werner Enterprises, Inc.'s internal control
over financial reporting as of December 31, 2007, based on
criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Werner Enterprises, Inc.'s
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Management's Report on Internal
Control over Financial Reporting. Our responsibility is to
express an opinion on the Company's internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A company's internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use,
or disposition of the company's assets that could have a material
effect on the financial statements.
52
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Werner Enterprises, Inc. maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2007 based on criteria established
in Internal Control - Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of Werner Enterprises, Inc. and
subsidiaries as of December 31, 2007 and 2006, and the related
consolidated statements of income, stockholders' equity and
comprehensive income, and cash flows for each of the years in the
three-year period ended December 31, 2007, and our report dated
February 18, 2008, expressed an unqualified opinion on those
consolidated financial statements.
KPMG LLP
Omaha, Nebraska
February 18, 2008
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over
financial reporting that occurred during the quarter ended
December 31, 2007, that have materially affected, or are
reasonably likely to materially affect, our internal control over
financial reporting.
ITEM 9B. OTHER INFORMATION
During fourth quarter 2007, no information was required to
be disclosed in a report on Form 8-K, but not reported.
PART III
Certain information required by Part III is omitted from
this Form 10-K because we will file a definitive proxy statement
pursuant to Regulation 14A ("Proxy Statement") not later than 120
days after the end of the fiscal year covered by this Form 10-K,
and certain information included therein is incorporated herein
by reference. Only those sections of the Proxy Statement which
specifically address the items set forth herein are incorporated
by reference.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item, with the exception of
the Code of Corporate Conduct discussed below, is incorporated
herein by reference to our Proxy Statement.
Code of Corporate Conduct
We adopted a code of ethics, our Code of Corporate Conduct,
that applies to our principal executive officer, principal
financial officer, principal accounting officer/controller and
all other officers, employees and directors. The Code of
Corporate Conduct is available on our website, www.werner.com,
under "Investor Information." We intend to post on our website
any amendment to, or waiver from, any provision of our Code of
Corporate Conduct (if any) within four business days of any such
event.
53
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein
by reference to our Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item, with the exception of
the equity compensation plan information presented below, is
incorporated herein by reference to our Proxy Statement.
Equity Compensation Plan Information
The following table summarizes, as of December 31, 2007,
information about compensation plans under which our equity
securities are authorized for issuance:
Number of Securities
Remaining Available for
Future Issuance under
Number of Securities to Weighted-Average Equity Compensation
be Issued upon Exercise Exercise Price of Plans (Excluding
of Outstanding Options, Outstanding Options, Securities Reflected in
Warrants and Rights Warrants and Rights Column (a))
Plan Category (a) (b) (c)
------------- ----------------------- -------------------- -----------------------
Equity compensation
plans approved by
stockholders 3,853,656 $12.23 8,568,007
We do not have any equity compensation plans that were not
approved by stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
The information required by this Item is incorporated herein
by reference to our Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item is incorporated herein
by reference to our Proxy Statement.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements and Schedules.
(1) Financial Statements: See Part II, Item 8 hereof.
Page
----
Report of Independent Registered Public Accounting Firm 33
Consolidated Statements of Income 34
Consolidated Balance Sheets 35
Consolidated Statements of Cash Flows 36
Consolidated Statements of Stockholders' Equity and
Comprehensive Income 37
Notes to Consolidated Financial Statements 38
54
(2) Financial Statement Schedules: The consolidated
financial statement schedule set forth under the following
caption is included herein. The page reference is to the
consecutively numbered pages of this report on Form 10-K.
Page
----
Schedule II - Valuation and Qualifying Accounts 57
Schedules not listed above have been omitted because
they are not applicable or are not required or the information
required to be set forth therein is included in the Consolidated
Financial Statements or Notes thereto.
(3) Exhibits: The response to this portion of Item 15 is
submitted as a separate section of this Form 10-K (see Exhibit
Index on page 58).
55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 25th day of February, 2008.
WERNER ENTERPRISES, INC.
By: /s/ Gregory L. Werner
------------------------------
Gregory L. Werner
President and Chief Executive Officer
By: /s/ John J. Steele
------------------------------
John J. Steele
Executive Vice President, Treasurer
and Chief Financial Officer
By: /s/ James L. Johnson
------------------------------
James L. Johnson
Senior Vice President, Controller
and Corporate Secretary
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Position Date
--------- -------- ----
/s/ Clarence L. Werner Chairman of the Board February 25, 2008
--------------------------
Clarence L. Werner
/s/ Gary L. Werner Vice Chairman and Director February 25, 2008
--------------------------
Gary L. Werner
/s/ Gregory L. Werner President, Chief Executive Officer and Director February 25, 2008
--------------------------
Gregory L. Werner
/s/ Gerald H. Timmerman Director February 25, 2008
--------------------------
Gerald H. Timmerman
/s/ Michael L. Steinbach Director February 25, 2008
--------------------------
Michael L. Steinbach
/s/ Kenneth M. Bird Director February 25, 2008
--------------------------
Kenneth M. Bird
/s/ Patrick J. Jung Director February 25, 2008
--------------------------
Patrick J. Jung
/s/ Duane K. Sather Director February 25, 2008
--------------------------
Duane K. Sather
56
SCHEDULE II
WERNER ENTERPRISES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Balance at Charged to Write-off Balance at
Beginning of Costs and of Doubtful End of
Period Expenses Accounts Period
------------ ---------- ----------- ----------
Year ended December 31, 2007:
Allowance for doubtful accounts $ 9,417 $ 552 $ 204 $ 9,765
======= ======= ======= =======
Year ended December 31, 2006:
Allowance for doubtful accounts $ 8,357 $ 8,767 $ 7,707 $ 9,417
======= ======= ======= =======
Year ended December 31, 2005:
Allowance for doubtful accounts $ 8,189 $ 962 $ 794 $ 8,357
======= ======= ======= =======
See report of independent registered public accounting firm.
57
EXHIBIT INDEX
Exhibit
Number Description Page Number or Incorporated by Reference to
------- ----------- -------------------------------------------
3(i) Restated Articles of Incorporation Exhibit 3(i) to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2007
3(ii) Revised and Restated By-Laws Exhibit 3(ii) to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2007
10.1 Werner Enterprises, Inc. Equity Plan Exhibit 99.1 to the Company's Current Report on
Form 8-K dated May 8, 2007
10.2 Non-Employee Director Compensation Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2007
10.3 The Executive Nonqualified Excess Plan Exhibit 10.3 to the Company's Annual Report on
of Werner Enterprises, Inc., as amended Form 10-K for the year ended December 31, 2006
10.4 Named Executive Officer Compensation Exhibit 10.4 to the Company's Annual Report on
Form 10-K for the year ended December 31, 2006
and Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March
31, 2007 and Item 5.02 of the Company's Current
Report on Form 8-K dated November 29, 2007
10.5 Lease Agreement, as amended February 8, Exhibit 10.5 to the Company's Annual Report on
2007, between the Company and Clarence Form 10-K for the year ended December 31, 2006
L. Werner, Trustee of the Clarence L.
Werner Revocable Trust
10.6 License Agreement, dated February 8, Exhibit 10.6 to the Company's Annual Report on
2007 between the Company and Clarence Form 10-K for the year ended December 31, 2006
L. Werner, Trustee of the Clarence L.
Werner Revocable Trust
10.7 Form of Notice of Grant of Nonqualified Exhibit 10.1 to the Company's Current Report on
Stock Option Form 8-K dated November 29, 2007
11 Statement Re: Computation of Per Share See Note 1 "Common Stock and Earnings Per
Earnings Share" in the Notes to Consolidated Financial
Statements under Item 8
21 Subsidiaries of the Registrant Filed herewith
23.1 Consent of KPMG LLP Filed herewith
31.1 Rule 13a-14(a)/15d-14(a) Certification Filed herewith
31.2 Rule 13a-14(a)/15d-14(a) Certification Filed herewith
32.1 Section 1350 Certification Filed herewith
32.2 Section 1350 Certification Filed herewith
58