UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[Mark one]
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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
--- ---
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
--- ---
As of October 28, 2005, 79,388,688 shares of the registrant's common
stock, par value $.01 per share, were outstanding.
INDEX TO FORM 10-Q
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the Three Months Ended
September 30, 2005 and 2004 3
Consolidated Statements of Income for the Nine Months Ended
September 30, 2005 and 2004 4
Consolidated Condensed Balance Sheets as of September 30, 2005
and December 31, 2004 5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2005 and 2004 6
Notes to Consolidated Financial Statements as of September 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 26
Item 4. Controls and Procedures 26
PART II - OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 28
Item 5. Other Information 28
Item 6. Exhibits 29
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
The interim consolidated financial statements contained herein reflect
all adjustments which, in the opinion of management, are necessary for a
fair statement of the financial condition, results of operations, and cash
flows for the periods presented. The interim consolidated financial
statements have been prepared in accordance with the instructions to Form
10-Q and 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 nine-month periods ended
September 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) September 30
- ---------------------------------------------------------------------------
2005 2004
- ---------------------------------------------------------------------------
(Unaudited)
Operating revenues $ 504,520 $ 425,409
---------------------------
Operating expenses:
Salaries, wages and benefits 147,043 136,977
Fuel 92,904 55,245
Supplies and maintenance 40,450 33,564
Taxes and licenses 29,814 26,699
Insurance and claims 19,777 17,663
Depreciation 41,204 36,514
Rent and purchased transportation 88,596 74,617
Communications and utilities 5,080 4,863
Other (1,486) (243)
---------------------------
Total operating expenses 463,382 385,899
---------------------------
Operating income 41,138 39,510
---------------------------
Other expense (income):
Interest expense 250 5
Interest income (813) (710)
Other 184 45
---------------------------
Total other expense (income) (379) (660)
---------------------------
Income before income taxes 41,517 40,170
Income taxes 17,026 15,871
---------------------------
Net income $ 24,491 $ 24,299
===========================
Earnings per share:
Basic $ .31 $ .31
===========================
Diluted $ .30 $ .30
===========================
Dividends declared per share $ .040 $ .035
===========================
Weighted-average common shares outstanding:
Basic 79,409 79,044
===========================
Diluted 80,626 80,573
===========================
3
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended
(In thousands, except per share amounts) September 30
- -----------------------------------------------------------------------------
2005 2004
- -----------------------------------------------------------------------------
(Unaudited)
Operating revenues $ 1,445,571 $ 1,222,804
-----------------------------
Operating expenses:
Salaries, wages and benefits 428,597 404,585
Fuel 238,596 151,102
Supplies and maintenance 117,125 101,260
Taxes and licenses 88,057 81,639
Insurance and claims 64,815 57,192
Depreciation 121,380 107,143
Rent and purchased transportation 261,505 208,968
Communications and utilities 15,656 13,861
Other (6,263) (2,306)
-----------------------------
Total operating expenses 1,329,468 1,123,444
-----------------------------
Operating income 116,103 99,360
-----------------------------
Other expense (income):
Interest expense 256 11
Interest income (2,600) (1,796)
Other 257 139
-----------------------------
Total other expense (income) (2,087) (1,646)
-----------------------------
Income before income taxes 118,190 101,006
Income taxes 48,483 39,519
-----------------------------
Net income $ 69,707 $ 61,487
=============================
Earnings per share:
Basic $ .88 $ .78
=============================
Diluted $ .86 $ .76
=============================
Dividends declared per share $ .115 $ .095
=============================
Weighted-average common shares outstanding:
Basic 79,392 79,290
=============================
Diluted 80,713 80,939
=============================
4
WERNER ENTERPRISES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share amounts) September 30 December 31
- ---------------------------------------------------------------------------
2005 2004
- ---------------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 20,462 $ 108,807
Accounts receivable, trade, less allowance of
$8,324 and $8,189, respectively 222,771 186,771
Other receivables 16,386 11,832
Inventories and supplies 11,027 9,658
Prepaid taxes, licenses and permits 8,044 15,292
Current deferred income taxes 23,718 -
Other current assets 22,062 18,896
---------------------------
Total current assets 324,470 351,256
---------------------------
Property and equipment 1,512,601 1,374,649
Less - accumulated depreciation 547,249 511,651
---------------------------
Property and equipment, net 965,352 862,998
---------------------------
Other non-current assets 15,325 11,521
---------------------------
$1,305,147 $1,225,775
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 56,880 $ 49,618
Insurance and claims accruals 66,090 55,095
Accrued payroll 22,033 19,579
Income taxes payable 3,211 475
Current deferred income taxes - 15,569
Other current liabilities 18,210 17,230
---------------------------
Total current liabilities 166,424 157,566
---------------------------
Insurance and claims accruals, net of current
portion 92,301 84,301
Deferred income taxes 210,177 210,739
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 200,000,000
shares authorized; 80,533,536 shares
issued; 79,382,754 and 79,197,747 shares
outstanding, respectively 805 805
Paid-in capital 105,318 106,695
Retained earnings 751,610 691,035
Accumulated other comprehensive loss (350) (861)
Treasury stock, at cost; 1,150,782 and
1,335,789 shares, respectively (21,138) (24,505)
---------------------------
Total stockholders' equity 836,245 773,169
---------------------------
$1,305,147 $1,225,775
===========================
5
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
(In thousands) September 30
- ---------------------------------------------------------------------------
2005 2004
- ---------------------------------------------------------------------------
(Unaudited)
Cash flows from operating activities:
Net income $ 69,707 $ 61,487
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 121,380 107,143
Deferred income taxes (39,849) 5,791
Gain on disposal of property and equipment (8,586) (7,067)
Tax benefit from exercise of stock options 1,436 1,368
Other long-term assets (216) 453
Insurance claims accruals, net of current
portion 8,000 10,000
Changes in certain working capital items:
Accounts receivable, net (36,000) (29,553)
Other current assets (1,841) (220)
Accounts payable 7,262 3,890
Other current liabilities 16,761 8,377
---------------------------
Net cash provided by operating activities 138,054 161,669
---------------------------
Cash flows from investing activities:
Additions to property and equipment (306,340) (206,143)
Retirements of property and equipment 84,073 71,949
Decrease in notes receivable 3,531 2,471
---------------------------
Net cash used in investing activities (218,736) (131,723)
---------------------------
Cash flows from financing activities:
Dividends on common stock (8,728) (6,746)
Repurchases of common stock (1,573) (21,591)
Stock options exercised 2,127 2,662
---------------------------
Net cash used in financing activities (8,174) (25,675)
---------------------------
Effect of exchange rate fluctuations on cash 511 (191)
Net increase (decrease) in cash and cash
equivalents (88,345) 4,080
Cash and cash equivalents, beginning of period 108,807 101,409
---------------------------
Cash and cash equivalents, end of period $ 20,462 $ 105,489
===========================
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 12 $ 11
Income taxes $ 83,108 $ 33,854
Supplemental schedule of non-cash investing
activities:
Notes receivable issued upon sale of revenue
equipment $ 7,119 $ 3,210
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 $11 and ($13) (in thousands) for the three-month periods
and $511 and ($191) (in thousands) for the nine-month periods ended
September 30, 2005 and 2004, respectively.
(2) Long-Term Debt
As of September 30, 2005, the Company has two credit facilities with
banks totaling $75.0 million which expire May 16, 2007 and October 22, 2007
and bear variable interest based on the London Interbank Offered Rate
("LIBOR"), on which no borrowings were outstanding. As of September 30,
2005, the credit available pursuant to these bank credit facilities is
reduced by $37.2 million in letters of credit the Company maintains.
Subsequent to September 30, 2005, the Company borrowed $35.0 million under
these credit facilities. 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
outstanding under these credit facilities as of September 30, 2005, the
Company remained in compliance with these covenants at September 30, 2005.
On August 17, 2005, the Company renewed the $25.0 million bank credit
facility, extending the maturity date from October 22, 2005 to October 22,
2007 and increasing the amount of the minimum consolidated tangible net
worth requirement to $500.0 million plus 50% of annual net income. On
October 25, 2005, the Company's $50.0 million bank credit facility was
amended to increase the amount of the facility to $75.0 million.
(3) Commitments
As of September 30, 2005, the Company has commitments for net capital
expenditures of approximately $102.5 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 Nine Months Ended
September 30 September 30
---------------------- ----------------------
2005 2004 2005 2004
---------------------- ----------------------
Net income $ 24,491 $ 24,299 $ 69,707 $ 61,487
====================== ======================
Weighted-average common
shares outstanding 79,409 79,044 79,392 79,290
Common stock equivalents 1,217 1,529 1,321 1,649
---------------------- ----------------------
Shares used in computing
diluted earnings per
share 80,626 80,573 80,713 80,939
====================== ======================
Basic earnings per share $ .31 $ .31 $ .88 $ .78
====================== ======================
Diluted earnings per
share $ .30 $ .30 $ .86 $ .76
====================== ======================
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 Nine Months Ended
September 30 September 30
---------------------- ----------------------
2005 2004 2005 2004
---------------------- ----------------------
Number of shares under
option 815,000 - 19,500 -
Range of option purchase
prices $18.33-$19.84 - $19.84 -
(5) Stock Based Compensation
At September 30, 2005, the Company has a nonqualified stock option
plan. The Company did not grant any stock options during the three-month
periods ended September 30, 2005 and 2004. The Company granted 39,500 and
787,000 options during the nine-month periods ended September 30, 2005 and
2004, respectively. Subsequent to September 30, 2005, the Company granted
376,000 options. 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 Nine Months Ended
September 30 September 30
---------------------- ----------------------
2005 2004 2005 2004
---------------------- ----------------------
Net income, as reported $ 24,491 $ 24,299 $ 69,707 $ 61,487
Less: Total stock-based
employee compensation
expense determined
under fair value based
method for all awards,
net of related tax
effects 429 595 1,334 1,506
---------------------- ----------------------
Net income, pro forma $ 24,062 $ 23,704 $ 68,373 $ 59,981
====================== ======================
Earnings per share:
Basic - as reported $ .31 $ .31 $ .88 $ .78
====================== ======================
Basic - pro forma $ .30 $ .30 $ .86 $ .76
====================== ======================
Diluted - as reported $ .30 $ .30 $ .86 $ .76
====================== ======================
Diluted - pro forma $ .30 $ .29 $ .85 $ .74
====================== ======================
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) 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, Disclosures about Segments of an Enterprise and
Related Information. 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 $3.0
million and $3.9 million for the three-month periods and $10.1 million and
$10.4 million for the nine-month periods ended September 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 and multimodal
services, and freight transportation management.
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.
9
The following tables summarize the Company's segment information (in
thousands of dollars):
Revenues
--------
Three Months Ended Nine Months Ended
September 30 September 30
---------------------- ----------------------
2005 2004 2005 2004
---------------------- ----------------------
Truckload Transportation
Services $ 448,786 $ 381,620 $1,278,285 $1,101,844
Value Added Services 52,859 41,174 158,574 113,527
Other 1,959 1,624 5,777 4,684
Corporate 916 991 2,935 2,749
---------------------- ----------------------
Total $ 504,520 $ 425,409 $1,445,571 $1,222,804
====================== ======================
Operating Income
----------------
Three Months Ended Nine Months Ended
September 30 September 30
---------------------- ----------------------
2005 2004 2005 2004
---------------------- ----------------------
Truckload Transportation
Services $ 38,854 $ 38,059 $ 109,841 $ 96,393
Value Added Services 1,859 1,310 5,768 3,408
Other 746 572 2,417 1,821
Corporate (321) (431) (1,923) (2,262)
---------------------- ----------------------
Total $ 41,138 $ 39,510 $ 116,103 $ 99,360
====================== ======================
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 ("truckload 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 segment. Trucking revenues accounted for 88% of
total operating revenues in third quarter 2005, and non-trucking and other
operating revenues accounted for 12%.
Trucking services typically generate revenue on a per-mile basis.
Other sources of trucking revenue include fuel surcharges and accessorial
revenue such as stop charges, loading/unloading charges, and equipment
detention charges. Because fuel surcharge revenues fluctuate in response
to changes in the cost of fuel, these revenues are identified separately
within the operating statistics table and are excluded from the statistics
to provide a more meaningful comparison between periods. Non-trucking
revenues generated by a fleet whose operations are part of the truckload
segment are included in non-trucking revenue in the operating statistics
table so that the revenue statistics in the table are calculated using only
the revenues generated by company-owned and owner-operator trucks. The key
statistics used to evaluate trucking revenues, excluding fuel surcharges,
are average revenues per tractor per week, the per-mile rates charged to
customers, the average monthly miles generated per tractor, the average
percentage of empty miles, the average trip length, and the average number
of tractors in service. General economic conditions, seasonal freight
patterns in the trucking industry, and industry capacity are key factors
that impact these statistics.
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 that recoup a majority of the increased fuel
costs; however, there is no assurance that current recovery levels will
continue in future periods. The Company's financial results are also
affected by availability of 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 third quarter 2005 to third quarter 2004, several
industry-wide issues, including high fuel prices and a challenging driver
recruiting market could cause costs to increase in future periods. The
Company's main fixed costs include depreciation expense for tractors and
trailers and equipment licensing fees (included in taxes and licenses
expense). Depreciation expense has been affected by the new engine
emission standards that became effective in October 2002 for all newly
purchased trucks, which have increased truck purchase costs. 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 have been funded by net cash from operations.
Non-trucking services provided by the Company, primarily through its
VAS division, include freight brokerage, intermodal, multimodal, freight
transportation management, and other 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 Nine Months Ended
September 30 % September 30 %
-------------------- -----------------------
2005 2004 Change 2005 2004 Change
-------------------------------------------------------------
Trucking revenues, net of
fuel surcharge (1) $380,320 $348,408 9.2% $1,109,798 $1,020,107 8.8%
Trucking fuel surcharge
revenues (1) 65,490 29,625 121.1% 158,393 71,612 121.2%
Non-trucking revenues,
including VAS (1) 55,906 45,051 24.1% 168,648 123,944 36.1%
Other operating revenues (1) 2,804 2,325 20.6% 8,732 7,141 22.3%
--------- --------- ----------- -----------
Operating revenues (1) $504,520 $425,409 18.6% $1,445,571 $1,222,804 18.2%
========= ========= =========== ===========
Operating ratio
(consolidated) (2) 91.8% 90.7% 1.2% 92.0% 91.9% 0.1%
Average monthly miles per
tractor 10,123 10,186 -0.6% 10,085 10,158 -0.7%
Average revenues per total
mile (3) $1.423 $1.357 4.9% $1.402 $1.325 5.8%
Average revenues per loaded
mile (3) $1.621 $1.528 6.1% $1.593 $1.494 6.6%
Average percentage of empty
miles 12.21% 11.20% 9.0% 11.99% 11.30% 6.1%
Average trip length in miles
(loaded) 564 580 -2.8% 567 583 -2.7%
Total miles (loaded and
empty) (1) 267,305 256,726 4.1% 791,697 770,063 2.8%
Average tractors in service 8,802 8,401 4.8% 8,722 8,423 3.5%
Average revenues per tractor
per week (3) $3,324 $3,190 4.2% $3,263 $3,105 5.1%
Total tractors (at quarter
end)
Company 7,960 7,535 7,960 7,535
Owner-operator 890 940 890 940
--------- --------- ----------- -----------
Total tractors 8,850 8,475 8,850 8,475
Total trailers (at quarter
end) 24,700 22,950 24,700 22,950
(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 segment. Revenues for the truckload
segment include non-trucking revenues of $3.0 million and $3.9 million for
the three-month periods and $10.1 million and $10.4 million for the nine-
month periods ended September 30, 2005 and 2004, respectively, as described
on page 11.
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------- ---------------------------------
Truckload Transportation Services 2005 2004 2005 2004
-------------- -------------- ---------------- ----------------
(amounts in 000's) $ % $ % $ % $ %
- ------------------ -------------- -------------- ---------------- ----------------
Revenues $448,786 100.0 $381,620 100.0 $1,278,285 100.0 $1,101,844 100.0
Operating expenses 409,932 91.3 343,561 90.0 1,168,444 91.4 1,005,451 91.3
-------- -------- ---------- ----------
Operating income $ 38,854 8.7 $ 38,059 10.0 $ 109,841 8.6 $ 96,393 8.7
======== ======== ========== ==========
Higher fuel prices and higher fuel surcharge collections have the
effect of increasing the Company's consolidated operating ratio and the
truckload segment's operating ratio. Eliminating this sometimes volatile
13
source of revenue provides a more consistent basis for comparing the
results of operations from period to period. The following table
calculates the truckload segment's operating ratio using total operating
expenses, net of fuel surcharge revenues, as a percentage of revenues,
excluding fuel surcharges.
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------- ---------------------------------
Truckload Transportation Services 2005 2004 2005 2004
-------------- -------------- ---------------- ----------------
(amounts in 000's) $ % $ % $ % $ %
- ------------------ -------------- -------------- ---------------- ----------------
Revenues $448,786 $381,620 $1,278,285 $1,101,844
Less: trucking fuel surcharge
revenues 65,490 29,625 158,393 71,612
-------- -------- ---------- ----------
Revenues, net of fuel surcharge 383,296 100.0 351,995 100.0 1,119,892 100.0 1,030,232 100.0
-------- -------- ---------- ----------
Operating expenses 409,932 343,561 1,168,444 1,005,451
Less: trucking fuel surcharge
revenues 65,490 29,625 158,393 71,612
-------- -------- ---------- ----------
Operating expenses, net of fuel
surcharge 344,442 89.9 313,936 89.2 1,010,051 90.2 933,839 90.6
-------- -------- ---------- ----------
Operating income $ 38,854 10.1 $ 38,059 10.8 $ 109,841 9.8 $ 96,393 9.4
======== ======== ========== ==========
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 Nine Months Ended
September 30 September 30
----------------------------- ---------------------------------
Value Added Services 2005 2004 2005 2004
-------------- -------------- ---------------- ----------------
(amounts in 000's) $ % $ % $ % $ %
- ------------------ -------------- -------------- ---------------- ----------------
Revenues $ 52,859 100.0 $ 41,174 100.0 $ 158,574 100.0 $ 113,527 100.0
Rent and purchased transportation
expense 47,659 90.2 37,318 90.6 143,230 90.3 102,877 90.6
-------- -------- ---------- ----------
Gross margin 5,200 9.8 3,856 9.4 15,344 9.7 10,650 9.4
Other operating expenses 3,341 6.3 2,546 6.2 9,576 6.1 7,242 6.4
-------- -------- ---------- ----------
Operating income $ 1,859 3.5 $ 1,310 3.2 $ 5,768 3.6 $ 3,408 3.0
======== ======== ========== ==========
Three Months Ended September 30, 2005 Compared to Three Months Ended
- ---------------------------------------------------------------------------
September 30, 2004
- ------------------
Operating Revenues
Operating revenues increased 18.6% for the three months ended
September 30, 2005, compared to the same period of the prior year.
Excluding fuel surcharge revenues, trucking revenues increased 9.2% due
primarily to a 4.9% increase in average revenues per total mile, excluding
fuel surcharges, and a 4.8% increase in the average number of tractors in
service, offset by a 0.6% decrease in average monthly miles per tractor.
The average percentage of empty miles increased to 12.2% in third quarter
2005 from 11.2% in third quarter 2004. Empty miles in the Company's
dedicated fleet operation (approximately 40% of the total truck fleet) are
generally billable to customers. 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 2.8% decrease in
the average loaded trip length.
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
14
Company's non-dedicated contractual business renews in the latter part of
third quarter and fourth quarter, and these contractual rate increases,
many of which did not become effective until late 2004 and early 2005,
contributed to the pricing improvement in third quarter 2005 compared to
third quarter 2004. There are several inflationary cost pressures
impacting truckload carriers, including driver pay and benefits, truck
engine emissions costs, and tolls. While the Company has taken several
actions to limit or delay these cost increases, management began the
process of renewing customer contracts during third and fourth quarter 2005
and is seeking freight rate increases during this renewal period to recoup
unavoidable cost increases with the goal of improving the Company's
operating income percentage. There is no assurance that management will be
successful in achieving this objective.
Freight demand was solid in July and August 2005, but not as strong as
the strong freight market of July and August 2004. Freight demand improved
beginning the first week in September 2005 through the date of this filing,
and was approximately the same as the strong freight demand during the same
period in 2004. While freight demand improved from July to August 2005, as
anticipated due to the seasonal patterns in the trucking industry, the
overall demand during third quarter 2005 was not as strong as that of third
quarter 2004. This caused an increase in empty miles from 73 miles per
trip to 78 miles per trip.
Fuel surcharge revenues, which represent collections from customers
for the higher cost of fuel, increased to $65.5 million in third quarter
2005 from $29.6 million in third quarter 2004 in response to higher average
fuel prices in third quarter 2005. The Company's fuel surcharge programs
are designed to recoup the higher cost of fuel from customers when fuel
prices rise and provide customers with the benefit of lower costs when fuel
prices decline. These programs have historically enabled the Company to
recover a significant portion of the fuel price increases. However, with
higher fuel prices, the Company is now in an untenable position with many
customer fuel surcharge programs. The recent September hurricanes caused a
shortage of refined product that escalated diesel fuel prices at the same
time that crude oil prices did not increase significantly. This, in turn,
showed a weakness in the truckload industry's fuel surcharge standard of a
one-cent per mile increase in rate for every five-cent per gallon increase
in the Department of Energy ("DOE") weekly retail on-highway diesel prices
that are used for most fuel surcharge programs. This weakness is due to
the fact that five-cent per gallon brackets only recoup about 80% to 85% of
the actual increase in the cost of fuel. 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 four
cents per share in third quarter 2005.
Historically, in slower rising fuel price markets, the Company works
hard to recover this 15% to 20% fuel surcharge shortfall by pricing the
shortfall into the base rate per mile during the annual rate increase
process. With rapidly escalating fuel prices, similar to those
experienced in third quarter 2005, this is not possible. If fuel prices do
not decline to lower price levels, it may be necessary for the Company to
either lower the fuel surcharge price-per-gallon brackets or change the
base rate per mile more frequently than once a year. The Company's
marketing team is currently meeting with customers to discuss the
deficiency in the current five-cent bracket surcharge program, explain how
it negatively affects the Company's earnings and those of the truckload
industry, and the need to make improvements to the fuel surcharge program.
The Company believes that cost-savings generated by declining fuel prices
should be passed on to its customers through lower fuel surcharges. If the
higher price of fuel is priced in the base rate per mile, the customer does
not realize a savings when fuel prices decline. Thus, the Company's
objective is to neutralize fuel as much as possible through a fair and
accurate fuel surcharge program, by addressing the current industry
standard of five-cent per gallon brackets.
VAS revenues increased 28.4% to $52.9 million for the three months
ended September 30, 2005 from $41.2 million for the three months ended
September 30, 2004 due to the Company's continued focus on growing the
volume of business generated by this segment. VAS revenues consist
15
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 91.8% for the three months ended September 30, 2005, compared to 90.7%
for the three months ended September 30, 2004. As explained above, the
significant increase in fuel expense and related fuel surcharge revenues
had the effect of increasing the operating ratio. Because the Company's
VAS business operates with a lower operating margin and a higher return on
assets than the trucking business, the growth in VAS business in third
quarter 2005 compared to third quarter 2004 also increased the Company's
overall 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.
The following table sets forth the cost per total mile of operating
expense items for the truckload segment for the periods indicated. The
Company evaluates operating costs for this segment on a per-mile basis to
adjust for the impact on the percentage of total operating revenues caused
by changes in fuel surcharge revenues, which provides a more consistent
basis for comparing the results of operations from period to period.
Three Months Ended Increase Nine Months Ended Increase
September 30 (Decrease) September 30 (Decrease)
---------------------- ---------------------
2005 2004 per Mile 2005 2004 Per Mile
--------------------------------- --------------------------------
Salaries, wages and benefits $.538 $.523 $.015 $.530 $.515 $.015
Fuel .347 .214 .133 .300 .195 .105
Supplies and maintenance .148 .126 .022 .144 .126 .018
Taxes and licenses .111 .104 .007 .111 .106 .005
Insurance and claims .074 .069 .005 .082 .074 .008
Depreciation .150 .140 .010 .148 .136 .012
Rent and purchased
transportation .153 .145 .008 .149 .138 .011
Communications and utilities .018 .019 (.001) .019 .018 .001
Other (.005) .000 (.005) (.007) (.002) (.005)
Owner-operator costs are included in rent and purchased transportation
expense. Owner-operator miles as a percentage of total miles were 12.5% in
third quarter 2005 compared to 13.2% in third 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. This decrease in owner-operator
miles as a percentage of total miles shifted costs from the rent and
purchased transportation category to other expense categories. The Company
estimates that rent and purchased transportation expense for the truckload
segment was lower by approximately 0.7 cents per total mile due to this
decrease, and other expense categories had offsetting increases on a total-
mile basis, as follows: salaries, wages and benefits (0.2 cents), fuel (0.2
cents), depreciation (0.1 cent), supplies and maintenance (0.1 cent), and
taxes and licenses (0.1 cent). 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 third
quarter 2005 compared to third quarter 2004 to support the growth in the
VAS segment. The increase in salaries, wages and benefits per mile of 1.5
cents for the truckload 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 group health insurance
16
and, to a lesser extent, 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 recovered this pay raise through its customer rate increase
negotiations, which occurred in third and fourth quarter 2004.
The driver recruiting market remains extremely challenging. The
supply of qualified truck drivers continues to be constrained due to
alternative jobs to truck driving that are available in today's economy and
inadequate demographic growth for the industry's targeted driver base over
the next several years. The Company continues to focus on driver quality
of life issues such as developing more driving jobs with more frequent home
time, providing drivers with newer trucks, and maximizing mileage
productivity within the federal hours of service regulations. The Company
has also placed more emphasis on training drivers. Improved driver
recruiting continues to offset higher driver turnover, however, 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 beginning in April 2004. This program increases a
company driver's net pay per mile, after taxes. As a result of more
drivers electing to participate in the per diem program, 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 third quarter 2005 compared to third 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 13.3 cents per mile for the truckload segment due to
higher average diesel fuel prices and more trucks with post-October 2002
engines. Fuel prices rose sequentially for the ninth consecutive quarter
during third quarter 2005. Average fuel prices in third quarter 2005 were
$0.69 per gallon, or 55%, higher than in third quarter 2004. At the end of
the quarter, diesel fuel prices were over $1.10 a gallon higher than at the
end of third quarter 2004. Fuel prices were more volatile during third
quarter 2005 due to the impact of Hurricane Katrina in early September and
Hurricane Rita in mid-September. Fuel expense had a four cent negative
impact on earnings per share in third quarter 2005 compared to third
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. The actual quarterly earnings impact was less
than the six to seven cents per share that the Company estimated in its
news release on September 20, 2005 as a result of factors in September 2005
that were better than anticipated, including assumptions for fuel surcharge
recovery, fuel stop pricing arrangements, empty miles, and fuel mile per
gallon. Company data continues to indicate that for trucks with post-
October 2002 engines (76% of the Company fleet as of September 30, 2005
compared to 35% as of September 30, 2004) fuel mpg has decreased
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
17
surcharges will be collected from customers. As of September 30, 2005, the
Company had no derivative financial instruments to reduce its exposure to
fuel price fluctuations.
Diesel fuel for the month of October averaged $0.89 per gallon, or
57%, higher than October 2004. Assuming fuel prices remain at price
levels at the date of this filing throughout the remainder of fourth
quarter 2005, the negative impact of fuel expense on earnings for fourth
quarter 2005 compared to fourth quarter 2004 is estimated to be in the
range of six cents to nine cents per share, which would be nearly as much
or more than the impact of fuel for the first nine months of 2005 compared
to the same period of 2004. Average fuel prices for fourth quarter 2005,
assuming fuel prices remain at current levels throughout the remainder of
the quarter, are estimated to be approximately $0.79 per gallon higher than
the average fuel price in fourth quarter 2004, which is higher than the
price increase of $0.69 per gallon in third quarter 2005 compared to third
quarter 2004. The larger estimated negative earnings impact in fourth
quarter 2005 compared to fourth quarter 2004 is also due to the decline in
fuel prices that occurred in November and December 2004. Declining fuel
prices in the last two weeks of October 2005 have helped to lessen the
estimated fourth quarter 2005 impact as compared to preliminary estimates
provided in the Company's third quarter 2005 earnings announcement on
October 17. It is difficult to estimate the impact of changing fuel
expense on earnings because of changing fuel pricing trends and other
factors. The actual impact of fuel expense on earnings could be higher or
lower than estimated due to those factors.
Supplies and maintenance for the truckload segment increased 2.2 cents
on a per-mile basis in third quarter 2005 due primarily to increases in
repair expenses for an increased number of trucks sold by the Company's
Fleet Truck Sales subsidiary and higher costs to maintain the Company's
aging trailer fleet. Higher 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.
Taxes and licenses for the truckload segment increased 0.7 cents per
total mile due primarily to the effect of the 5% fuel mpg degradation for
company-owned trucks with post-October 2002 engines on the per-mile cost of
federal and state diesel fuel taxes, as well as increases in some state tax
rates.
Insurance and claims for the truckload segment increased 0.5 cents on
a per-mile basis due primarily to negative development on existing
liability insurance claims. For the policy year that began August 1, 2004,
the Company was 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 was fully insured (i.e., no aggregate) for claims
between $3.0 million and $5.0 million. For claims in excess of $5.0
million and less than $10.0 million, the Company was responsible for the
first $5.0 million of claims. 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
decreased to $2.0 million, and there were no changes to other coverage
levels. The Company's liability insurance premiums for the policy year
beginning August 1, 2005 were approximately the same as the previous policy
year.
Depreciation expense for the truckload segment increased 1.0 cent on a
per-mile basis in third quarter 2005 due primarily to higher costs of new
tractors with the post-October 2002 engines. As of September 30, 2005,
approximately 76% of the company-owned truck fleet consisted of trucks with
the post-October 2002 engines compared to 35% at September 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
18
segment increased in response to higher VAS revenues. These expenses
generally vary depending on changes in the volume of services generated by
the segment. As a percentage of VAS revenues, VAS rent and purchased
transportation expense decreased to 90.2% in third quarter 2005 compared to
90.6% in third quarter 2004.
Rent and purchased transportation for the truckload segment increased
0.8 cents per total mile in third quarter 2005. Higher fuel prices
necessitated higher reimbursements to owner-operators for fuel, which
resulted in an increase of 1.2 cents per total mile. 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 0.4 cents per mile, partially offsetting the overall increase
for the truckload segment.
Other operating expenses for the truckload segment decreased 0.5 cents
per mile in third 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 $2.5 million in
third quarter 2005 from $1.7 million in third quarter 2004 due to increased
unit sales of trucks as the Company is attempting to keep its fleet as new
as possible and a slightly higher average gain per truck. Beginning in
September 2005 after the rapid rise in fuel prices, the Company experienced
a decline in unit sales of trucks due to third-party finance companies not
approving financing for prospective truck buyers and due to some truck
buyers canceling orders. If fuel prices remain high and this trend
continues, this will likely result in lower gains on sales of equipment
beginning in fourth quarter 2005. The Company's wholly-owned subsidiary,
Fleet Truck Sales, is one of the largest domestic class 8 used truck sales
companies in the United States. Other operating expenses also include bad
debt expense and professional services fees. The remaining decrease in
other operating expenses in third quarter 2005 is due primarily to a
reduction in computer consulting fees as 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
professional fees have also declined slightly due to higher costs in third
quarter 2004 associated with the implementation of Section 404 of the
Sarbanes-Oxley Act of 2002.
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 September 30, 2005 from 39.5% for the three-month period
ended September 30, 2004 due primarily 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.
Nine Months Ended September 30, 2005 Compared to Nine Months Ended
- ---------------------------------------------------------------------------
September 30, 2004
- ------------------
Operating Revenues
Operating revenues increased by 18.2% for the nine months ended
September 30, 2005, compared to the same period of the previous year.
Excluding fuel surcharge revenues, trucking revenues increased 8.8%, due
primarily to a 5.8% increase in average revenues per total mile, excluding
fuel surcharges, and a 3.5% increase in the average number of tractors in
service, offset by a 0.7% decrease in average monthly miles per tractor.
19
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 $45.0 million (39.7%) due to ongoing
growth in the segment, and fuel surcharge revenues increased by $86.8
million (121.2%) due to higher average diesel fuel prices for the first
nine 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 nine months ended September 30, 2005, compared to 91.9%
for the same period of the previous year. As explained in the previous
pages, the significant increase in fuel expense and related fuel surcharge
revenues had the effect of increasing the operating ratio. Because the
Company's VAS business operates with a lower operating margin and a higher
return on assets than the trucking business, the growth in VAS business in
the first nine months of 2005 compared to the first nine months of 2004
also increased the Company's overall 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 12.7% for
both the nine-month periods ended September 30, 2005 and 2004. Because
there was no change in owner-operator miles as a percentage of total miles,
there was essentially no shift in costs between the rent and purchased
transportation category and 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
segment increased 1.5 cents on a per-mile basis due to higher driver pay
per mile, increased student driver pay, and an increase in the number of
maintenance employees. Fuel increased 10.5 cents per total mile due to
higher fuel prices. Average fuel prices for the first nine months of 2005
were $0.55 per gallon, or 48%, higher than the first nine months of 2004.
Supplies and maintenance increased 1.8 cents per total mile due to
increases in the cost of over-the-road repairs, repairs on trucks sold by
the Company's Fleet Truck Sales subsidiary, and repairs on an aging trailer
fleet; higher driver recruiting costs, including driver travel and lodging,
driver advertising, and driver physicals; and higher toll costs due to
state toll rate increases. Taxes and licenses increased 0.5 cents per
total mile due primarily to the effect of the 5% fuel mpg degradation for
trucks with post-October 2002 engines on the per-mile cost of federal and
state diesel fuel taxes, as well as increases in some state tax rates.
Insurance increased 0.8 cents on a per-mile basis due primarily to negative
development on existing liability insurance claims. Depreciation increased
1.2 cents per total mile due to higher costs of new tractors as the Company
replaced 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 segment increased 1.1 cents per total 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 0.5 cents per total 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 39.1% for the nine months ended
September 30, 2004 (38.5% for first quarter 2004, 39.1% for second quarter
2004, and 39.5% for third quarter 2004). The rate increased to 41.0% for
the nine months ended September 30, 2005, primarily related to the
implementation of per diem pay programs for student drivers and eligible
company drivers.
Liquidity and Capital Resources:
During the nine months ended September 30, 2005, the Company generated
cash flow from operations of $138.1 million, a 14.6% decrease ($23.6
million) in cash flow compared to the same nine-month period a year ago.
The decrease in cash flow from operations is due primarily to larger
20
federal income tax payments in the first nine months of 2005 compared to
the same period of 2004, offset by higher net income and higher
depreciation expense for financial reporting purposes related to the higher
cost of the post-October 2002 engines. Income taxes paid during the nine
months ended September 30, 2005 totaled $83.1 million compared to $33.9
million for the nine months ended September 30, 2004, resulting primarily
from a decrease in deferred taxes of $39.8 million. This decrease in
deferred taxes was related to recent tax law changes resulting in the
reversal of certain tax strategies implemented in 2001 and lower income tax
depreciation in 2005 due to the bonus depreciation provision that expired
on December 31, 2004. The cash flow from operations and existing cash
balances enabled the Company to make net property additions, primarily
revenue equipment, of $222.3 million, pay common stock dividends of $8.7
million, and repurchase common stock of $1.6 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 nine-month period ended
September 30, 2005 increased by $87.0 million, from $131.7 million for the
nine-month period ended September 30, 2004 to $218.7 million for the nine-
month period ended September 30, 2005. The large increase was due
primarily to the Company purchasing more tractors in the first nine months
of 2005.
As of September 30, 2005, the Company has committed to property and
equipment purchases, net of trades, of approximately $102.5 million. The
average age of the Company's truck fleet is 1.34 years at September 30,
2005 compared to 1.65 years as of September 30, 2004. The Company intends
to continue to keep its truck fleet as new as possible in advance of the
federally mandated engine emission standards that are required for all
newly-manufactured trucks beginning in January 2007. As such, net capital
expenditures are expected to be higher throughout the remainder of 2005 as
compared to 2004 and to be approximately $300 million for 2005. Net
capital expenditures in 2006 are expected to be substantially lower and
return to more normal levels. The Company intends to fund these net capital
expenditures through cash flow from operations and through financing
available under its existing credit facilities, as management deems
necessary. Subsequent to September 30, 2005, the Company borrowed $35.0
million under these credit facilities.
Net financing activities used $8.2 million and $25.7 million during
the nine months ended September 30, 2005 and 2004, respectively. The
Company paid dividends of $8.7 million in the nine-month period ended
September 30, 2005 and $6.7 million in the nine-month period ended
September 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 $1.6 million and $21.6
million in the nine-month periods ended September 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 September 30, 2005, the Company had purchased 257,038 shares pursuant to
this authorization and had 3,708,800 shares remaining available for
repurchase.
Management believes the Company's financial position at September 30,
2005 is strong. As of September 30, 2005, the Company has $20.5 million of
cash and cash equivalents, no debt, and $836.2 million of stockholders'
equity. As of September 30, 2005, the Company has no equipment operating
leases, and, therefore has no off-balance sheet equipment debt. The
Company maintains $37.2 million in letters of credit as of September 30,
2005. These letters of credit are primarily required as security for
insurance policies. As of September 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 $37.2 million in letters of credit. On October 25, 2005, the
Company amended one of its credit facilities to increase the available
credit by $25.0 million.
21
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. Effective October 1, 2005, all truckload carriers became subject
to revised HOS regulations. The only significant change from the previous
regulations is that a driver using the sleeper berth provision must take at
least eight consecutive hours in the sleeper berth during their ten hours
off-duty. Previously, drivers were allowed to split their ten hour off-
duty time in the sleeper berth into two periods, provided neither period
was less than two hours. This more restrictive sleeper berth provision is
requiring some drivers to plan their time better and may have a negative
impact on mileage productivity. It is expected that the greatest impact
will be for multiple-stop shipments or those shipments with pickup or
delivery delays.
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. When truckload carriers are required to use new ultra-low
sulfur fuel for all of their existing trucks, the Company estimates an
additional 1% to 3% decrease in fuel mpg because of the new fuel. In
October 2005, the Company began a limited test of two January 2007
compliant test engines using the new ultra-low sulfur fuel. The Company
will continue its testing in fourth quarter 2005.
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%
22
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
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. There have been no changes to these
policies that occurred during the Company's most recent fiscal quarter.
Together with the effects of the matters discussed above, these factors may
significantly impact the Company's results of operations from period to
period.
23
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. Management has determined that adoption of
this standard did not have any material 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 the date
of this filing, management believes that adopting the new statement will
have a negative impact of approximately two cents per share for the year
ending December 31, 2006, representing the expense to be recognized for the
unvested portion of awards granted to date, and cannot predict the earnings
impact of awards that may be granted in the future. (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 September 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:
24
The Company is sensitive to changes in overall economic conditions and
seasonality 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,
weather, 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 third 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 were 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 nine consecutive quarters and high
prices continue in October 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, new hours of service regulations became effective
on October 1, 2005. Although the new regulations are only somewhat more
restrictive than the previously vacated 2003 rules, the Company is unable
to predict the ultimate impact of the new regulations on its operations and
profitability.
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
September 30, 2005, approximately 76% 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. The
Company is unable to predict the ultimate impact these new standards will
have on its operations, financial position, results of operations, and cash
flows.
25
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 September
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 third 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.
Interest Rate Risk
The Company had no debt outstanding at September 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.
Management, under the supervision and with the participation of the
Company's Chief Executive Officer and Chief Financial Officer, concluded
that there have been no changes in the Company's internal control over
financial reporting that occurred during the Company's most recent fiscal
quarter that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.
26
The Company has confidence in its internal controls and procedures.
Nevertheless, the Company's management, including the Chief Executive
Officer and Chief Financial Officer, does not expect that the internal
controls or disclosure procedures and controls will prevent all errors or
intentional fraud. An internal control system, no matter how well
conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of such internal controls are met. Further,
the design of an internal control system must reflect the fact that there
are resource constraints, and the benefits of controls must be relative to
their costs. Because of the inherent limitations in all internal control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been
detected.
27
PART II
OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On 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. As of September 30, 2005, the Company had
purchased 257,038 shares pursuant to this authorization and had 3,708,800
shares remaining available for repurchase. The Company may purchase shares
from time to time depending on market, economic, and other factors. The
authorization will continue until withdrawn by the Board of Directors.
The following table summarizes the Company's common stock repurchases
during the third quarter of 2005 made pursuant to this authorization. No
shares were purchased during the quarter other than through this program,
and all purchases were made by or on behalf of the Company and not by any
"affiliated purchaser".
Issuer Purchases of Equity Securities
Maximum Number
(or Approximate
Total Number of Dollar Value) of
Shares (or Units) Shares (or Units) that
Total Number of Purchased as Part of May Yet Be
Shares (or Units) Average Price Paid Publicly Announced Purchased Under the
Period Purchased per Share (or Unit) Plans or Programs Plans or Programs
----------------------------------------------------------------------------------------
July 1-31, 2005 - - - 3,783,800
August 1-31, 2005 50,000 $17.4954 50,000 3,733,800
September 1-30, 2005 25,000 $17.4000 25,000 3,708,800
----------------- --------------------
Total 75,000 $17.4636 75,000 3,708,800
================= ====================
Item 5. Other Information.
The following disclosure is provided pursuant to Item 2.03 of Form 8-
K. On October 25, 2005, the Company amended its $50.0 million bank credit
facility with Wells Fargo Bank, National Association. This third amendment
to the original credit agreement dated May 16, 2003, as amended, increased
the credit facility to $75.0 million. Any amounts borrowed pursuant to
this facility are due and payable in full on or before May 16, 2007. As of
October 25, 2005, the Company had outstanding borrowings of $10.0 million
under this facility, and the credit available is further reduced by $37.2
million in letters of credit the Company maintains.
28
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
(Incorporated by reference to Exhibit 3(i)(D) to the Company's
report on Form 10-Q for the quarter ended June 30, 2005)
Exhibit 3(ii) Revised and Restated By-Laws (Incorporated by reference
to Exhibit 3(ii) to the Company's report on Form 10-Q for the
quarter ended June 30, 2004)
Exhibit 10.1 The Executive Nonqualified Excess Plan of Werner
Enterprises, Inc. (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)
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
WERNER ENTERPRISES, INC.
Date: October 31, 2005 By: /s/ John J. Steele
-------------------- -----------------------------------
John J. Steele
Executive Vice President, Treasurer
and Chief Financial Officer
Date: October 31, 2005 By: /s/ James L. Johnson
-------------------- -----------------------------------
James L. Johnson
Senior Vice President, Controller
and Corporate Secretary