UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[Mark one]
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-14690
WERNER ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
NEBRASKA 47-0648386
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
14507 FRONTIER ROAD 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
_________________________________
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes X No
--- ---
As of July 29, 2005, 79,427,338 shares of the registrant's common
stock, par value $.01 per share, were outstanding.
INDEX TO FORM 10-Q
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the Three Months Ended
June 30, 2005 and 2004 3
Consolidated Statements of Income for the Six Months Ended
June 30, 2005 and 2004 4
Consolidated Condensed Balance Sheets as of June 30, 2005 and
December 31, 2004 5
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2005 and 2004 6
Notes to Consolidated Financial Statements as of June 30, 2005 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
Item 4. Controls and Procedures 26
PART II - OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 6. Exhibits 28
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
The interim consolidated financial statements contained herein reflect
all adjustments which, in the opinion of management, are necessary for a
fair statement of the financial condition, results of operations, and cash
flows for the periods presented. The interim consolidated financial
statements have been prepared in accordance with the instructions to Form
10-Q and do not include all the information and footnotes required by
accounting principles generally accepted in the United States of America
for complete financial statements.
Operating results for the three-month and six-month periods ended June
30, 2005, are not necessarily indicative of the results that may be
expected for the year ending December 31, 2005. In the opinion of
management, the information set forth in the accompanying consolidated
condensed balance sheets is fairly stated in all material respects in
relation to the consolidated balance sheets from which it has been derived.
These interim consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the year
ended December 31, 2004.
2
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
(In thousands, except per share amounts) June 30
- ---------------------------------------------------------------------------
2005 2004
- ---------------------------------------------------------------------------
(Unaudited)
Operating revenues $ 485,789 $ 411,115
---------------------------
Operating expenses:
Salaries, wages and benefits 141,332 134,296
Fuel 78,064 50,105
Supplies and maintenance 39,921 34,802
Taxes and licenses 29,465 27,428
Insurance and claims 21,838 20,022
Depreciation 40,539 35,644
Rent and purchased transportation 90,342 71,201
Communications and utilities 5,134 4,450
Other (2,974) (1,824)
---------------------------
Total operating expenses 443,661 376,124
---------------------------
Operating income 42,128 34,991
---------------------------
Other expense (income):
Interest expense 2 4
Interest income (822) (551)
Other 46 57
---------------------------
Total other expense (income) (774) (490)
---------------------------
Income before income taxes 42,902 35,481
Income taxes 17,607 13,861
---------------------------
Net income $ 25,295 $ 21,620
===========================
Earnings per share:
Basic $ .32 $ .27
===========================
Diluted $ .31 $ .27
===========================
Dividends declared per share $ .040 $ .035
===========================
Weighted-average common shares outstanding:
Basic 79,415 79,233
===========================
Diluted 80,692 80,891
===========================
3
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended
(In thousands, except per share amounts) June 30
- ---------------------------------------------------------------------------
2005 2004
- ---------------------------------------------------------------------------
(Unaudited)
Operating revenues $ 941,051 $ 797,395
---------------------------
Operating expenses:
Salaries, wages and benefits 281,554 267,608
Fuel 145,692 95,857
Supplies and maintenance 76,675 67,696
Taxes and licenses 58,243 54,940
Insurance and claims 45,038 39,529
Depreciation 80,176 70,629
Rent and purchased transportation 172,909 134,351
Communications and utilities 10,576 8,998
Other (4,777) (2,063)
---------------------------
Total operating expenses 866,086 737,545
---------------------------
Operating income 74,965 59,850
---------------------------
Other expense (income):
Interest expense 6 6
Interest income (1,787) (1,086)
Other 73 94
---------------------------
Total other expense (income) (1,708) (986)
---------------------------
Income before income taxes 76,673 60,836
Income taxes 31,457 23,648
---------------------------
Net income $ 45,216 $ 37,188
===========================
Earnings per share:
Basic $ .57 $ .47
===========================
Diluted $ .56 $ .46
===========================
Dividends declared per share $ .075 $ .060
===========================
Weighted-average common shares outstanding:
Basic 79,383 79,414
===========================
Diluted 80,754 81,116
===========================
4
WERNER ENTERPRISES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share amounts) June 30 December 31
- ---------------------------------------------------------------------------
2005 2004
- ---------------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 51,057 $ 108,807
Accounts receivable, trade, less allowance of
$8,590 and $8,189, respectively 198,789 186,771
Other receivables 11,760 11,832
Inventories and supplies 10,152 9,658
Prepaid taxes, licenses and permits 8,279 15,292
Current deferred income taxes 18,791 -
Income taxes receivable 7,672 768
Other current assets 17,466 18,128
---------------------------
Total current assets 323,966 351,256
---------------------------
Property and equipment 1,477,085 1,374,649
Less - accumulated depreciation 540,833 511,651
---------------------------
Property and equipment, net 936,252 862,998
---------------------------
Other non-current assets 15,043 11,521
---------------------------
$1,275,261 $1,225,775
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 53,789 $ 49,618
Insurance and claims accruals 64,985 55,095
Accrued payroll 19,280 19,579
Income taxes payable 9,082 475
Current deferred income taxes - 15,569
Other current liabilities 17,607 17,230
---------------------------
Total current liabilities 164,743 157,566
---------------------------
Insurance and claims accruals, net of current
portion 87,301 84,301
Deferred income taxes 207,424 210,739
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 200,000,000
shares authorized; 80,533,536 shares
issued; 79,419,695 and 79,197,747 shares
outstanding, respectively 805 805
Paid-in capital 105,588 106,695
Retained earnings 730,294 691,035
Accumulated other comprehensive loss (361) (861)
Treasury stock, at cost; 1,113,841 and
1,335,789 shares, respectively (20,533) (24,505)
---------------------------
Total stockholders' equity 815,793 773,169
---------------------------
$1,275,261 $1,225,775
===========================
5
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
(In thousands) June 30
- ---------------------------------------------------------------------------
2005 2004
- ---------------------------------------------------------------------------
(Unaudited)
Cash flows from operating activities:
Net income $ 45,216 $ 37,188
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 80,176 70,629
Deferred income taxes (37,675) 142
Gain on disposal of property and equipment (6,039) (5,396)
Tax benefit from exercise of stock options 1,260 973
Other long-term assets (311) 403
Insurance claims accruals, net of current
portion 3,000 7,000
Changes in certain working capital items:
Accounts receivable, net (12,018) (1,014)
Other current assets 349 7,391
Accounts payable 4,171 2,249
Other current liabilities 18,142 4,943
--------------------------
Net cash provided by operating activities 96,271 124,508
--------------------------
Cash flows from investing activities:
Additions to property and equipment (208,640) (118,306)
Retirements of property and equipment 55,979 45,282
Decrease in notes receivable 2,087 1,754
--------------------------
Net cash used in investing activities (150,574) (71,270)
--------------------------
Cash flows from financing activities:
Dividends on common stock (5,552) (3,975)
Repurchases of common stock (263) (14,178)
Stock options exercised 1,868 1,948
--------------------------
Net cash used in financing activities (3,947) (16,205)
--------------------------
Effect of exchange rate fluctuations on cash 500 (178)
Net increase (decrease) in cash and cash
equivalents (57,750) 36,855
Cash and cash equivalents, beginning of period 108,807 101,409
--------------------------
Cash and cash equivalents, end of period $ 51,057 $ 138,264
==========================
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 6 $ 6
Income taxes $ 65,999 $ 24,632
Supplemental schedule of non-cash investing
activities:
Notes receivable issued upon sale of revenue
equipment $ 5,298 $ 2,052
6
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Comprehensive Income
Other than its net income, the Company's only other source of
comprehensive income (loss) is foreign currency translation adjustments.
Other comprehensive income (loss) from foreign currency translation
adjustments was $549 and ($273) (in thousands) for the three-month periods
and $500 and ($178) (in thousands) for the six-month periods ended June 30,
2005 and 2004, respectively.
(2) Long-Term Debt
As of June 30, 2005, the Company has two credit facilities with banks
totaling $75.0 million which expire May 16, 2007 and October 22, 2005 and
bear variable interest based on the London Interbank Offered Rate
("LIBOR"), on which no borrowings were outstanding. As of June 30, 2005,
the credit available pursuant to these bank credit facilities is reduced by
$35.5 million in letters of credit the Company maintains. Each of the
debt agreements require, among other things, that the Company maintain a
minimum consolidated tangible net worth and not exceed a maximum ratio of
total funded debt to earnings before interest, income taxes, depreciation,
amortization and rentals payable as defined in the credit facility.
Although the Company had no borrowings pursuant to these credit facilities
as of June 30, 2005, the Company remained in compliance with these
covenants at June 30, 2005.
On April 29, 2005, the Company renewed the $50.0 million bank credit
facility, extending the maturity date from May 16, 2006 to May 16, 2007 and
increasing the amount of the minimum consolidated tangible net worth
requirement to $500.0 million plus 50% of annual net income.
(3) Commitments
As of June 30, 2005, the Company has commitments for net capital
expenditures of approximately $127.0 million.
7
(4) Earnings Per Share
Basic earnings per share is computed by dividing net income by the
weighted-average number of common shares outstanding during the period.
The difference between basic and diluted earnings per share for all periods
presented is due to the common stock equivalents that are assumed to be
issued upon the exercise of stock options. The computation of basic and
diluted earnings per share is shown below (in thousands, except per share
amounts).
Three Months Ended Six Months Ended
June 30 June 30
------------------------ ----------------------
2005 2004 2005 2004
------------------------ ----------------------
Net income $ 25,295 $ 21,620 $ 45,216 $ 37,188
======================== ======================
Weighted-average common
shares outstanding 79,415 79,233 79,383 79,414
Common stock equivalents 1,277 1,658 1,371 1,702
------------------------ ----------------------
Shares used in computing
diluted earnings per
share 80,692 80,891 80,754 81,116
======================== ======================
Basic earnings per share $ .32 $ .27 $ .57 $ .47
======================== ======================
Diluted earnings per
share $ .31 $ .27 $ .56 $ .46
======================== ======================
Options to purchase shares of common stock which were outstanding
during the periods indicated above, but were excluded from the computation
of diluted earnings per share because the option purchase price was greater
than the average market price of the common shares, were:
Three Months Ended Six Months Ended
June 30 June 30
------------------------ ----------------------
2005 2004 2005 2004
------------------------ ----------------------
Number of shares under
option 39,500 - - -
Range of option
purchase prices $19.26-$19.84 - - -
(5) Stock Based Compensation
At June 30, 2005, the Company has a nonqualified stock option plan.
The Company granted 20,000 and 787,000 stock options during the three-month
periods and 39,500 and 787,000 options during the six-month periods ended
June 30, 2005 and 2004, respectively. The Company applies the intrinsic
value based method of Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for its stock option plan. No stock-based employee compensation
cost is reflected in net income, as all options granted under the plan had
an exercise price equal to the market value of the underlying common stock
on the date of grant. The Company's pro forma net income and earnings per
share (in thousands, except per share amounts) would have been as indicated
below had the fair value of all option grants been charged to salaries,
wages, and benefits expense in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation.
8
Three Months Ended Six Months Ended
June 30 June 30
---------------------- --------------------
2005 2004 2005 2004
---------------------- --------------------
Net income, as reported $ 25,295 $ 21,620 $ 45,216 $ 37,188
Less: Total stock-based
employee compensation
expense determined
under fair value based
method for all awards,
net of related tax
effects 457 557 905 911
---------------------- --------------------
Net income, pro forma $ 24,838 $ 21,063 $ 44,311 $ 36,277
====================== ====================
Earnings per share:
Basic - as reported $ .32 $ .27 $ .57 $ .47
====================== ====================
Basic - pro forma $ .31 $ .27 $ .56 $ .46
====================== ====================
Diluted - as reported $ .31 $ .27 $ .56 $ .46
====================== ====================
Diluted - pro forma $ .31 $ .26 $ .55 $ .45
====================== ====================
The maximum number of shares of common stock that may be optioned
under the Stock Option Plan is 20,000,000 shares, and the maximum aggregate
number of options that may be granted to any one person is 2,562,500
options.
(6) Related Party Transactions
The Company owns a one-third interest in an entity that operates a
motel located nearby one of the Company's terminals with which the Company
has committed to rent a guaranteed number of rooms to be used by the
Company's employees, primarily its drivers. On June 30, 2005, the Company
sold .783 acres of land to this entity for approximately $90,000, in
accordance with the exercise of 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 $55,000 on the
transaction.
(7) Segment Information
The Company has two reportable segments - Truckload Transportation
Services and Value Added Services. The Truckload Transportation Services
segment consists of five operating fleets that have been aggregated since
they have similar economic characteristics and meet the other aggregation
criteria of SFAS No. 131. The medium-to-long haul Van fleet transports a
variety of consumer, non-durable 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 areas. The Dedicated Services fleet provides truckload
services required by a specific company, plant, or distribution center.
The Flatbed and Temperature-Controlled fleets provide truckload services
for products with specialized trailers. Revenues for the Truckload
Transportation Services segment include non-trucking revenues of $3.5
million and $3.6 million for the three-month periods and $7.0 million and
$6.5 million for the six-month periods ended June 30, 2005 and 2004,
respectively, representing the portion of shipments delivered to or from
Mexico where the Company utilizes a third-party carrier and revenues
generated in a few dedicated accounts where the services of third-party
carriers are used to meet customer capacity requirements. The Value Added
Services segment, which generates the majority of the Company's non-
trucking revenues, provides freight brokerage, intermodal services, and
freight transportation management.
9
The Company generates other revenues related to third-party equipment
maintenance, equipment leasing, and other business activities. None of
these operations meet the quantitative threshold reporting requirements of
SFAS No. 131. As a result, these operations are grouped in "Other" in the
tables below. "Corporate" includes revenues and expenses that are
incidental to the activities of the Company and are not attributable to any
of its operating segments. The Company does not prepare separate balance
sheets by segment and, as a result, assets are not separately identifiable
by segment. The Company has no significant intersegment sales or expense
transactions that would result in adjustments necessary to eliminate
amounts between the Company's segments.
The following tables summarize the Company's segment information (in
thousands of dollars):
Revenues
--------
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ---------------------
2005 2004 2005 2004
---------------------- ---------------------
Truckload Transportation
Services $ 427,136 $ 369,564 $ 829,499 $ 720,224
Value Added Services 55,555 38,986 105,715 72,353
Other 1,919 1,505 3,818 3,060
Corporate 1,179 1,060 2,019 1,758
---------------------- ---------------------
Total $ 485,789 $ 411,115 $ 941,051 $ 797,395
====================== =====================
Operating Income
----------------
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ---------------------
2005 2004 2005 2004
---------------------- ---------------------
Truckload Transportation
Services $ 39,803 $ 33,986 $ 70,987 $ 58,334
Value Added Services 1,916 1,169 3,909 2,098
Other 815 574 1,671 1,249
Corporate (406) (738) (1,602) (1,831)
---------------------- ---------------------
Total $ 42,128 $ 34,991 $ 74,965 $ 59,850
====================== =====================
10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This report contains historical information, as well as forward-
looking statements that are based on information currently available to the
Company's management. The forward-looking statements are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. The Company believes the assumptions underlying these forward-
looking statements are reasonable based on information currently available;
however, any of the assumptions could be inaccurate, and therefore, actual
results may differ materially from those anticipated in the forward-looking
statements as a result of certain risks and uncertainties. These risks
include, but are not limited to, those discussed in the section of this
Item entitled "Forward-Looking Statements and Risk Factors" and in Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", of the Company's Annual Report on Form 10-K for the year ended
December 31, 2004. Caution should be taken not to place undue reliance on
forward-looking statements made herein, since the statements speak only as
of the date they are made. The Company undertakes no obligation to
publicly release any revisions to any forward-looking statements contained
herein to reflect events or circumstances after the date of this report or
to reflect the occurrence of unanticipated events.
Overview:
The Company operates in the truckload sector of the trucking industry,
with a focus on transporting consumer nondurable products that ship more
consistently throughout the year. The Company's success depends on its
ability to efficiently manage its resources in the delivery of truckload
transportation and logistics services to its customers. Resource
requirements vary with customer demand, which may be subject to seasonal or
general economic conditions. The Company's ability to adapt to changes in
customer transportation requirements is a key element in efficiently
deploying resources and in making capital investments in tractors and
trailers. Although the Company's business volume is not highly
concentrated, the Company may also be affected by the financial failure of
its customers or a loss of a customer's business from time-to-time.
Operating revenues consist of trucking revenues generated by the five
operating fleets in the Truckload Transportation Services segment
(medium/long-haul van, dedicated, regional short-haul, flatbed, and
temperature-controlled) and non-trucking revenues generated primarily by
the Company's Value Added Services ("VAS") segment. The Company's
Truckload Transportation Services segment also includes a small amount of
non-trucking revenues for the portion of shipments delivered to or from
Mexico where it utilizes third-party carriers, and for a few of its
dedicated accounts where the services of third-party carriers are used to
meet customer capacity requirements. Non-trucking revenues reported in the
operating statistics table include those revenues generated by the VAS
segment, as well as the non-trucking revenues generated by the Truckload
Transportation Services segment. Trucking revenues accounted for 87% of
total operating revenues in second quarter 2005, and non-trucking and other
operating revenues accounted for 13%.
Trucking services typically generate revenue on a per-mile basis.
Other sources of trucking revenue include fuel surcharges and accessorial
revenue such as stop charges, loading/unloading charges, and equipment
detention charges. Because fuel surcharge revenues fluctuate in response
to changes in the cost of fuel, these revenues are identified separately
within the operating statistics table and are excluded from the statistics
to provide a more meaningful comparison between periods. Non-trucking
revenues generated by a fleet whose operations are part of the Truckload
Transportation Services segment are included in non-trucking revenue in the
operating statistics table so that the revenue statistics in the table are
calculated using only the revenues generated by company-owned and owner-
operator trucks. The key statistics used to evaluate trucking revenues,
excluding fuel surcharges, are revenues per tractor per week, the per-mile
rates charged to customers, the average monthly miles generated per
tractor, the percentage of empty miles, the average trip length, and the
number of tractors in service. General economic conditions, seasonal
freight patterns in the trucking industry, and industry capacity are key
factors that impact these statistics.
11
The Company's most significant resource requirements are qualified
drivers, tractors, trailers, and related costs of operating its equipment
(such as fuel and related fuel taxes, driver pay, insurance, and supplies
and maintenance). The Company has historically been successful mitigating
its risk to increases in fuel prices by recovering additional fuel
surcharges from its customers; however, there is no assurance that current
recovery levels will continue in future periods. The Company's financial
results are also affected by availability of drivers and the market for new
and used revenue equipment. Because the Company is self-insured for cargo,
personal injury, and property damage claims on its revenue equipment and
for workers' compensation benefits for its employees (supplemented by
premium-based coverage above certain dollar levels), financial results may
also be affected by driver safety, medical costs, the weather, the legal
and regulatory environment, and the costs of insurance coverage to protect
against catastrophic losses.
A common industry measure used to evaluate the profitability of the
Company and its trucking operating fleets is the operating ratio (operating
expenses expressed as a percentage of operating revenues). The most
significant variable expenses that impact the trucking operation are driver
salaries and benefits, payments to owner-operators (included in rent and
purchased transportation expense), fuel, fuel taxes (included in taxes and
licenses expense), supplies and maintenance, and insurance and claims.
Generally, these expenses vary based on the number of miles generated. As
such, the Company also evaluates these costs on a per-mile basis to adjust
for the impact on the percentage of total operating revenues caused by
changes in fuel surcharge revenues, per-mile rates charged to customers,
and non-trucking revenues. As discussed further in the comparison of
operating results for second quarter 2005 to second quarter 2004, several
industry-wide issues, including high fuel prices, a challenging driver
recruiting market, and uncertainty regarding possible changes to the hours
of service regulations, could cause costs to increase in future periods.
The Company's main fixed costs include depreciation expense for tractors
and trailers and equipment licensing fees (included in taxes and licenses
expense). Depreciation expense has been affected by the new engine
emission standards that became effective in October 2002 for all newly
purchased trucks, which have increased truck purchase costs. The trucking
operations require substantial cash expenditures for tractors and trailers.
The Company has maintained a three-year replacement cycle for company-owned
tractors. These purchases are currently funded by net cash from
operations, as the Company repaid its last remaining debt in December 2003.
Non-trucking services provided by the Company, primarily through its
VAS division, include freight brokerage, intermodal, freight transportation
management, and other services. During 2005, VAS is expanding its service
offerings to include multimodal, which is a blend of truck and rail
intermodal services. Unlike the Company's trucking operations, the non-
trucking operations are less asset-intensive and are instead dependent upon
information systems, qualified employees, and the services of other third-
party providers. The most significant expense item related to these non-
trucking services is the cost of transportation paid by the Company to
third-party providers, which is recorded as rent and purchased
transportation expense. Other expenses include salaries, wages and
benefits and computer hardware and software depreciation. The Company
evaluates the non-trucking operations by reviewing the gross margin
percentage (revenues less rent and purchased transportation expense
expressed as a percentage of revenues) and the operating margin. The
operating margins for the non-trucking business are generally lower than
those of the trucking operations, but the returns on assets are
substantially higher.
12
Results of Operations:
The following table sets forth certain industry data regarding the
freight revenues and operations of the Company for the periods indicated.
Three Months Ended Six Months Ended
June 30 % June 30 %
-------------------- --------------------
2005 2004 Change 2005 2004 Change
-------------------------------------------------------
Trucking revenues, net of
fuel surcharge (1) $371,612 $341,966 8.7% $729,478 $671,699 8.6%
Trucking fuel surcharge
revenues (1) 51,967 24,016 116.4% 92,903 41,987 121.3%
Non-trucking revenues,
including VAS (1) 59,065 42,639 38.5% 112,742 78,892 42.9%
Other operating revenues (1) 3,145 2,494 26.1% 5,928 4,817 23.1%
--------- -------- -------- --------
Operating revenues (1) $485,789 $411,115 18.2% $941,051 $797,395 18.0%
========= ======== ======== ========
Operating ratio
(consolidated) (2) 91.3% 91.5% -0.2% 92.0% 92.5% -0.5%
Average monthly miles per
tractor 10,199 10,254 -0.5% 10,066 10,144 -0.8%
Average revenues per total
mile (3) $1.389 $1.318 5.4% $1.391 $1.309 6.3%
Average revenues per loaded
mile (3) $1.578 $1.482 6.5% $1.579 $1.476 7.0%
Average percentage of empty
miles 11.99% 11.03% 8.7% 11.88% 11.36% 4.6%
Average trip length in
miles (loaded) 566 588 -3.7% 569 584 -2.6%
Total miles (loaded and
empty) (1) 267,547 259,384 3.1% 524,393 513,337 2.2%
Average tractors in service 8,744 8,432 3.7% 8,682 8,434 2.9%
Average revenues per
tractor per week (3) $3,269 $3,119 4.8% $3,231 $3,063 5.5%
Total tractors (at quarter
end)
Company 7,820 7,520 7,820 7,520
Owner-operator 930 930 930 930
--------- -------- -------- --------
Total tractors 8,750 8,450 8,750 8,450
Total trailers (at quarter
end) 24,090 22,920 24,090 22,920
(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.
The following table sets forth the revenues, operating expenses, and
operating income for the Truckload Transportation Services segment.
Revenues for the Truckload Transportation Services segment include non-
trucking revenues of $3.5 million and $3.6 million for the three-month
periods and $7.0 million and $6.5 million for the six-month periods ended
June 30, 2005 and 2004, respectively, as described on page 11.
Three Months Ended Six Months Ended
June 30 June 30
----------------------------- -----------------------------
Truckload Transportation Services 2005 2004 2005 2004
-------------- -------------- -------------- --------------
(amounts in 000's) $ % $ % $ % $ %
- ------------------ -------------- -------------- -------------- --------------
Revenues $427,136 100.0 $369,564 100.0 $829,499 100.0 $720,224 100.0
Operating expenses 387,333 90.7 335,578 90.8 758,512 91.4 661,890 91.9
-------- -------- -------- --------
Operating income $ 39,803 9.3 $ 33,986 9.2 $ 70,987 8.6 $ 58,334 8.1
======== ======== ======== ========
Higher fuel prices and higher fuel surcharge collections have the
effect of increasing the Company's consolidated operating ratio and the
Truckload Transportation Services segment's operating ratio. Eliminating
13
this sometimes volatile source of revenue provides a more consistent basis
for comparing the results of operations from period to period. The
following table calculates the Truckload Transportation Services segment's
operating ratio using total operating expenses, net of fuel surcharge
revenues, as a percentage of revenues, excluding fuel surcharges.
Three Months Ended Six Months Ended
June 30 June 30
----------------------------- -----------------------------
Truckload Transportation Services 2005 2004 2005 2004
-------------- -------------- -------------- --------------
(amounts in 000's) $ % $ % $ % $ %
- ------------------ -------------- -------------- -------------- --------------
Revenues $427,136 $369,564 $829,499 $720,224
Less: trucking fuel surcharge
revenues 51,967 24,016 92,903 41,987
-------- -------- -------- --------
Revenues, net of fuel surcharge 375,169 100.0 345,548 100.0 736,596 100.0 678,237 100.0
-------- -------- -------- --------
Operating expenses 387,333 335,578 758,512 661,890
Less: trucking fuel surcharge
revenues 51,967 24,016 92,903 41,987
-------- -------- -------- --------
Operating expenses, net of fuel
surcharge 335,366 89.4 311,562 90.2 665,609 90.4 619,903 91.4
-------- -------- -------- --------
Operating income $ 39,803 10.6 $ 33,986 9.8 $ 70,987 9.6 $ 58,334 8.6
======== ======== ======== ========
The following table sets forth the non-trucking revenues, operating
expenses, and operating income for the VAS segment. Other operating
expenses for the VAS segment primarily consist of salaries, wages and
benefits expense. VAS also incurs smaller expense amounts in the supplies
and maintenance, depreciation, rent and purchased transportation (excluding
third-party transportation costs), communications and utilities, and other
operating expense categories.
Three Months Ended Six Months Ended
June 30 June 30
----------------------------- -----------------------------
2005 2004 2005 2004
-------------- -------------- -------------- --------------
Value Added Services (amounts in 000's) $ % $ % $ % $ %
- --------------------------------------- -------------- -------------- -------------- --------------
Revenues $ 55,555 100.0 $ 38,986 100.0 $105,715 100.0 $ 72,353 100.0
Rent and purchased transportation expense 50,405 90.7 35,318 90.6 95,571 90.4 65,559 90.6
-------- -------- -------- --------
Gross margin 5,150 9.3 3,668 9.4 10,144 9.6 6,794 9.4
Other operating expenses 3,234 5.9 2,499 6.4 6,235 5.9 4,696 6.5
-------- -------- -------- --------
Operating income $ 1,916 3.4 $ 1,169 3.0 $ 3,909 3.7 $ 2,098 2.9
======== ======== ======== ========
Three Months Ended June 30, 2005 Compared to Three Months Ended June 30,
- ---------------------------------------------------------------------------
2004
- ----
Operating Revenues
Operating revenues increased 18.2% for the three months ended June 30,
2005, compared to the same period of the prior year. Excluding fuel
surcharge revenues, trucking revenues increased 8.7% due primarily to a
5.4% increase in average revenues per total mile, excluding fuel
surcharges, and a 3.7% increase in the average number of tractors in
service, offset by a 0.5% decrease in average monthly miles per tractor.
Average revenues per total mile, excluding fuel surcharges, increased due
to customer rate increases secured during late 2004 and early 2005 and, to
a lesser extent, a 3.7% decrease in the average loaded trip length due to
growth in the Company's dedicated fleet. The Company grew its dedicated
fleet by 6% in second quarter 2005 compared to second quarter 2004.
Dedicated fleet business tends to have lower miles per trip, a higher empty
mile percentage, a higher rate per loaded mile, and lower miles per truck.
The growth in dedicated business had a corresponding effect on these same
operating statistics, as reported above, for the entire Company.
14
In the third and fourth quarter of 2004, the Company's sales and
marketing team met with customers to negotiate annual rate increases to
recoup the significant cost increases in fuel, driver pay, equipment, and
insurance and to improve the Company's operating margin. Most of the
Company's non-dedicated contractual business renews in the latter part of
third quarter and fourth quarter, and these contractual rate increases
contributed to the pricing improvement in second quarter 2005 compared to
second quarter 2004. There are several inflationary cost pressures
impacting truckload carriers. While the Company has taken several actions
to limit or delay these cost increases, management will be seeking freight
rate increases during the upcoming contract renewal period to recoup
unavoidable cost increases.
For most of second quarter 2005, freight demand exceeded the Company's
available truck capacity. While freight demand improved from April to June
2005, as anticipated due to the seasonal patterns in the trucking industry,
demand during second quarter 2005 was not as strong as the abnormally
strong freight market of second quarter 2004. This caused an increase in
empty miles from 73 miles per trip to 77 miles per trip.
Fuel surcharge revenues, which represent collections from customers
for the higher cost of fuel, increased to $52.0 million in second quarter
2005 from $24.0 million in second quarter 2004 in response to higher
average fuel prices in second quarter 2005. The Company's fuel surcharge
programs are designed to recoup the higher cost of fuel from customers when
fuel prices rise and automatically provide customers with the benefit of
lower costs when fuel prices decline. These programs have historically
enabled the Company to recover a significant portion of the fuel price
increases. As discussed further under the "Operating Expenses" heading,
the strength of the Company's fuel surcharge programs helped to limit the
impact of higher fuel costs, including higher owner-operator fuel
reimbursements and the effect of fuel mile per gallon ("mpg") degradation
for trucks with post October-2002 engines, to two cents per share in second
quarter 2005. These surcharge programs automatically adjust depending on
the Department of Energy ("DOE") weekly retail on-highway diesel prices.
Typical programs specify a base price per gallon when surcharges can begin
to be billed. Above this price, the Company bills a surcharge rate per
mile when the price per gallon falls in a bracketed range of fuel prices.
When fuel prices increase, fuel surcharges recoup a lower percentage of the
incrementally higher costs due to the impact of inadequate recovery for
empty miles not billable to customers, out-of-route miles, truck idle time,
and "bracket creep". "Bracket creep" occurs when fuel prices approach the
upper limit of the bracketed range, but a higher surcharge rate per mile
cannot be billed until the fuel price per gallon reaches the next bracket.
Also, the DOE survey price used for surcharge contracts changes once a week
while actual fuel prices change more frequently. Because collections of
fuel surcharges typically trail fuel price changes, rapid fuel price
increases cause a temporarily unfavorable effect of fuel costs increasing
more rapidly than fuel surcharge revenues. This effect typically reverses
if fuel prices fall.
VAS revenues increased 42.5% to $55.6 million for the three months
ended June 30, 2005 from $39.0 million for the three months ended June 30,
2004 due to the Company's continued focus on growing the volume of business
generated by this segment. VAS revenues consist primarily of freight
brokerage, intermodal, freight transportation management, and other
services. The Company expects to continue to capitalize on the
sophisticated service, management, and technology advantages of its
logistics service offerings. During 2005, VAS began offering multimodal
services, which provide for the movement of freight using a combination of
truck and rail intermodal services.
Operating Expenses
Operating expenses, expressed as a percentage of operating revenues,
were 91.3% for the three months ended June 30, 2005, compared to 91.5% for
the three months ended June 30, 2004. Because the Company's VAS business
operates with a lower operating margin and a higher return on assets than
the trucking business, the growth in VAS business in second quarter 2005
compared to second quarter 2004 affected the Company's overall operating
ratio. As explained above, the significant increase in fuel expense and
related fuel surcharge revenues also affected the operating ratio. The
15
tables on pages 13 and 14 show the operating ratios and operating margins
for the Company's two reportable segments, Truckload Transportation
Services and Value Added Services.
The following table sets forth the cost per total mile of operating
expense items for the Truckload Transportation Services segment for the
periods indicated. The Company evaluates operating costs for this segment
on a per-mile basis to adjust for the impact on the percentage of total
operating revenues caused by changes in fuel surcharge revenues, which
provides a more consistent basis for comparing the results of operations
from period to period.
Three Months Ended Increase Six Months Ended Increase
June 30 (Decrease) June 30 (Decrease)
---------------------- --------------------
2005 2004 per Mile 2005 2004 per Mile
-------------------------------------------------------------------
Salaries, wages and benefits $.517 $.507 $.010 $.525 $.511 $.014
Fuel .291 .192 .099 .277 .186 .091
Supplies and maintenance .144 .128 .016 .145 .126 .019
Taxes and licenses .110 .105 .005 .111 .107 .004
Insurance and claims .081 .077 .004 .085 .077 .008
Depreciation .147 .136 .011 .148 .134 .014
Rent and purchased
transportation .149 .138 .011 .147 .134 .013
Communications and utilities .019 .017 .002 .020 .017 .003
Other (.010) (.006) (.004) (.012) (.003) (.009)
Owner-operator costs are included in rent and purchased transportation
expense. Owner-operator miles as a percentage of total miles were 12.8% in
second quarter 2005 compared to 12.7% in second quarter 2004. Owner-
operators are independent contractors who supply their own tractor and
driver and are responsible for their operating expenses including fuel,
supplies and maintenance, and fuel taxes. Because the change in owner-
operator miles as a percentage of total miles was minimal, there was
essentially no shift in costs to the rent and purchased transportation
category from other expense categories. Attracting and retaining owner-
operator drivers has continued to be difficult due to the challenging
operating conditions.
Salaries, wages and benefits for non-drivers increased in second
quarter 2005 compared to second quarter 2004 to support the growth in the
VAS segment. The increase in salaries, wages and benefits per mile of 1.0
cent for the Truckload Transportation Services segment is primarily the
result of increased student driver pay, higher driver pay per mile, and an
increase in the number of maintenance employees, offset by lower workers'
compensation. Because of the challenging driver recruiting market,
discussed below, the Company is training more student drivers as an
alternative source of drivers. On August 1, 2004, the Company's previously
announced two cent per mile pay raise became effective for company solo
drivers in its medium-to-long-haul van division, representing approximately
25% of total company drivers. The Company has recovered this pay raise
through its customer rate increase negotiations, which occurred in third
and fourth quarter 2004. The Company renewed its workers' compensation
insurance coverage, and for the policy year beginning April 2005, the
Company continues to maintain a self-insurance retention of $1.0 million
per claim and is responsible for an annual aggregate amount of $1.0 million
for claims above $1.0 million and below $2.0 million. The Company's
premium rates for this coverage did not change from the prior policy year.
The driver recruiting market remains extremely challenging. By
placing more emphasis on training drivers, increasing the frequency of
driver home time, providing drivers with a newer truck, and maximizing
driver productivity within the federal hours of service regulations, the
Company is obtaining an adequate number of drivers to maintain its current
fleet size. However, the supply of qualified truck drivers remains
constrained due to alternative jobs that are becoming available with a
solid economy and inadequate demographic growth for the industry's targeted
16
driver base over the next several years. The Company expects the tight
driver market will make it very difficult to add meaningful truck capacity
in the near future.
The Company instituted an optional per diem reimbursement program for
eligible company drivers (approximately half of total non-student company
drivers) beginning in April 2004. This program increases a company
driver's net pay per mile, after taxes. As a result, driver pay per mile
was slightly lower before considering the factors above that increased
driver pay per mile, and the Company's effective income tax rate was higher
in second quarter 2005 compared to second quarter 2004. The Company
expects the cost of the per diem program to be neutral, because the
combined driver pay rate per mile and per diem reimbursement under the per
diem program is about one cent per mile lower than mileage pay without per
diem reimbursement, which offsets the Company's increased income taxes
caused by the nondeductible portion of the per diem. The per diem program
increases driver satisfaction through higher net pay per mile. The Company
anticipates that the competition for qualified drivers will continue to be
high and cannot predict whether it will experience shortages in the future.
If such a shortage were to occur and additional increases in driver pay
rates were necessary to attract and retain drivers, the Company's results
of operations would be negatively impacted to the extent that corresponding
freight rate increases were not obtained.
Fuel increased 9.9 cents per mile for the Truckload Transportation
Services segment due to higher average diesel fuel prices and more trucks
with post-October 2002 engines. Average fuel prices in second quarter 2005
were 51 cents a gallon, or 45%, higher than in second quarter 2004, and
were 19 cents a gallon higher than in first quarter 2005. Fuel expense had
a two cent negative impact on earnings per share in second quarter 2005
compared to second quarter 2004, after considering fuel surcharge
collections and the cost impact of owner-operator fuel reimbursements
(which is included in rent and purchased transportation expense) and lower
miles per gallon due to truck engine emissions changes. Company data
continues to indicate that the fuel mpg decrease for trucks with post-
October 2002 engines (68% of the Company fleet as of June 30, 2005 compared
to 23% as of June 30, 2004) is a reduction of approximately 5%. As the
Company continues to replace older trucks in its fleet with trucks with the
post-October 2002 engines, fuel cost per mile is expected to increase
further due to the lower mpg. Shortages of fuel, increases in fuel prices,
or rationing of petroleum products can have a materially adverse effect on
the operations and profitability of the Company. The Company is unable to
predict whether fuel price levels will continue to increase or decrease in
the future or the extent to which fuel surcharges will be collected from
customers. As of June 30, 2005, the Company had no derivative financial
instruments to reduce its exposure to fuel price fluctuations.
Diesel fuel prices recently increased in June and July. Assuming
fuel prices remain at price levels at the date of this filing throughout
the remainder of third quarter 2005, the negative impact of fuel expense on
earnings for third quarter 2005 compared to third quarter 2004 is estimated
to be in the range of approximately two cents to three cents per share. If
fuel prices average ten cents per gallon higher than current price levels
throughout the remainder of third quarter 2005, the negative impact of fuel
expense on earnings for third quarter 2005 compared to third quarter 2004
is estimated to be in the range of three cents to four cents per share.
Supplies and maintenance for the Truckload Transportation Services
segment increased 1.6 cents on a per-mile basis in second quarter 2005 due
primarily to increases in repair expenses for trucks to be sold by the
Company's Fleet Truck Sales subsidiary. Higher over-the-road equipment
repairs, driver recruiting costs (including driver travel and lodging and
driver physicals), and higher toll expense related to state toll rate
increases also contributed to a smaller portion of the increase. Over-the-
road ("OTR") repairs increased as a result of the increase in dedicated-
fleet trucks, which typically do not have as much maintenance performed at
company terminals. The Company includes the higher cost of OTR maintenance
when establishing pricing for dedicated customers.
17
Taxes and licenses for the Truckload Transportation Services segment
increased 0.5 cents per total mile due primarily to the effect of the fuel
mpg degradation for trucks with post-October 2002 engines on the per-mile
cost of federal and state diesel fuel taxes.
Insurance and claims for the Truckload Transportation Services segment
increased 0.4 cents on a per-mile basis due primarily to negative
development on existing liability insurance claims. For the policy year
beginning August 1, 2004, the Company became responsible for the first $2.0
million per claim with an annual aggregate of $3.0 million for claims
between $2.0 million and $3.0 million, and the Company became fully insured
(i.e., no aggregate) for claims between $3.0 million and $5.0 million. For
claims in excess of $5.0 million and less than $10.0 million, the Company
is responsible for the first $5.0 million of claims. The increased Company
retention from $500,000 to $2.0 million is due to changes in the trucking
insurance market and is similar to increased claim retention levels
experienced by other truckload carriers. The Company maintains liability
insurance coverage with reputable insurance carriers substantially in
excess of the $10.0 million per claim. Effective August 1, 2005, the
Company's self-insured aggregate for claims between $2.0 million and $3.0
million will decrease to $2.0 million. The Company expects its liability
insurance premiums for the policy year beginning August 1, 2005 to be
approximately the same as the previous policy year.
Depreciation expense for the Truckload Transportation Services segment
increased 1.1 cents on a per-mile basis in second quarter 2005 due
primarily to higher costs of new tractors with the post-October 2002
engines. As of June 30, 2005, approximately 68% of the company-owned truck
fleet consisted of trucks with the post-October 2002 engines compared to
23% at June 30, 2004. As the Company continues to replace older trucks in
its fleet with trucks with the post-October 2002 engines, depreciation
expense is expected to increase.
Rent and purchased transportation consists mainly of payments to third-
party carriers in the VAS and other non-trucking operations and payments to
owner-operators in the trucking operations. As shown in the VAS statistics
table on page 14, 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 90.7% in second quarter 2005 compared
to 90.6% in second quarter 2004.
Rent and purchased transportation for the Truckload Transportation
Services segment increased 1.1 cents per total mile in second quarter 2005
as higher fuel prices necessitated higher reimbursements to owner-operators
for fuel. The Company's customer fuel surcharge programs do not
differentiate between miles generated by Company-owned trucks and miles
generated by owner-operator trucks; thus, the increase in owner-operator
fuel reimbursements is included with Company fuel expenses in calculating
the per-share impact of higher fuel prices on earnings. The Company has
experienced difficulty recruiting and retaining owner-operators for over
two years because of challenging operating conditions. However, the Company
has historically been able to add company-owned tractors and recruit
additional company drivers to offset any decreases in owner-operators. If
a shortage of owner-operators and company drivers were to occur and
increases in per mile settlement rates became necessary to attract and
retain owner-operators, the Company's results of operations would be
negatively impacted to the extent that corresponding freight rate increases
were not obtained. Payments to third-party carriers used for portions of
shipments delivered to or from Mexico and by a few dedicated fleets in the
truckload segment decreased by 0.2 cents per mile, offsetting the overall
increase for the Truckload Transportation Services segment.
Other operating expenses for the Truckload Transportation Services
segment decreased 0.4 cents per mile in second quarter 2005. Gains on
sales of assets, primarily trucks, 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 increased to $3.6 million in second quarter 2005 from $3.4 million
in second quarter 2004 due to increased unit sales of trucks as the Company
is attempting to keep its fleet as new as possible, partially offset by a
18
slightly lower average gain per truck. The Company's wholly-owned
subsidiary, Fleet Truck Sales, is one of the largest domestic class 8 truck
sales companies in the United States. Fleet Truck Sales opened its 17th
truck sales location during second quarter 2005. The Company's goal is to
sell a majority of its used equipment through its Fleet Truck Sales
network. Other operating expenses also include bad debt expense and
professional services fees. The remaining decrease in other operating
expenses in second quarter 2005 is due primarily to a reduction in computer
consulting fees as some consultants were hired by the Company, resulting in
a reduction in other operating expenses, but an increase in salaries, wages
and benefits expense.
The Company's effective income tax rate (income taxes expressed as a
percentage of income before income taxes) increased to 41.0% for the three-
month period ended June 30, 2005 from 39.1% for the three-month period
ended June 30, 2004 due to an increase in non-deductible expenses for tax
purposes related to the implementation of a per diem pay program for
student drivers in fourth quarter 2003 and a per diem pay program for
eligible company drivers in April 2004.
Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
- -------------------------------------------------------------------------
Operating Revenues
Operating revenues increased by 18.0% for the six months ended June
30, 2005, compared to the same period of the previous year. Excluding fuel
surcharge revenues, trucking revenues increased 8.6%, due primarily to a
6.3% increase in average revenues per total mile, excluding fuel
surcharges, and a 2.9% increase in the average number of tractors in
service, offset by a 0.8% decrease in average monthly miles per tractor.
Average revenues per total mile, excluding fuel surcharges, increased
primarily due to customer rate increases secured during late 2004 and early
2005. VAS revenues increased by $33.4 million (46.1%) due to ongoing
growth in the segment, and fuel surcharge revenues increased by $50.9
million (121.3%) due to higher average diesel fuel prices for the first six
months of 2005 as compared to the same period of 2004.
Operating Expenses
Operating expenses, expressed as a percentage of operating revenues,
were 92.0% for the six months ended June 30, 2005, compared to 92.5% for
the same period of the previous year. Because the Company's VAS business
operates with a lower operating margin and a higher return on assets than
the trucking business, the growth in VAS business in the first six months
of 2005 compared to the first six months of 2004 affected the Company's
overall operating ratio. As explained earlier, the significant increase in
fuel expense and related fuel surcharge revenues also affected the
operating ratio. The tables on pages 13 and 14 show the operating ratios
and operating margins for the Company's two reportable segments, Truckload
Transportation Services and Value Added Services.
Owner-operator miles as a percentage of total miles were 12.8% and
12.5% for the six months ended June 30, 2005 and 2004, respectively.
Because the change in owner-operator miles as a percentage of total miles
was minimal, there was essentially no shift in costs to the rent and
purchased transportation category from other expense categories.
Salaries, wages and benefits for non-drivers increased to support the
growth in the VAS segment. Salaries, wages and benefits for the Truckload
Transportation Services segment increased 1.4 cents on a per-mile basis due
to higher driver pay per mile and an increase in the number of maintenance
employees, offset by lower workers' compensation. Fuel increased 9.1 cents
per mile due to higher fuel prices. Average fuel prices for the first six
months of 2005 were 48 cents a gallon, or 45%, higher than the first six
months of 2004. Supplies and maintenance increased 1.9 cents per mile due
to higher driver recruiting costs (including driver travel and lodging,
19
driver advertising, and driver physicals), increases in the cost of over-
the-road repairs and repairs on trucks sold by the Company's Fleet Truck
Sales subsidiary, and higher toll costs due to state toll rate increases.
Insurance increased 0.8 cents on a per-mile basis primarily to negative
development on existing liability insurance claims. Depreciation increased
1.4 cents per mile due to higher costs of new tractors as the Company
replaces tractors with pre-October 2002 engines with tractors that have the
new EPA-compliant engines at a higher cost. Rent and purchased
transportation for the Truckload Transportation Services segment increased
1.3 cents per mile as higher fuel prices necessitated higher reimbursements
to owner-operators for fuel. Rent and purchased transportation expense for
the VAS segment increased in response to higher VAS revenues. Other
operating expenses decreased 0.9 cents per mile due to the Company selling
more used trucks to third parties and recognizing additional gains, net of
sales-related expenses, including costs to prepare the equipment for sale.
The Company's effective income tax rate was 38.9% for the six months ended
June 30, 2004 (38.5% for first quarter 2004 and 39.1% for second quarter
2004). The rate increased to 41.0% for the six months ended June 30, 2005,
related to the implementation of per diem pay programs for student drivers
and eligible company drivers.
Liquidity and Capital Resources:
During the six months ended June 30, 2005, the Company generated cash
flow from operations of $96.3 million, a 22.7% decrease ($28.2 million) in
cash flow compared to the same six-month period a year ago. The decrease
in cash flow from operations is due primarily to larger federal income tax
payments in the first six months of 2005 compared to the same period of
2004 and an increase in days sales in accounts receivable, offset by higher
net income and higher depreciation expense for financial reporting purposes
related to the higher cost of the post-October 2002 engines. Deferred
taxes decreased by $37.7 million during the six months ended June 30, 2005
related to the reversal of certain tax strategies implemented in 2001 due
to recent tax law changes and lower income tax depreciation in 2005 due to
the bonus depreciation which expired on December 31, 2004. In second
quarter 2005, the Company made federal income tax payments of $22.5 million
related to the tax strategies and $25.6 million representing its first and
second quarter 2005 estimated tax payments, and expects income tax payments
for the remaining two quarterly tax payment dates of 2005 to be higher than
those in the comparable periods of 2004 due to the reversal of deferred tax
liabilities related to equipment depreciation. The cash flow from
operations and existing cash balances enabled the Company to make net
property additions, primarily revenue equipment, of $152.7 million, pay
common stock dividends of $5.6 million, and repurchase common stock of $0.3
million. Based on the Company's strong financial position, management
foresees no significant barriers to obtaining sufficient financing, if
necessary.
Net cash used in investing activities for the six-month period ended
June 30, 2005 increased by $79.3 million, from $71.3 million for the six-
month period ended June 30, 2004 to $150.6 million for the six-month period
ended June 30, 2005. The large increase was due primarily to the Company
purchasing more tractors in the first six months of 2005.
As of June 30, 2005, the Company has committed to property and
equipment purchases, net of trades, of approximately $127.0 million. The
average age of the Company's truck fleet is 1.44 years at June 30, 2005
compared to 1.71 years as of June 30, 2004. The Company intends to
continue to keep its fleet as new as possible in advance of the federally
mandated engine emission standards which are required for all newly-
manufactured trucks beginning in January 2007. As such, capital
expenditures are expected to be higher throughout the remainder of 2005 as
compared to 2004. The Company intends to fund these capital expenditure
commitments through existing cash on hand and cash flow from operations.
Equipment may be purchased through financing if management determines that
financing is advantageous or necessary for the Company.
Net financing activities used $3.9 million and $16.2 million during
the six months ended June 30, 2005 and 2004, respectively. The Company
paid dividends of $5.6 million in the six-month period ended June 30, 2005
20
and $4.0 million in the six-month period ended June 30, 2004. The Company
increased its quarterly dividend rate by $.01 per share beginning with the
dividend paid in July 2004 and by $.005 per share beginning with the
dividend paid in July 2005. Financing activities also included common
stock repurchases of $0.3 million and $14.2 million in the six-month
periods ended June 30, 2005 and 2004, respectively. From time to time, the
Company has repurchased, and may continue to repurchase, shares of its
common stock. The timing and amount of such purchases depends on market
and other factors. The Company's Board of Directors has authorized the
repurchase of up to 3,965,838 shares. As of June 30, 2005, the Company had
purchased 182,038 shares pursuant to this authorization and had 3,783,800
shares remaining available for repurchase.
Management believes the Company's financial position at June 30, 2005
is strong. As of June 30, 2005, the Company has $51.1 million of cash and
cash equivalents, no debt, and $815.8 million of stockholders' equity. As
of June 30, 2005, the Company has no equipment operating leases, and,
therefore has no off-balance sheet equipment debt. The Company maintains
$35.5 million in letters of credit as of June 30, 2005. These letters of
credit are primarily required as security for insurance policies. As of
June 30, 2005, the Company has $75.0 million of credit pursuant to credit
facilities, on which no borrowings were outstanding. The credit available
under these facilities is reduced by the $35.5 million in letters of
credit.
Off-Balance Sheet Arrangements:
The Company does not have arrangements that meet the definition of an
off-balance sheet arrangement.
Regulations:
The Federal Motor Carrier Safety Administration ("FMCSA") of the U.S.
Department of Transportation issued a final rule on April 24, 2003, that
made several changes to the regulations that govern truck drivers' hours of
service ("HOS"). The new rules became effective on January 4, 2004. On
July 16, 2004, the U.S. Circuit Court of Appeals for the District of
Columbia rejected the new hours of service rules for truck drivers, because
it said the FMCSA had failed to address the impact of the rules on the
health of drivers as required by Congress. In addition, the judge's ruling
noted other areas of concern including the increase in driving hours from
10 hours to 11 hours, the exception that allows drivers to split their
required rest periods, the new rule allowing drivers to reset their 70-hour
clock to 0 hours after 34 consecutive hours off duty, and the decision by
the FMCSA not to require the use of electronic onboard recorders to monitor
driver compliance. On September 30, 2004, the extension of the federal
highway bill signed into law by the President extended the previously
vacated 2003 hours of service rules, effective immediately, for one year or
whenever the FMCSA develops a new set of regulations, whichever comes
first. On January 24, 2005, the FMCSA re-proposed its April 2003 HOS
rules, adding references to how the rules would affect driver health, but
making no changes to the regulations. The public comment period ended on
March 10, 2005. The federal highway bill approved by Congress on July 29,
2005 did not codify the current hours of service regulations as Federal
Law. Thus, the FMCSA is expected to announce its new regulations prior to
the September 30, 2005, deadline previously established by Congress. If
new regulations are issued by the FMCSA, indications are that the rules may
be different than the current rules, and litigation is likely to follow.
Beginning in January 2007, a new set of more stringent engine
emissions standards mandated by the Environmental Protection Agency ("EPA")
will become effective for all newly manufactured trucks. The Company
intends to continue to keep its fleet as new as possible in advance of the
new standards. The Company expects that the engines produced under the 2007
standards will be less fuel-efficient and have a higher cost than the
current engines. In addition, all truckload carriers will be required to
use new ultra-low sulfur fuel for all of the existing trucks in their fleet
beginning in mid-2006. Fuel supply and delivery issues may cause the price
per gallon of the new ultra-low sulfur fuel to be higher compared to
current fuel, and preliminary estimates are that the new ultra-low sulfur
21
fuel will cause an approximate 1% to 3% decline in fuel miles per gallon.
To gain a better understanding of the impact of these items, the Company
expects to begin testing a few January 2007 compliant test engines using
ultra-low sulfur fuel in third quarter 2005. The Company also expects to
begin testing the ultra-low sulfur fuel on existing company trucks in third
quarter 2005 to determine the impact on fuel mile per gallon.
Critical Accounting Policies:
The most significant accounting policies and estimates that affect our
financial statements include the following:
* Selections of estimated useful lives and salvage values for purposes
of depreciating tractors and trailers. Depreciable lives of tractors
and trailers range from 5 to 12 years. Estimates of salvage value at
the expected date of trade-in or sale (for example, three years for
tractors) are based on the expected market values of equipment at the
time of disposal. Although the Company's current replacement cycle
for tractors is three years, the Company calculates depreciation
expense for financial reporting purposes using a five-year life and
25% salvage value. Depreciation expense calculated in this manner
continues at the same straight-line rate, which approximates the
continuing declining market value of the tractors, in those instances
in which a tractor is held beyond the normal three-year age.
Calculating depreciation expense using a five-year life and 25%
salvage value results in the same annual depreciation rate (15% of
cost per year) and the same net book value at the normal three-year
replacement date (55% of cost) as using a three-year life and 55%
salvage value. The Company continually monitors the adequacy of the
lives and salvage values used in calculating depreciation expense and
adjusts these assumptions appropriately when warranted.
* The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount
of a long-lived asset may not be recoverable. An impairment loss
would be recognized if the carrying amount of the long-lived asset is
not recoverable, and it exceeds its fair value. For long-lived assets
classified as held and used, if the carrying value of the long-lived
asset exceeds the sum of the future net cash flows, it is not
recoverable. The Company does not separately identify assets by
operating segment, as tractors and trailers are routinely transferred
from one operating fleet to another. As a result, none of the
Company's long-lived assets have identifiable cash flows from use that
are largely independent of the cash flows of other assets and
liabilities. Thus, the asset group used to assess impairment would
include all assets and liabilities of the Company. Long-lived assets
classified as held for sale are reported at the lower of their
carrying amount or fair value less costs to sell.
* Estimates of accrued liabilities for insurance and claims for
liability and physical damage losses and workers' compensation. The
insurance and claims accruals (current and long-term) are recorded at
the estimated ultimate payment amounts and are based upon individual
case estimates, including negative development, and estimates of
incurred-but-not-reported losses based upon past experience. The
Company's self-insurance reserves are reviewed by an actuary every six
months.
* Policies for revenue recognition. Operating revenues (including fuel
surcharge revenues) and related direct costs are recorded when the
shipment is delivered. For shipments where a third-party provider is
utilized to provide some or all of the service and the Company is the
primary obligor in regards to the delivery of the shipment,
establishes customer pricing separately from carrier rate
negotiations, generally has discretion in carrier selection, and/or
has credit risk on the shipment, the Company records both revenues for
the dollar value of services billed by the Company to the customer and
rent and purchased transportation expense for the costs of
transportation paid by the Company to the third-party provider upon
22
delivery of the shipment. In the absence of the conditions listed
above, the Company records revenues net of expenses related to
third-party providers.
* Accounting for income taxes. Significant management judgment is
required to determine the provision for income taxes and to determine
whether deferred income taxes will be realized in full or in part.
Deferred income tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
When it is more likely that all or some portion of specific deferred
income tax assets will not be realized, a valuation allowance must be
established for the amount of deferred income tax assets that are
determined not to be realizable. A valuation allowance for deferred
income tax assets has not been deemed to be necessary due to the
Company's profitable operations. Accordingly, if the facts or
financial circumstances were to change, thereby impacting the
likelihood of realizing the deferred income tax assets, judgment would
need to be applied to determine the amount of valuation allowance
required in any given period.
Management periodically evaluates these estimates and policies as
events and circumstances change. Together with the effects of the matters
discussed above, these factors may significantly impact the Company's
results of operations from period to period.
Accounting Standards:
In December 2004, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 153, Exchanges of Nonmonetary Assets. This Statement
amends the guidance in APB Opinion No. 29, Accounting for Nonmonetary
Transactions. APB Opinion No. 29 provided an exception to the basic
measurement principle (fair value) for exchanges of similar assets,
requiring that some nonmonetary exchanges be recorded on a carryover basis.
SFAS No. 153 eliminates the exception to fair value for exchanges of
similar productive assets and replaces it with a general exception for
exchange transactions that do not have commercial substance, that is,
transactions that are not expected to result in significant changes in the
cash flows of the reporting entity. The provisions of SFAS No. 153 are
effective for exchanges of nonmonetary assets occurring in fiscal periods
beginning after June 15, 2005. As of June 30, 2005, management believes
that SFAS No. 153 will have no significant effect on the financial
position, results of operations, and cash flows of the Company.
In December 2004, the FASB revised SFAS No. 123 (revised 2004), Share-
Based Payments. SFAS No. 123(R) eliminates the alternative to use APB
Opinion No. 25's intrinsic value method of accounting (generally resulting
in recognition of no compensation cost) and instead requires a company to
recognize in its financial statements the cost of employee services
received in exchange for valuable equity instruments issued, and
liabilities incurred, to employees in share-based payment transactions
(e.g., stock options). The cost will be based on the grant-date fair value
of the award and will be recognized over the period for which an employee
is required to provide service in exchange for the award. In April 2005,
the Securities and Exchange Commission ("SEC") adopted a rule amending the
compliance dates for SFAS No. 123(R). Under the new SEC rule, the
provisions of the revised statement are to be applied prospectively by the
Company for awards that are granted, modified, or settled in the first
fiscal year beginning after June 15, 2005. Additionally, the Company would
recognize compensation cost for any portion of awards granted or modified
after December 15, 1994, that is not yet vested at the date the standard is
adopted, based on the grant-date fair value of those awards calculated
under SFAS No. 123 (as originally issued) for either recognition or pro
forma disclosures. When the Company adopts the standard on January 1,
2006, it will be required to report in its financial statements the share-
based compensation expense for reporting periods in 2006. As of June 30,
2005, management believes that adopting the new statement will have a
negative impact of approximately one cent per share for the year ending
December 31, 2006, representing the expense to be recognized for the
unvested portion of awards which were granted prior to June 30, 2005, and
cannot predict the earnings impact of awards that may be granted after that
23
date. (See Note 5 of the Notes to Consolidated Financial Statements under
Part I, Item 1 of this Form 10-Q, which shows the pro forma effect of SFAS
No. 123, as originally issued.)
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and
Error Corrections. This Statement replaces APB Opinion No. 20, Accounting
Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial
Statements, and changes the requirements for the accounting for and
reporting of all voluntary changes in accounting principle and changes
required by an accounting pronouncement when the pronouncement does not
include specific transition provisions. This Statement requires
retrospective application to prior periods' financial statements of changes
in accounting principle, unless it is impracticable to do so. The
provisions of SFAS No. 154 are effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15,
2005. As of June 30, 2005, management believes that SFAS No. 154 will have
no significant effect on the financial position, results of operations, and
cash flows of the Company.
Forward-Looking Statements and Risk Factors:
The following risks and uncertainties, as well as those listed in Item
7 of the Company's Annual Report on Form 10-K for the year ended December
31, 2004, may cause actual results to differ materially from those
anticipated in the forward-looking statements included in this Form 10-Q:
The Company is sensitive to changes in overall economic conditions
that impact customer shipping volumes. Future weakness in the economy and
consumer demand could result in reduced freight demand, which, in turn,
would impact the Company's growth opportunities, revenues, and
profitability. Other economic conditions that may affect the Company
include employment levels, business conditions, fuel and energy costs,
interest rates, and tax rates.
At times, there have been shortages of drivers and owner-operators in
the trucking industry. Improvement in the general unemployment rate can
lead to further difficulty in recruiting and retention. The market for
recruiting drivers became more difficult in fourth quarter 2003 and
continued through second quarter 2005. The Company anticipates that the
competition for company drivers and owner-operators will continue to be
high and cannot predict whether it will experience shortages in the future.
If such a shortage was to occur and additional increases in driver pay
rates and owner-operator settlement rates became necessary to attract and
retain drivers and owner-operators, the Company's results of operations
would be negatively impacted to the extent that corresponding freight rate
increases were not obtained.
Diesel fuel prices have increased eight consecutive quarters and high
prices continue through July 2005. To the extent the Company cannot
recover the higher cost of fuel through general customer fuel surcharge
programs, the Company's results would be negatively impacted. Shortages of
fuel, further increases in fuel prices, or rationing of petroleum products
could have a materially adverse impact on the operations and profitability
of the Company.
As discussed above, the United States Circuit Court of Appeals for the
District of Columbia vacated the new hours of service regulations in their
entirety on July 16, 2004, and on September 30, 2004, the previously
vacated 2003 rules were extended for a one-year period or until the FMCSA
develops a new set of regulations. On January 24, 2005, the FMCSA re-
proposed its April 2003 HOS rules, adding references to how the rules would
affect driver health, but making no changes to the regulations. No ruling
on the FMCSA's proposal has been made as of the date of this filing. The
Company cannot predict what rule changes, if any, will result from the
court's ruling, nor the extent of the proposed rule's effect on the
operations and profitability of the Company.
24
The Company self-insures for liability resulting from cargo loss,
personal injury, and property damage as well as workers' compensation.
This is supplemented by premium-based insurance with licensed insurance
companies above the Company's self-insurance level for each type of
coverage. To the extent that the Company were to experience a significant
increase in the number of claims, the cost per claim, or the costs of
insurance premiums for coverage in excess of its retention amounts, the
Company's operating results would be negatively affected.
Effective October 1, 2002, all newly manufactured truck engines must
comply with the engine emission standards mandated by the EPA. As of June
30, 2005, approximately 68% of the company-owned truck fleet consisted of
trucks with post-October 2002 engines. The Company has experienced an
approximate 5% reduction in fuel efficiency to date and increased
depreciation expense due to the higher cost of the new engines. The
Company anticipates continued increases in these expense categories as
regular tractor replacements increase the percentage of company-owned
trucks with post-October 2002 engines. As discussed above, a new set of
more stringent emissions standards mandated by the EPA will become
effective for newly manufactured trucks beginning in January 2007, and all
truckload carriers will be required to use new ultra-low sulfur fuel for
all of the existing trucks in their fleet beginning in mid-2006. Fuel
supply and delivery issues may cause the price per gallon of the new ultra-
low sulfur fuel to be higher compared to current fuel, and preliminary
estimates are that the new ultra-low sulfur fuel will cause an approximate
1% to 3% decline in fuel miles per gallon. The Company is unable to
predict the ultimate impact these new regulations will have on its
operations, financial position, results of operations, and cash flows.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to market risk from changes in commodity
prices, foreign exchange rates, and interest rates.
Commodity Price Risk
The price and availability of diesel fuel are subject to fluctuations
due to changes in the level of global oil production, seasonality, weather,
and other market factors. Historically, the Company has been able to
recover a majority of fuel price increases from customers in the form of
fuel surcharges. The Company has implemented customer fuel surcharges
programs with most of its revenue base to offset most of the higher fuel
cost per gallon. The Company cannot predict the extent to which higher
fuel price levels will continue in the future or the extent to which fuel
surcharges could be collected to offset such increases. As of June 30,
2005, the Company had no derivative financial instruments to reduce its
exposure to fuel price fluctuations.
Foreign Exchange Rate Risk
The Company conducts business in Mexico and Canada. Foreign currency
transaction gains and losses were not material to the Company's results of
operations for second quarter 2005 and prior periods. To date, all foreign
revenues are denominated in U.S. dollars, and the Company receives payment
for freight services performed in Mexico and Canada primarily in U.S.
dollars to reduce foreign currency risk. Accordingly, the Company is not
currently subject to material foreign currency exchange rate risks from the
effects that exchange rate movements of foreign currencies would have on
the Company's future costs or on future cash flows.
25
Interest Rate Risk
The Company had no debt outstanding at June 30, 2005. Interest rates
on the Company's unused credit facilities are based on the London Interbank
Offered Rate ("LIBOR"). Increases in interest rates could impact the
Company's annual interest expense on future borrowings.
Item 4. Controls and Procedures.
As of the end of the period covered by this report, the Company
carried out an evaluation, under the supervision and with the participation
of the Company's management, including the Company's Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures, as defined
in Exchange Act Rule 15d-15(e). Based upon that evaluation, the Company's
Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective in enabling the
Company to record, process, summarize and report information required to be
included in the Company's periodic SEC filings within the required time
period.
There have been no changes in the Company's internal control over
financial reporting that occurred during the Company's most recent fiscal
quarter that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.
The Company has confidence in its internal controls and procedures.
Nevertheless, the Company's management, including the Chief Executive
Officer and Chief Financial Officer, does not expect that the internal
controls or disclosure procedures and controls will prevent all errors or
intentional fraud. An internal control system, no matter how well
conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of such internal controls are met. Further,
the design of an internal control system must reflect the fact that there
are resource constraints, and the benefits of controls must be relative to
their costs. Because of the inherent limitations in all internal control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been
detected.
26
PART II
OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On December 29, 1997, the Company announced that its Board of
Directors had authorized the Company to repurchase up to 4,166,666 shares
of its common stock. On November 24, 2003, the Company announced that its
Board of Directors approved an increase to its authorization for common
stock repurchases of 3,965,838 shares. The December 29, 1997 repurchase
authorization of 4,166,666 shares was completed in 2004. As of June 30,
2005, the Company had purchased 182,038 shares pursuant to the November 24,
2003 authorization and had 3,783,800 shares remaining available for
repurchase. The Company may purchase shares from time to time depending on
market, economic, and other factors. The authorization will continue until
withdrawn by the Board of Directors.
No shares of common stock were repurchased during the second quarter
of 2005 by either the Company or any affiliated purchaser.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders of Werner Enterprises, Inc. was
held on May 10, 2005 for the purpose of electing three directors for three-
year terms, voting on a proposed amendment to the Company's Articles of
Incorporation, and considering a stockholder proposal regarding board
inclusiveness. Proxies for the meeting were solicited pursuant to Section
14(a) of the Securities Exchange Act of 1934, and there was no solicitation
in opposition to management's nominees. Of the 79,420,150 shares entitled
to vote, stockholders representing 75,392,867 shares (94.9%) were present
in person or by proxy.
The stockholders elected the three directors standing for re-election.
The voting tabulation was as follows:
Shares Shares
Voted Voted
"FOR" "ABSTAIN"
---------- ---------
Gary L. Werner 71,892,108 3,500,759
Gregory L. Werner 73,123,833 2,269,034
Michael L. Steinbach 73,817,288 1,575,579
The stockholders approved the amendment to Article X of the Company's
Articles of Incorporation regarding the number of classes of directors and
the number of directors in each class. The voting tabulation was as
follows:
Shares Shares Shares
Voted Voted Voted
"FOR" "AGAINST" "ABSTAIN"
---------- ---------- ---------
Articles of Incorporation Amendment 47,190,652 28,169,697 32,516
27
The stockholders voted against the stockholder proposal regarding
board inclusiveness. The voting tabulation was as follows:
Shares Shares Shares
Voted Voted Voted
"FOR" "AGAINST" "ABSTAIN"
--------- ---------- ---------
Board Inclusiveness 3,824,269 61,836,894 3,244,879
Item 6. Exhibits.
Exhibit 3(i)(A) Revised and Amended Articles of Incorporation
(Incorporated by reference to Exhibit 3 to Registration Statement
on Form S-1, Registration No. 33-5245)
Exhibit 3(i)(B) Articles of Amendment to Articles of Incorporation
(Incorporated by reference to Exhibit 3(i) to the Company's report
on Form 10-Q for the quarter ended May 31, 1994)
Exhibit 3(i)(C) Articles of Amendment to Articles of Incorporation
(Incorporated by reference to Exhibit 3(i) to the Company's report
on Form 10-K for the year ended December 31, 1998)
Exhibit 3(i)(D) Articles of Amendment to Articles of Incorporation
(filed herewith)
Exhibit 3(ii) Revised and Restated By-Laws (Incorporated by reference
to Exhibit 3(ii) to the Company's report on Form 10-Q for the
quarter ended June 30, 2004)
Exhibit 10.1 Non-Employee Director Compensation (filed herewith)
Exhibit 31(i)(A) Rule 13a-14(a)/15d-14(a) Certification (filed
herewith)
Exhibit 31(i)(B) Rule 13a-14(a)/15d-14(a) Certification (filed
herewith)
Exhibit 32.1 Section 1350 Certification (filed herewith)
Exhibit 32.2 Section 1350 Certification (filed herewith)
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
WERNER ENTERPRISES, INC.
Date: August 1, 2005 By: /s/ John J. Steele
------------------------ -------------------------------------
John J. Steele
Senior Vice President, Treasurer and
Chief Financial Officer
Date: August 1, 2005 By: /s/ James L. Johnson
------------------------ -------------------------------------
James L. Johnson
Vice President, Controller and
Corporate Secretary
29