werner.com
Global Headquarters
14507 Frontier Road I P.O. Box 45308
Omaha, Nebraska I 68145-0308
402.895.6640 I 800.228.2240
2 0 1 5 E XC E L L E N C E AWA R D R E C I P I E N T
A N N UA L
REPORT 2015
FINANCIAL
HIGHLIGHTS
2015
2014
2013
2012
2011
Dollars in thousands, except per share amounts
Operating revenues
$2,093,529
$2,139,289
$2,029,183
$2,036,386
$2,002,850
Net income
123,714
98,650
86,785
103,034
102,757
Diluted earnings
per share
Cash dividends
declared per share*
Return on average
stockholders’ equity
Operating ratio
Operating ratio -
truckload segment**
Total assets
Total debt
Stockholders’
equity*
1.71
0.22
14.1%
90.4%
86.7%
1.36
0.20
1.18
0.20
1.40
1.70
12.4%
11.7%
13.6%
92.5%
93.1%
91.6%
1.40
0.70
14.5%
91.3%
88.7%
90.8%
88.4%
88.1%
1,613,684
1,480,462
1,354,097
1,334,900
1,302,416
75,000
75,000
40,000
90,000
0
935,654
833,860
772,519
714,897
725,147
* Cash dividends include the following special dividends (per share): $1.50 in 2012 and $0.50 in 2011.
Cash dividends reduce stockholders’ equity.
** Operating expenses (net of fuel surcharge revenues) expressed as a percentage of operating revenues (net of fuel surcharge revenues).
OPERATING
REVENUES
DILUTED
EARNINGS PER SHARE
20
15
20
14
20
13
20
12
20
11
$2,093,529
$2,139,289
$2,029,183
$2,036,386
$2,002,850
20
15
20
14
20
13
20
12
20
11
$1.71
$1.36
$1.18
$1.40
$1.40
TOTAL
ASSETS
$1,613,684
$1,480,462
$1,354,097
$1,334,900
$1,302,416
20
15
20
14
20
13
20
12
20
11
TO OUR
SHAREHOLDERS
2015 generated challenges for the truckload industry, caused by expansion of
industry capacity and slower economic growth. At Werner, we are turning these
challenges into opportunities by taking meaningful positive actions to strengthen
our company for the future. As we enter and celebrate our 60th year, Werner is
uniquely positioned to achieve best in class status for our balanced portfolio of
truckload, dedicated and logistics/cross border service offerings.
For the year 2015, our revenues declined 2% to $2.1 billion, due to the effect of lower fuel prices on
revenues. Our net income grew 25% to a record $124 million. Diluted earnings per share rose 26% to
a record $1.71.
We are making significant investments to position Werner for future success by:
l Returning to fleet growth in 2015, following several years of fleet declines;
l Aggressively lowering the average age of our fleet to improve our cost structure, retain and
attract better drivers and elevate our already strong service product;
l Rapidly adopting proven equipment and safety technologies such as automatic
transmissions, GPS trailer tracking and collision mitigation systems.
These investments are being made following our careful analysis of the anticipated costs and
benefits and our review of industry market conditions.
Werner is directly confronting the driver market challenges that the industry is facing including a
declining domestic unemployment rate, an aging workforce and
a lack of new driver entrants. We plan to counter these trends by
implementing a newer truck fleet, higher driver pay, improved driver
sourcing through the ownership of our driver training schools,
retaining our position as an employer of choice for military veterans
and producing more attractive driving positions with greater home
time frequency.
We believe that truckload industry capacity, which expanded in
2015, is beginning to stabilize with pressure to decline as we move
forward. Industry truck orders declined the last six months and the long-awaited electronic logging
device (ELD) regulations were issued in December. The industry’s remaining trucks and drivers
who have not yet adopted ELDs will be required to use electronic devices to manage and control
driver hours of service which should effectively reduce industry capacity and make our highways
and interstates safer. Werner is the truckload industry leader in ELD usage since we proactively
developed and adopted ELDs twenty years ago. When all drivers are required to manage and control
their hours electronically beginning in December 2017, Werner’s two decades of ELD knowledge and
experience will be a competitive advantage. In addition, there are a host of additional proposed
safety regulations that are expected to further tighten truckload industry capacity in the coming
months and years.
Due to increased truckload capacity and a lower rate of economic growth, particularly in the
manufacturing and industrial sectors, the freight market was less robust in 2015 compared to the
strong freight market of 2014. But Werner’s business structure and freight base are specifically
designed to level out the peaks and valleys of a cyclical industry. During 2015, we achieved our goal of
a balanced portfolio of our revenue base in one-way truckload, dedicated and logistics/cross border
service offerings. By design, nearly 75% of our freight base is in the less economically sensitive retail,
consumer products and grocery products sectors.
We believe that shippers increasingly need innovative capacity service providers who can meet
the contrasting objectives of taking cost out of their network while at the same time serving their
increasingly demanding customers. The size, depth and breadth of Werner’s truckload, dedicated and
logistics/cross border service solutions is unmatched in our industry. We surpassed $300 million in
revenues in 2015 with attractive operating margins in the growing and more difficult to service Mexico
cross-border market. We grew to nearly $400 million in revenues and record operating income in our
Value Added Services logistics segment in 2015. As an asset-backed logistics provider with proven
brokerage, freight management, intermodal and global logistics capabilities, we are well positioned to
provide optimized and cost effective solutions for our customers.
We invested a significant amount of time this past year in Omaha and at our terminals and field
locations. We are listening to our professional drivers and operations staff, and we are implementing
changes to improve our performance. We are excited and energized about our collective, renewed
commitment to make Werner an even more prominent leader in the industry.
Thank you for your support as shareholders and for the confidence you place in Werner Enterprises.
March 1, 2016
Derek J. Leathers
PRESIDENT AND COO
C.L. Werner
CHAIRMAN AND CEO
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[Mark one]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission File Number: 0-14690
WERNER ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
NEBRASKA
47-0648386
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
14507 FRONTIER ROAD
POST OFFICE BOX 45308
OMAHA, NEBRASKA
(Address of principal executive offices)
68145-0308
(Zip Code)
(402) 895-6640
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.01 Par Value
Name of Each Exchange on Which Registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
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
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the common equity held by non-affiliates of the Registrant (assuming for these purposes that all executive officers and
Directors are “affiliates” of the Registrant) as of June 30, 2015, the last business day of the Registrant's most recently completed second fiscal quarter, was
approximately $1.186 billion (based on the closing sale price of the Registrant's Common Stock on that date as reported by Nasdaq).
As of February 18, 2016, 72,042,271 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of Registrant for the Annual Meeting of Stockholders to be held May 10, 2016, are incorporated in Part III of this report.
WERNER ENTERPRISES, INC.
INDEX
PART I
Page
Item 1.
Business..................................................................................................................................................................... 1
Item 1A. Risk Factors............................................................................................................................................................... 6
Item 1B. Unresolved Staff Comments...................................................................................................................................... 9
Item 2.
Properties................................................................................................................................................................... 9
Item 3.
Legal Proceedings.................................................................................................................................................... 10
Item 4.
Mine Safety Disclosures.......................................................................................................................................... 11
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities.................................................................................................................................................. 11
Item 6.
Selected Financial Data........................................................................................................................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 13
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.................................................................................. 24
Item 8.
Financial Statements and Supplementary Data....................................................................................................... 26
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................. 45
Item 9A. Controls and Procedures.......................................................................................................................................... 45
Item 9B. Other Information.................................................................................................................................................... 47
PART III
Item 10. Directors, Executive Officers and Corporate Governance...................................................................................... 47
Item 11. Executive Compensation......................................................................................................................................... 47
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters............... 47
Item 13. Certain Relationships and Related Transactions, and Director Independence........................................................ 48
Item 14. Principal Accounting Fees and Services.................................................................................................................. 48
PART IV
Item 15. Exhibits, Financial Statement Schedules................................................................................................................. 48
This Annual Report on Form 10-K for the year ended December 31, 2015 (this “Form 10-K”) and the documents incorporated
herein by reference contain forward-looking statements based on expectations, estimates and projections as of the date of this
filing. Actual results may differ materially from those expressed in such forward-looking statements. For further guidance, see
Item 1A of Part I and Item 7 of Part II of this Form 10-K.
ITEM 1.
BUSINESS
General
PART I
We are a transportation and logistics company engaged primarily in transporting truckload shipments of general commodities
in both interstate and intrastate commerce. We also provide logistics services through our Value Added Services (“VAS”) division.
We believe we are one of the largest truckload carriers in the United States (based on total operating revenues), and our headquarters
are located in Omaha, Nebraska, near the geographic center of our truckload service area. We were founded in 1956 by Clarence L.
Werner, who started the business with one truck at the age of 19 and serves as our Chairman and Chief Executive Officer. We
were incorporated in the State of Nebraska in September 1982 and completed our initial public offering in June 1986 with a fleet
of 632 trucks as of February 1986. At the end of 2015, we had a fleet of 7,450 trucks, of which 6,635 were company-operated and
815 were owned and operated by independent contractors. Our VAS division operated an additional 62 intermodal drayage trucks
at the end of 2015.
We have two reportable segments – Truckload Transportation Services (“Truckload”) and VAS. You can find financial
information regarding these segments and the geographic areas in which we conduct business in the Notes to Consolidated Financial
Statements under Item 8 of this Form 10-K.
Our Truckload segment is comprised of the One-Way Truckload and Specialized Services units. One-Way Truckload includes
the following operating fleets: (i) the medium-to-long-haul van (“Van”) fleet transports a variety of consumer nondurable products
and other commodities in truckload quantities over irregular routes using dry van trailers; (ii) the expedited (“Expedited”) fleet
provides time-sensitive truckload services utilizing driver teams; and (iii) the regional short-haul (“Regional”) fleet provides
comparable truckload van service within geographic regions across the United States. Specialized Services provides truckload
services dedicated to a specific customer, generally for a retail distribution center or manufacturing facility, including services for
products requiring specialized trailers such as flatbed or temperature-controlled trailers. Our Truckload fleets operate throughout
the 48 contiguous U.S. states pursuant to operating authority, both common and contract, granted by the U.S. Department of
Transportation (“DOT”) and pursuant to intrastate authority granted by various U.S. states. We also have authority to operate in
several provinces of Canada and to provide through-trailer service into and out of Mexico. The principal types of freight we
transport include retail store merchandise, consumer products, grocery products and manufactured products. We focus on
transporting consumer nondurable products that generally ship more consistently throughout the year and whose volumes are
generally more stable during a slowdown in the economy.
Our VAS segment is a non-asset-based transportation and logistics provider. VAS is comprised of the following four operating
units that provide non-trucking services to our customers: (i) truck brokerage (“Brokerage”) uses contracted carriers to complete
customer shipments; (ii) freight management (“Freight Management”) offers a full range of single-source logistics management
services and solutions; (iii) the intermodal (“Intermodal”) unit offers rail transportation through alliances with rail and drayage
providers as an alternative to truck transportation; and (iv) Werner Global Logistics international (“WGL”) provides complete
management of global shipments from origin to destination using a combination of air, ocean, truck and rail transportation modes.
Our Brokerage unit had transportation services contracts with approximately 12,920 carriers as of December 31, 2015.
Marketing and Operations
Our business philosophy is to provide superior on-time customer service at a significant value for our customers. To
accomplish this, we operate premium modern tractors and trailers. This equipment has fewer mechanical and maintenance issues
and helps attract and retain experienced drivers. We continually develop our business processes and technology to improve customer
service and driver retention. We focus on customers who value the broad geographic coverage, diversified truck and logistics
services, equipment capacity, technology, customized services and flexibility available from a large financially-stable transportation
and logistics provider.
We operate in the truckload and logistics sectors of the transportation industry. Our Truckload segment provides specialized
services to customers based on (i) each customer’s trailer needs (such as van, flatbed and temperature-controlled trailers),
(ii) geographic area (regional and medium-to-long-haul van, including transport throughout Mexico and Canada), (iii) time-
sensitive shipments (expedited) or (iv) conversion of their private fleet to us (dedicated). In 2015, trucking revenues (net of fuel
1
surcharge) and trucking fuel surcharge revenues accounted for 78% of total operating revenues, and non-trucking and other
operating revenues (primarily VAS revenues) accounted for 22% of total operating revenues. Our VAS segment manages the
transportation and logistics requirements for customers, providing customers with additional sources of truck capacity, alternative
modes of transportation, a global delivery network and systems analysis to optimize transportation needs. VAS services include
(i) truck brokerage, (ii) freight management, (iii) intermodal transport and (iv) international. The VAS international services are
provided through our domestic and global subsidiary companies and include (i) ocean, air and ground transportation services,
(ii) door-to-door freight forwarding and (iii) customs brokerage. Most VAS international services are provided throughout North
America and Asia with additional coverage throughout Australia, Europe, South America and Africa. VAS is a non-asset-based
transportation and logistics provider that is highly dependent on qualified associates, information systems and the services of
qualified third-party capacity providers. You can find the revenues generated by services that accounted for more than 10% of our
consolidated revenues, consisting of Truckload and VAS, for the last three years under Item 7 of Part II of this Form 10-K.
We have a diversified freight base but are dependent on a relatively small number of customers for a significant portion of
our freight. During 2015, our largest 5, 10, 25 and 50 customers comprised 27%, 45%, 63% and 76% of our revenues, respectively.
No single customer generated more than 10% of our revenues in 2015. The industry groups of our top 50 customers are 44% retail
and consumer products, 28% grocery products, 13% manufacturing/industrial and 15% logistics and other. Many of our One-Way
Truckload customer contracts may be terminated upon 30 days’ notice, which is common in the truckload industry. Most of our
Specialized Services customer contracts are one to three years in length and may be terminated by either party upon 30 to 90 days’
notice following the expiration of the contract’s first year, and we review rates in these contracts annually.
Virtually all of our company and independent contractor tractors are equipped with communication devices. These devices
enable us and our drivers to conduct two-way communication using standardized and freeform messages. This technology also
allows us to plan and monitor shipment progress. We automatically monitor truck movement and obtain specific data on the
location of all trucks in the fleet every 15 minutes. Using the real-time global positioning data obtained from the devices, we have
advanced application systems to improve customer and driver service. Examples of such application systems include: (i) an
electronic logging system which records and monitors drivers’ hours of service and integrates with our information systems to
pre-plan driver shipment assignments based on real-time available driving hours; (ii) software that pre-plans shipments drivers
can trade enroute to meet driver home-time needs without compromising on-time delivery schedules; and (iii) automated “possible
late load” tracking that informs the operations department of trucks possibly operating behind schedule, allowing us to take
preventive measures to avoid late deliveries. In 1998, we began a successful pilot program and subsequently became the first
trucking company in the United States to receive an exemption from DOT to use a global positioning system-based paperless log
system as an alternative to the paper logbooks traditionally used by truck drivers to track their daily work activities. We have used
electronic logging devices (“ELDs”) to monitor and enforce drivers' hours of service since 1996.
Seasonality
In the trucking industry, revenues generally follow a seasonal pattern. Peak freight demand has historically occurred in the
months of September, October and November. After the December holiday season and during the remaining winter months, our
freight volumes are typically lower because some customers reduce shipment levels. Our operating expenses have historically
been higher in the winter months due primarily to decreased fuel efficiency, increased cold weather-related maintenance costs of
revenue equipment and increased insurance and claims costs attributed to adverse winter weather conditions. We attempt to
minimize the impact of seasonality through our marketing program by seeking additional freight from certain customers during
traditionally slower shipping periods and focusing on transporting consumer nondurable products. Revenue can also be affected
by adverse weather conditions, holidays and the number of business days that occur during a given period because revenue is
directly related to the available working days of shippers.
Employee Associates and Independent Contractors
As of December 31, 2015, we employed 9,192 drivers; 664 mechanics and maintenance associates for the trucking operation;
1,306 office associates for the trucking operation; and 1,163 associates for VAS, international and other non-trucking operations.
We also had 815 independent contractors who provide both a tractor and a driver or drivers. None of our U.S., Canadian or Chinese
associates are represented by a collective bargaining unit, and we consider relations with our associates to be good.
We recognize that our professional driver workforce is one of our most valuable assets. Most of our professional drivers are
compensated on a per-mile basis. For most company-employed drivers, the rate per mile generally increases with the drivers’
length of service. Professional drivers may earn additional compensation through incentive performance pay programs and for
performing additional work associated with their job (such as loading and unloading freight and making extra stops and shorter
mileage trips).
2
At times, there are driver shortages in the trucking industry. Availability of experienced drivers can be affected by (i) changes
in the demographic composition of the workforce; (ii) alternative employment opportunities other than truck driving that become
available in the economy; and (iii) individual drivers’ desire to be home more frequently. The driver market remained very
challenging in 2015, and the supply of recent driver training school graduates continues to tighten. We believe that a declining
number of, and increased competition for, driver training school graduates, a gradually declining national unemployment rate,
aging truck driver demographics and increased truck safety regulations are tightening driver supply. We believe our strong mileage
utilization, financial strength and safety record are attractive to drivers when compared to many other carriers. Additionally, we
believe our large percentage of driving jobs in shorter-haul operations (such as Dedicated and Regional) that allow drivers to return
home more often is attractive to drivers.
We utilize recent driver training school graduates as a significant source of new drivers. These drivers have completed a
training program at a driver training school, hold a commercial driver’s license (“CDL”) and are further trained by Werner-certified
trainer drivers prior to that driver becoming a solo driver with their own truck. As mentioned above, the recruiting environment
for recent driver training school graduates remained challenging in 2015. The availability of these drivers has been negatively
impacted by the decreased availability of student loan financing for driver training schools. We own two driver training schools
that operate a total of 15 driver training locations to assist with the training and development of drivers for our company and the
industry.
As economic conditions improve, competition for experienced drivers and recent driver training school graduates may
increase and could become more challenging in 2016. We cannot predict whether we will experience future shortages in the
availability of experienced drivers or driver training school graduates. If such a shortage were to occur and additional driver pay
rate increases became necessary to attract and retain experienced drivers or driver training school graduates, our results of operations
would be negatively impacted to the extent that we could not obtain corresponding freight rate increases.
We also recognize that independent contractors complement our company-employed drivers. Independent contractors supply
their own tractors and drivers and are responsible for their operating expenses. Independent contractors also provide us with another
source of drivers to support our fleet. We intend to maintain our emphasis on independent contractor recruiting, in addition to
company driver recruitment. We, along with others in the trucking industry, however, continue to experience independent contractor
recruitment and retention difficulties that have persisted over the past several years. Challenging operating conditions, including
inflationary cost increases that are the responsibility of independent contractors and a shortage of financing available to independent
contractors for equipment purchases, continue to make it difficult to recruit and retain independent contractors. If a shortage of
independent contractors occurs, additional increases in per mile settlement rates (for independent contractors) and driver pay rates
(for company drivers) may become necessary to attract and retain a sufficient number of drivers. These increases could negatively
affect our results of operations to the extent that we could not obtain corresponding freight rate increases.
Revenue Equipment
As of December 31, 2015, we operated 6,635 company tractors and 815 tractors owned by independent contractors in our
Truckload segment. Our VAS segment operated an additional 62 company tractors at the end of 2015. The company tractors were
manufactured by Freightliner (a Daimler company), Peterbilt and Kenworth (both divisions of PACCAR) and Volvo. We adhere
to a comprehensive maintenance program for both company tractors and trailers. We inspect independent contractor tractors prior
to acceptance for compliance with Werner and DOT operational and safety requirements. We periodically inspect these tractors,
in a manner similar to company tractor inspections, to monitor continued compliance. We also regulate the vehicle speed of
company trucks to improve safety and fuel efficiency, and we have them set to not exceed 65 miles per hour.
The average age of our company truck fleet was 1.9 years at December 31, 2015, compared to 2.2 years at December 31,
2014. We increased our capital expenditures in 2015 to lower the average age of our truck fleet, and we currently expect to reduce
our average truck age to approximately 1.5 years during 2016. As of December 31, 2015, nearly all of our company tractors had
engines that comply with the U.S. Environmental Protection Agency (“EPA”) engine emissions standards that became effective
for newly manufactured engines beginning in January 2010. All of our trucks are equipped with satellite tracking devices. Most
of our new trucks purchased in 2015 have collision mitigation safety systems and a majority of new trucks purchased in 2015 have
automatic manual transmissions.
We operated 24,090 company-owned trailers at December 31, 2015. This total is comprised of 22,560 dry vans; 184 flatbeds;
1,308 temperature-controlled trailers; and 38 specialized trailers. Most of our trailers were manufactured by Wabash National
Corporation. As of December 31, 2015, nearly all of our dry van trailer fleet consisted of 53-foot composite (DuraPlate®) trailers.
We also provide other trailer lengths, such as 48-foot and 57-foot trailers, to meet the specialized needs of certain customers.
Approximately one third of our trailer fleet has satellite tracking; this is expected to grow to two thirds of our trailer fleet by the
end of 2016.
3
Our wholly-owned subsidiary, Fleet Truck Sales, sells our used trucks and trailers. Fleet Truck Sales has been in business
since 1992 and operates in six locations. We may also trade used trucks to original equipment manufacturers when purchasing
new trucks.
Fuel
In 2015, we purchased approximately 98% of our fuel from a predetermined network of fuel stops throughout the United
States. Of this 98%, approximately 96% was purchased from three large fuel stop vendors. We negotiate discounted pricing based
on historical purchase volumes with these fuel stop vendors. Bulk fueling facilities are maintained at seven of our terminals and
one dedicated customer location.
Shortages of fuel, increases in fuel prices and rationing of petroleum products can have a material adverse effect on our
operations and profitability. Our customer fuel surcharge reimbursement programs generally enable us to recover from our
customers a majority, but not all, of higher fuel prices compared to normalized average fuel prices. These fuel surcharges, which
automatically adjust depending on the U.S. Department of Energy (“DOE”) weekly retail on-highway diesel fuel prices, enable
us to recoup much of the higher cost of fuel when prices increase and provide customers with the benefit of lower fuel costs when
fuel prices decline. We do not generally recoup higher fuel costs for empty and out-of-route miles (which are not billable to
customers) and truck idle time. We cannot predict whether fuel prices will increase or decrease in the future or the extent to which
fuel surcharges will be collected from customers. As of December 31, 2015, we had no derivative financial instruments to reduce
our exposure to fuel price fluctuations.
We maintain aboveground and underground fuel storage tanks at many of our terminals. Leakage or damage to these facilities
could expose us to environmental clean-up costs. The tanks are routinely inspected to help prevent and detect such problems.
Regulations
We are a motor carrier regulated by DOT in the United States and similar governmental transportation agencies in foreign
countries in which we operate. DOT generally governs matters such as safety requirements, registration to engage in motor carrier
operations, drivers’ hours of service and certain mergers, consolidations and acquisitions. We currently have, and have always
maintained, a satisfactory DOT safety rating, which is the highest available rating, and we continually take efforts to maintain our
satisfactory rating. A conditional or unsatisfactory DOT safety rating could adversely affect us because some of our customer
contracts require a satisfactory rating. Equipment weight and dimensions are also subject to federal, state and international
regulations with which we are required to comply.
The Federal Motor Carrier Safety Administration's (“FMCSA”) Compliance, Safety, Accountability, (“CSA”) safety
initiative monitors the safety performance of both individual drivers and carriers. In December 2010, FMCSA made public on its
website the Safety Measurement System (“SMS”), which includes monthly reports of specific safety rating measurement and
percentile ranking scores for over 500,000 trucking companies. Through the SMS, the public could access carrier scores and data
(including a carrier’s roadside safety inspection, out-of-service and moving violation histories) for five Behavior Analysis and
Safety Improvement Categories (“BASICs”). On December 3, 2015, Congress passed a multi-year surface transportation
reauthorization, the Fixing America's Surface Transportation (“FAST”) Act. Within the bill was a provision instructing FMCSA
to commission a Transportation Research Board study of the accuracy of CSA SMS in identifying high risk carriers and predicting
future crash risk and severity. FMCSA must submit the study to Congress and issue a corrective action plan to address the
deficiencies identified in the study. Beginning the day after enactment of the FAST Act, information regarding carrier alerts or
percentile ranks (i.e., scores) was removed from public view until FMCSA completes the corrective action plan. We will continue
to monitor any CSA developments and continue our CSA compliance efforts.
On January 15, 2016, FMCSA released a proposal to change the method for assigning motor carriers' safety fitness
determination (“SFD”). The proposed methodology would determine when a carrier is not fit to operate commercial motor vehicles
in or affecting interstate commerce based on (i) the carrier's performance in relation to a fixed failure threshold established in the
rule for five CSA categories; (ii) an investigation; or (iii) a combination of on-road safety data and investigation information.
Currently, the assignment of an SFD follows the completion of a labor-intensive compliance review conducted at the carrier's
place of business. These audits are primarily an assessment of paper records instead of on-road safety performance. The proposed
SFD rule would replace the current three-tier federal rating system which assigns a rating of either “satisfactory”,“conditional”,
or “unsatisfactory” to federally regulated commercial motor carriers (in place since 1982) with a single determination of “unfit,”
which would require the carrier to either improve its operations or cease operations.
All truckload carriers are subject to the hours of service (“HOS”) regulations issued by FMCSA. In December 2011, FMCSA
adopted and issued a final rule that amended the driver HOS regulations, which became effective July 1, 2013. The rule includes
provisions which affect restart periods, rest breaks, on-duty time and penalties for violations. We modified and tested our electronic
HOS system and began dispatching drivers under the revised HOS rules effective July 1, 2013. The Company believes these HOS
4
changes negatively impacted miles per truck by two to three percent. We have taken steps to minimize the financial impact of the
HOS changes. However, government restrictions of available driving hours will continue to negatively impact the productivity of
some drivers and some fleets within our company. On August 2, 2013, the U.S. Court of Appeals for the D.C. Circuit issued its
decision related to petitions of the rule changes by the trucking industry association and consumer advocate groups. The court
generally affirmed FMCSA's final rule and vacated only the application of the 30-minute rest break to short-haul drivers as defined
in 49 CFR 395.1(e). On December 13, 2014, Congress passed the Consolidated and Further Continuing Appropriations Act of
2015 which for one year temporarily suspended the requirement that all qualifying restarts contain two consecutive periods of
time between 1:00 a.m. and 5:00 a.m. and that it can only be used once every 168 hours (or seven days). In addition, FMCSA was
required to study the safety impact caused by the restart rule which became effective on July 1, 2013. The restart rule reverted
back to the simple 34-hour restart in effect from 2003 to June 30, 2013. We believe this has reduced the negative impact of the
July 1, 2013 HOS changes during the one year suspension period. On December 18, 2015, the Consolidated Appropriations Act
of 2016 was passed by Congress with HOS language that was intended to provide additional certainty for the industry. The language
was to require the FMCSA study to demonstrate results with statistically significant improvements in safety and driver health,
among other things, before the agency could reinstate the 34-hour restart rule including the restrictions that became effective in
July 2013. Unfortunately, the new legislation did not include language specifically stipulating that the industry would continue
to operate under the old 2003 restart rules if the study does not conclude that the restrictions offer significant improvements. Due
to this oversight, there is now a risk of the restart provisions being eliminated unless the error is corrected, or the restart provisions
could be changed from the current rule.
On January 31, 2011, FMCSA issued proposed rules regarding the required installation and use of electronic logging devices
(“ELDs”) by nearly all carriers to enhance the monitoring and enforcement of the driver HOS rules. Federal legislation required
DOT to promulgate rules and regulations mandating the use of ELDs by July 2013 with full adoption for all trucking companies
by no later than July 2015. However, FMCSA did not issue the final rule until December 10, 2015, and carriers have until December
2017 to adopt and use compliant ELDs. We are the recognized industry leader for electronic logging of driver hours as we proactively
adopted a paperless log system in 1996 that was subsequently approved for our use by FMCSA in 1998. In order to improve
compliance, and by extension safety performance and leveling the field upon which carriers compete, Werner supports a broad-
based mandate for ELDs.
In May 2011, FMCSA published a final rule that (i) sets new standards that must be met before states issue commercial
learner’s permits (“CLP”), (ii) revises the knowledge and skills testing standards that must be met to obtain both a CLP and a
CDL, and (iii) improves anti-fraud measures with the CDL program. States were expected to comply with and start enforcing the
new requirements as of July 8, 2015. In September 2013, FMCSA withdrew its proposed rule regarding minimum requirements
for entry-level driver training programs and later formed the Entry-Level Driver Training Advisory Committee (“ELDTAC”) to
conduct negotiated rulemaking to implement entry-level driver training provisions. In June 2015, the ELDTAC reached a consensus
and forwarded its recommendations to FMCSA. FMCSA has not yet taken action on the ELDTAC's recommendations as the
proposed rule has yet to published. This rule could materially impact the number of potential new drivers entering the industry,
and we currently cannot predict how the adoption of such rules would affect our driver recruitment and the overall driver market.
WGL, through its domestic and global subsidiary companies, holds a variety of licenses required to carry out its international
services. These licenses permit us to provide services as a Non-Vessel Operating Common Carrier (“NVOCC”), customs broker,
freight forwarder, indirect air carrier, accredited cargo agent and others. These international services subject us to regulation by
the Transportation Security Administration (“TSA”) and Customs and Borders Protection (“CBP”) agencies of the U.S. Department
of Homeland Security, the U.S. Federal Maritime Commission (“FMC”), the International Air Transport Association (“IATA”),
as well as similar regulatory agencies in foreign jurisdictions.
Our operations are subject to various federal, state and local environmental laws and regulations, many of which are
implemented by the EPA and similar state regulatory agencies. These laws and regulations govern the management of hazardous
wastes, discharge of pollutants into the air and surface and underground waters and disposal of certain substances. We do not
believe that compliance with these regulations has a material effect on our capital expenditures, earnings and competitive position.
The EPA mandated a series of stringent engine emissions standards for all newly manufactured truck engines, which became
effective in October 2002, January 2007 and January 2010, resulting in increases in the costs of new trucks. The 2010 regulations
required a significant decrease in particulate matter (soot and ash) and nitrogen oxide emitted from on-road diesel engines. Engine
manufacturers responded to the 2010 standards by modifying engines to produce cleaner combustion with selective catalytic
reduction (“SCR”) technologies to remove pollutants from exhaust gases exiting the combustion chamber. The SCR technology
also requires the ongoing periodic use of a urea-based diesel exhaust fluid. Trucks with 2010-standard engines have a higher
purchase price than trucks manufactured to meet the 2007 standards but are more fuel efficient. As of December 31, 2015, nearly
all of our company tractors had engines that comply with the 2010 emission standards.
5
The State of California enacted restrictions on transport refrigeration unit (“TRU”) emissions that require companies to
operate compliant TRUs in California. The California regulations apply not only to California intrastate carriers, but also to carriers
outside of California who wish to enter the state with TRUs. In January 2009, the EPA enabled California to phase in its Low-
Emission TRU In-Use Performance Standards over several years. Enforcement of California’s in-use performance standards for
TRU engines began in January 2010 for 2002 and older TRUs and will be phased in annually for later model years. We have
complied with all compliance deadlines through December 31, 2015 that applied to model year 2008 and older TRU engines.
California also required the registration of all California-based TRUs by July 31, 2009. For compliance purposes, we completed
the California TRU registration process and continue to structure our plan to operate compliant TRUs over the next several years
as the regulations apply to newer model years.
California also adopted regulations to improve the fuel efficiency of heavy-duty tractors that pull 53-foot or longer box-
type trailers within the state. The tractors and trailers subject to these regulations must either use EPA SmartWay-certified tractors
and trailers or retrofit their existing fleet with SmartWay-verified technologies that have been demonstrated to meet or exceed fuel
savings percentages specified in the regulations. Examples of these technologies include tractor and trailer aerodynamics packages
(such as tractor fairings and trailer skirts) and the use of low-rolling resistance tires on both tractors and trailers. Enforcement of
these regulations for 2011 model year equipment began in January 2010 and is being phased in over several years for older
equipment. In order to comply with the California Air Resources Board’s (“CARB”) fuel efficiency regulations, we submitted a
large fleet compliance plan to CARB on June 30, 2010, to install skirting on our dry van trailers by certain deadlines through 2016.
We will continue monitoring our compliance with these CARB regulations.
Various provisions of the North American Free Trade Agreement (“NAFTA”) may alter the competitive environment for
shipping into and out of Mexico. We currently believe we are well prepared to respond to any changes that may result from this
agreement. We conduct a substantial amount of business in international freight shipments to and from the United States and
Mexico (see Note 10 in the Notes to Consolidated Financial Statements under Item 8 of Part II of this Form 10-K), and we believe
we are one of the largest truckload carriers in terms of freight volume shipped to and from the United States and Mexico.
Competition
The freight transportation industry is highly competitive and includes thousands of trucking and non-asset-based logistics
companies. We have a small share of the markets we target. Our Truckload segment competes primarily with other truckload
carriers. Logistics companies, intermodal companies, railroads, less-than-truckload carriers and private carriers provide
competition for both our Truckload and VAS segments. Our VAS segment also competes for the services of third-party capacity
providers.
Competition for the freight we transport or manage is based primarily on service, efficiency, available capacity and, to some
degree, on freight rates alone. We believe that few other truckload carriers have greater financial resources, own more equipment
or carry a larger volume of freight than us. We believe we are one of the largest carriers in the truckload transportation industry
based on total operating revenues.
Internet Website
We maintain an Internet website where you can find additional information regarding our business and operations. The
website address is www.werner.com. On the website, we make certain investor information available free of charge, including our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, stock ownership reports filed
under Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and any amendments to such reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. This information is included on our website as soon as
reasonably practicable after we electronically file or furnish such materials to the U.S. Securities and Exchange Commission
(“SEC”). The website also includes Interactive Data Files required to be posted pursuant to Rule 405 of SEC Regulation S-T. We
also provide our corporate governance materials, such as Board committee charters and our Code of Corporate Conduct, on our
website free of charge, and we may occasionally update these materials when necessary to comply with SEC and NASDAQ rules
or to promote the effective and efficient governance of our company. Information provided on our website is not incorporated by
reference into this Form 10-K.
ITEM 1A.
RISK FACTORS
The following risks and uncertainties may cause our actual results, business, financial condition and cash flows to materially
differ from those anticipated in the forward-looking statements included in this Form 10-K. Caution should be taken not to place
undue reliance on forward-looking statements made herein because such statements speak only to the date they were made. Unless
otherwise required by applicable securities laws, we undertake no obligation or duty to revise or update any forward-looking
6
statements contained herein to reflect subsequent events or circumstances or the occurrence of unanticipated events. Also refer to
the Cautionary Note Regarding Forward-Looking Statements in Item 7 of Part II of this Form 10-K.
Our business is subject to overall economic conditions that could have a material adverse effect on our results of operations.
We are sensitive to changes in overall economic conditions that impact customer shipping volumes, industry freight demand
and industry truck capacity. When shipping volumes decline or available truck capacity increases, freight pricing generally becomes
more competitive as carriers compete for loads to maintain truck productivity. We may be negatively affected by future economic
conditions including employment levels, business conditions, fuel and energy costs, interest rates and tax rates. Economic conditions
may also impact the financial condition of our customers, resulting in a greater risk of bad debt losses, and that of our suppliers,
which may affect negotiated pricing or availability of needed goods and services.
Difficulty in recruiting and retaining experienced drivers, recent driver training school graduates and independent contractors
could impact our results of operations and limit growth opportunities.
At times, the trucking industry has experienced driver shortages. Driver availability may be affected by changing workforce
demographics, alternative employment opportunities, national unemployment rates, freight market conditions, availability of
financial aid for driver training schools and changing industry regulations. If such a shortage were to occur and additional driver
pay rate increases were necessary to attract and retain drivers, our results of operations would be negatively impacted to the extent
that we could not obtain corresponding freight rate increases. Additionally, a shortage of drivers could result in idled equipment,
which could affect our profitability.
Independent contractor availability may also be affected by both inflationary cost increases that are the responsibility of
independent contractors and the availability of equipment financing. If a shortage of independent contractors occurs, additional
increases in per mile settlement rates (for independent contractors) and driver pay rates (for company drivers) may become necessary
to attract and retain a sufficient number of drivers. These increases could negatively affect our results of operations to the extent
that we would be unable to obtain corresponding freight rate increases.
Increases in fuel prices and shortages of fuel can have a material adverse effect on the results of operations and profitability.
To lessen the effect of fluctuating fuel prices on our margins, we have fuel surcharge programs with our customers. These
programs generally enable us to recover a majority, but not all, of the fuel price increases. The remaining portion is generally not
recoverable because it results from empty and out-of-route miles (which are not billable to customers) and truck idle time. Fuel
prices that change rapidly in short time periods also impact our recovery because the surcharge rate in most programs only changes
once per week. Fuel shortages, increases in fuel prices and petroleum product rationing could have a material adverse impact on
our operations and profitability. To the extent that we cannot recover the higher cost of fuel through customer fuel surcharges, our
financial results would be negatively impacted. As of December 31, 2015, we had no derivative financial instruments to reduce
our exposure to fuel price fluctuations.
We operate in a highly competitive industry, which may limit growth opportunities and reduce profitability.
The freight transportation industry is highly competitive and includes thousands of trucking and non-asset-based logistics
companies. We compete primarily with other truckload carriers in our Truckload segment. Logistics companies, intermodal
companies, railroads, less-than-truckload carriers and private carriers also provide a lesser degree of competition in our Truckload
segment, but such providers are more direct competitors in our VAS segment. Competition for the freight we transport or manage
is based primarily on service, efficiency, available capacity and, to some degree, on freight rates alone. This competition could
have an adverse effect on either the number of shipments we transport or the freight rates we receive, which could limit our growth
opportunities and reduce our profitability.
We operate in a highly regulated industry. Changes in existing regulations or violations of existing or future regulations could
adversely affect our operations and profitability.
We are regulated by the DOT in the United States and similar governmental transportation agencies in foreign countries in
which we operate. We are also regulated by agencies in certain U.S. states. These regulatory agencies have the authority to govern
transportation-related activities, such as safety, authorization to conduct motor carrier operations and other matters. The Regulation
subsection in Item 1 of Part I of this Form 10-K describes several proposed and pending regulations that may have a significant
effect on our operations including our productivity, driver recruitment and retention and capital expenditures. The subsidiaries of
WGL hold a variety of licenses required to carry out its international services, and the loss of any of these licenses could adversely
impact the operations of WGL.
7
The seasonal pattern generally experienced in the trucking industry may affect our periodic results during traditionally slower
shipping periods and winter months.
In the trucking industry, revenues generally follow a seasonal pattern which may affect our results of operations. After the
December holiday season and during the remaining winter months, our freight volumes are typically lower because some customers
reduce shipment levels. Our operating expenses have historically been higher in the winter months because of cold temperatures
and other adverse winter weather conditions which result in decreased fuel efficiency, increased cold weather-related maintenance
costs of revenue equipment and increased insurance and claims costs. Revenue can also be affected by adverse weather conditions,
holidays and the number of business days during a given period because revenue is directly related to the available working days
of shippers.
We depend on key customers, the loss or financial failure of which may have a material adverse effect on our operations and
profitability.
A significant portion of our revenue is generated from key customers. During 2015, our largest 5, 10 and 25 customers
accounted for 27%, 45% and 63% of revenues, respectively. No single customer generated more than 10% of our revenues in
2015, and our largest customer accounted for 7% of our revenues in 2015. We do not have long-term contractual relationships
with many of our key One-Way Truckload customers. Our contractual relationships with our Specialized Services customers are
typically one to three years in length and may be terminated by either party upon 30 to 90 days’ notice following the expiration
of the contract’s first year, and we review rates in these contracts annually. We cannot provide any assurance that key customer
relationships will continue at the same levels. If a key customer substantially reduced or terminated our services, it could have a
material adverse effect on our business and results of operations. We review our customers’ financial conditions for granting credit,
monitor changes in customers’ financial conditions on an ongoing basis and review individual past-due balances and collection
concerns. However, a key customer’s financial failure may negatively affect our results of operations.
We depend on the services of third-party capacity providers, the availability of which could affect our profitability and limit
growth in our VAS segment.
Our VAS segment is highly dependent on the services of third-party capacity providers, such as other truckload carriers,
less-than-truckload carriers, railroads, ocean carriers and airlines. Many of those providers face the same economic challenges as
we do and therefore are actively and competitively soliciting business. These economic conditions may have an adverse effect on
the availability and cost of third-party capacity. If we are unable to secure the services of these third-party capacity providers at
reasonable rates, our results of operations could be adversely affected.
If we cannot effectively manage the challenges associated with doing business internationally, our revenues and profitability
may suffer.
Our results are affected by the success of our operations in Mexico, China and other foreign countries in which we operate.
We are subject to risks of doing business internationally, including fluctuations in foreign currencies, changes in the economic
strength of the countries in which we do business, difficulties in enforcing contractual obligations and intellectual property rights,
burdens of complying with a wide variety of international and United States export and import laws, and social, political, and
economic instability. Additional risks associated with our foreign operations, including restrictive trade policies and imposition
of duties, taxes, or government royalties by foreign governments, are present but largely mitigated by the terms of NAFTA for
Mexico and Canada. The agreement permitting cross border movements for both United States and Mexican based carriers into
the United States and Mexico presents additional risks in the form of potential increased competition and the potential for increased
congestion on the cross border lanes between countries.
Our earnings could be reduced by increases in the number of insurance claims, cost per claim, costs of insurance premiums
or availability of insurance coverage.
We are self-insured for a significant portion of liability resulting from bodily injury, property damage, cargo and associate
workers’ compensation and health benefit claims. This is supplemented by premium-based insurance with licensed insurance
companies above our self-insurance level for each type of coverage. To the extent we experience a significant increase in the
number of claims, cost per claim or insurance premium costs for coverage in excess of our retention amounts, our operating results
would be negatively affected. Healthcare legislation and inflationary cost increases could also have a negative effect on our results.
Decreased demand for our used revenue equipment could result in lower unit sales, resale values and gains on sales of assets.
We are sensitive to changes in used equipment prices and demand, especially with respect to tractors. We have been in the
business of selling our company-owned trucks since 1992, when we formed our wholly-owned subsidiary Fleet Truck Sales.
8
Reduced demand for used equipment could result in a lower volume of sales or lower sales prices, either of which could negatively
affect our gains on sales of assets.
Our operations are subject to various environmental laws and regulations, the violation of which could result in substantial
fines or penalties.
In addition to direct regulation by DOT, EPA and other federal, state, and local agencies, we are subject to various
environmental laws and regulations dealing with the handling of hazardous materials, aboveground and underground fuel storage
tanks, discharge and retention of storm-water, and emissions from our vehicles. We operate in industrial areas, where truck terminals
and other industrial activities are located and where groundwater or other forms of environmental contamination have occurred.
Our operations involve the risks of fuel spillage or seepage, environmental damage and hazardous waste disposal, among others.
We also maintain bulk fuel storage at several of our facilities. If we are involved in a spill or other accident involving hazardous
substances, or if we are found to be in violation of applicable laws or regulations, it could have a material adverse effect on our
business and operating results. If we fail to comply with applicable environmental regulations, we could be subject to substantial
fines or penalties and to civil and criminal liability. Tractors and trailers used in our daily operations have been affected by regulatory
changes related to air emissions and fuel efficiency, and may be adversely affected in the future by new regulatory actions.
We rely on the services of key personnel, the loss of which could impact our future success.
We are highly dependent on the services of key personnel, including our executive officers. Although we believe we have
an experienced and highly qualified management team, the loss of the services of these key personnel could have a significant
adverse impact on us and our future profitability.
Difficulty in obtaining goods and services from our vendors and suppliers could adversely affect our business.
We are dependent on our vendors and suppliers. We believe we have good vendor relationships and that we are generally
able to obtain favorable pricing and other terms from vendors and suppliers. If we fail to maintain satisfactory relationships with
our vendors and suppliers, or if our vendors and suppliers experience significant financial problems, we could experience difficulty
in obtaining needed goods and services because of production interruptions or other reasons. Consequently, our business could
be adversely affected.
We use our information systems extensively for day-to-day operations, and service disruptions could have an adverse impact
on our operations.
The efficient operation of our business is highly dependent on our information systems. Much of our software was developed
internally or by adapting purchased software applications to suit our needs. Our information systems are used for receiving and
planning loads, dispatching drivers and other capacity providers, billing customers and providing financial reports. If any of our
critical information systems fail or become unavailable, we would have to perform certain functions manually, which could
temporarily affect our ability to efficiently manage our operations. We maintain information security policies to protect our systems
and data from cyber security events and threats. We purchased redundant computer hardware systems and have our own off-site
disaster recovery facility approximately ten miles from our headquarters for use in the event of a disaster. We took these steps to
reduce the risk of disruption to our business operation if a disaster occurred. We believe any such disruption would be minimal
or moderate; however, we cannot predict the degree to which any disaster would affect our information systems or disaster recovery
facility. Any system failure, disruption, or security breach could interrupt or delay our operations, damage our reputation, cause
us to lose customers, or impact our ability to manage our operations, any of which could have an adverse effect on our operations.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
We have not received any written comments from SEC staff regarding our periodic or current reports that were issued 180
days or more preceding the end of our 2015 fiscal year and that remain unresolved.
ITEM 2.
PROPERTIES
Our headquarters are located on approximately 197 acres near U.S. Interstate 80 west of Omaha, Nebraska, 107 acres of
which are undeveloped. Our headquarters office building includes a computer center, drivers’ lounges, cafeteria and company
store. The Omaha headquarters also includes a driver training facility, equipment maintenance and repair facilities and a sales
office for selling used trucks and trailers. These maintenance facilities contain a central parts warehouse, frame straightening and
alignment machine, truck and trailer wash areas, equipment safety lanes, body shops for tractors and trailers, two paint booths and
a reclaim center. Our headquarter facilities have suitable space available to accommodate planned needs for at least the next three
to five years.
9
We also have several terminals throughout the United States, consisting of office and/or maintenance facilities. Our terminal
locations are described below:
Location
Omaha, Nebraska
Omaha, Nebraska
Phoenix, Arizona
Fontana, California
Denver, Colorado
Atlanta, Georgia
Indianapolis, Indiana
Springfield, Ohio
Allentown, Pennsylvania
Dallas, Texas
Laredo, Texas
Lakeland, Florida
El Paso, Texas
Brownstown, Michigan
Newbern, Tennessee
Chicago, Illinois
Owned or Leased
Description
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Owned
Leased
Owned
Owned
Leased
Owned
Owned
Leased
Leased
Corporate headquarters, maintenance,
truck sales
Disaster recovery, warehouse
Office, maintenance
Office, maintenance, truck sales
Office, maintenance
Office, maintenance, truck sales
Office, maintenance
Office, maintenance, truck sales
Office, maintenance
Office, maintenance, truck sales
Office, maintenance, transloading,
truck sales
Office
Office, maintenance
Maintenance
Maintenance
Maintenance
Segment
Truckload, VAS, Corporate
Corporate
Truckload
Truckload
Truckload
Truckload, VAS
Truckload
Truckload
Truckload
Truckload, VAS
Truckload, VAS
Truckload
Truckload
Truckload
Truckload
Truckload
We currently lease (i) small sales offices, brokerage offices and trailer parking yards in various locations throughout the
United States and (ii) office space in Mexico, Canada and China. We own (i) a 96-room motel located near our Omaha headquarters;
(ii) a 71-room private driver lodging facility at our Dallas terminal; (iii) a warehouse facility in Omaha; and (iv) a terminal facility
in Queretaro, Mexico, which we lease to a related party (see Note 9 in the Notes to Consolidated Financial Statements under Item 8
of Part II of this Form 10-K). We also have 50% ownership in a 125,000 square-foot warehouse located near our headquarters in
Omaha. The Fleet Truck Sales network currently has six locations, which are located in certain of our terminals listed above. Our
driver training schools currently operate in 15 locations.
ITEM 3.
LEGAL PROCEEDINGS
We are a party subject to routine litigation incidental to our business, primarily involving claims for bodily injury, property
damage, cargo and workers’ compensation incurred in the transportation of freight. We have maintained a self-insurance program
with a qualified department of risk management professionals since 1988. These associates manage our bodily injury, property
damage, cargo and workers’ compensation claims. An actuary reviews our undiscounted self-insurance reserves for bodily injury,
property damage and workers’ compensation claims at year-end.
Since August 1, 2004, our self-insured retention (“SIR”) and deductible amount for liability claims has been $2.0 million,
plus administrative expenses, for each occurrence involving bodily injury or property damage. We are also responsible for varying
annual aggregate amounts of liability for claims in excess of the SIR/deductible. The following table reflects the SIR/deductible
levels and aggregate amounts of liability for bodily injury and property damage claims since August 1, 2012:
Coverage Period
August 1, 2012 – July 31, 2013
August 1, 2013 – July 31, 2014
August 1, 2014 – July 31, 2015
August 1, 2015 – July 31, 2016
Primary Coverage
$5.0 million
$5.0 million
$5.0 million
$5.0 million
Primary Coverage
SIR/Deductible
$2.0 million (1)
$2.0 million (1)
$2.0 million (1)
$2.0 million (1)
(1) Subject to an additional $8.0 million aggregate in the $2.0 to $5.0 million layer.
10
Our primary insurance covers the range of liability under which we expect most claims to occur. If any liability claims are
in excess of coverage amounts listed in the table above, such claims are covered under premium-based policies (issued by insurance
companies) to coverage levels that our management considers adequate. For claims in excess of $5.0 million and less than $10.0
million, we are responsible for the first $5.0 million of claims in this layer. We are also responsible for administrative expenses
for each occurrence involving bodily injury or property damage. See also Note 1 and Note 8 in the Notes to Consolidated Financial
Statements under Item 8 of Part II of this Form 10-K.
We are responsible for workers’ compensation claims up to $1.0 million per claim and have premium-based insurance
coverage for individual claims above $1.0 million. We also maintain a $29.8 million bond for the State of Nebraska and a $6.9
million bond for our workers’ compensation insurance carrier.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Price Range of Common Stock
Our common stock trades on the NASDAQ Global Select MarketSM tier of the NASDAQ Stock Market under the symbol
“WERN”. The following table sets forth, for the quarters indicated from January 1, 2014 through December 31, 2015, (i) the high
and low trade prices per share of our common stock quoted on the NASDAQ Global Select MarketSM and (ii) our dividends
declared per common share.
2015
2014
High
Low
$33.42
31.70
29.34
28.29
$28.08
25.78
25.08
22.45
Dividends
Declared Per
Common Share
$0.05
0.05
0.06
0.06
High
Low
$26.87
27.01
27.04
31.71
$24.26
24.72
24.31
23.50
Dividends
Declared Per
Common Share
$0.05
0.05
0.05
0.05
Quarter Ended:
March 31
June 30
September 30
December 31
As of February 18, 2016, our common stock was held by 261 stockholders of record. Because many of our shares of common
stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders
represented by these record holders. The high and low trade prices per share of our common stock in the NASDAQ Global Select
MarketSM as of February 18, 2016 were $27.06 and $26.56, respectively.
Dividend Policy
We have paid cash dividends on our common stock following each fiscal quarter since the first payment in July 1987. We
currently intend to continue paying a regular quarterly dividend. We do not currently anticipate any restrictions on our future
ability to pay such dividends. However, we cannot give any assurance that dividends will be paid in the future or of the amount
of any such quarterly or special dividends because they are dependent on our earnings, financial condition and other factors.
Equity Compensation Plan Information
For information on our equity compensation plans, please refer to Item 12 of Part III of this Form 10-K.
11
Performance Graph
Comparison of Five-Year Cumulative Total Return
The following graph is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to the liabilities of
Section 18 of the Exchange Act, and the report shall not be deemed to be incorporated by reference into any prior or subsequent
filing by us under the Securities Act of 1933 or the Exchange Act except to the extent we specifically request that such information
be incorporated by reference or treated as soliciting material.
Werner Enterprises, Inc. (WERN)
Standard & Poor’s 500
NASDAQ Trucking Group (SIC Code 42)
12/31/2010
100
$
100
$
100
$
12/31/2011
110
$
102
$
103
$
12/31/2012
107
$
118
$
112
$
12/31/2013
123
$
157
$
160
$
12/31/2014
156
$
178
$
183
$
12/31/2015
118
$
181
$
158
$
Assuming the investment of $100 on December 31, 2010, and reinvestment of all dividends, the graph above compares the
cumulative total stockholder return on our common stock for the last five fiscal years with the cumulative total return of Standard &
Poor’s 500 Market Index and an index of other companies included in the trucking industry (NASDAQ Trucking Group – Standard
Industrial Classification Code 42) over the same period. Our stock price was $23.39 as of December 31, 2015. This price was
used for purposes of calculating the total return on our common stock for the year ended December 31, 2015.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On October 15, 2007, we announced that on October 11, 2007 our Board of Directors approved an increase in the number
of shares of our common stock that Werner Enterprises, Inc. (the “Company”) is authorized to repurchase. Under this authorization,
the Company is permitted to repurchase an additional 8,000,000 shares. As of December 31, 2015, the Company had purchased
3,287,291 shares pursuant to this authorization and had 4,712,709 shares remaining available for repurchase. The Company may
purchase shares from time to time depending on market, economic and other factors. The authorization will continue unless
withdrawn by the Board of Directors.
No shares of common stock were repurchased during the fourth quarter of 2015 by either the Company or any “affiliated
purchaser”, as defined by Rule 10b-18 of the Exchange Act.
12
ITEM 6.
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the consolidated financial statements and notes
under Item 8 of Part II of this Form 10-K.
(In thousands, except per share amounts)
Operating revenues
Net income
Diluted earnings per share
Cash dividends declared per share
Total assets
Total debt
Stockholders’ equity
Book value per share (1)
Return on average stockholders’ equity (2)
Return on average total assets (3)
Operating ratio (consolidated) (4)
2015
2014
2013
2012
2011
$ 2,093,529
$ 2,139,289
$ 2,029,183
$ 2,036,386
$ 2,002,850
123,714
98,650
86,785
103,034
102,757
1.71
0.22
1.36
0.20
1.18
0.20
1.40
1.70
1.40
0.70
1,613,684
1,480,462
1,354,097
1,334,900
1,302,416
75,000
935,654
13.00
14.1%
8.0%
90.4%
75,000
833,860
11.58
12.4%
7.0%
92.5%
40,000
772,519
10.62
11.7%
6.5%
93.1%
90,000
714,897
—
725,147
9.76
13.6%
7.7%
91.6%
9.95
14.5%
8.3%
91.3%
(1) Stockholders’ equity divided by common shares outstanding as of the end of the period. Book value per share indicates the dollar value remaining for
common shareholders if all assets were liquidated at recorded amounts and all debts were paid at recorded amounts.
(2) Net income expressed as a percentage of average stockholders’ equity. Return on equity is a measure of a corporation’s profitability relative to recorded
shareholder investment.
(3) Net income expressed as a percentage of average total assets. Return on assets is a measure of a corporation’s profitability relative to recorded assets.
(4) Operating expenses expressed as a percentage of operating revenues. Operating ratio is a common measure used in the trucking industry to evaluate
profitability.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) summarizes the
financial statements from management’s perspective with respect to our financial condition, results of operations, liquidity and
other factors that may affect actual results. The MD&A is organized in the following sections:
• Cautionary Note Regarding Forward-Looking Statements
• Overview
• Results of Operations
• Liquidity and Capital Resources
• Contractual Obligations and Commercial Commitments
• Off-Balance Sheet Arrangements
• Critical Accounting Policies and Estimates
•
Inflation
Cautionary Note Regarding Forward-Looking Statements:
This Annual Report on Form 10-K contains historical information and forward-looking statements based on information
currently available to our management. The forward-looking statements in this report, including those made in this Item 7
(Management’s Discussion and Analysis of Financial Condition and Results of Operations), are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995, as amended. These safe harbor provisions encourage reporting
companies to provide prospective information to investors. Forward-looking statements can be identified by the use of certain
words, such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project” and other similar terms and language. We
believe the forward-looking statements are reasonable based on currently available information. However, forward-looking
statements involve risks, uncertainties and assumptions, whether known or unknown, that could cause our actual results, business,
financial condition and cash flows to differ materially from those anticipated in the forward-looking statements. A discussion of
important factors relating to forward-looking statements is included in Item 1A (Risk Factors) of Part I of this Form 10-K. Readers
should not unduly rely on the forward-looking statements included in this Form 10-K because such statements speak only to the
date they were made. Unless otherwise required by applicable securities laws, we undertake no obligation or duty to update or
revise any forward-looking statements contained herein to reflect subsequent events or circumstances or the occurrence of
unanticipated events.
13
Overview:
We have two reportable segments, Truckload and VAS, and we operate in the truckload and logistics sectors of the
transportation industry. In the truckload sector, we focus on transporting consumer nondurable products that generally ship more
consistently throughout the year. In the logistics sector, besides managing transportation requirements for individual customers,
we provide additional sources of truck capacity, alternative modes of transportation, a global delivery network and systems analysis
to optimize transportation needs. Our success depends on our ability to efficiently and effectively manage our resources in the
delivery of truckload transportation and logistics services to our customers. Resource requirements vary with customer demand,
which may be subject to seasonal or general economic conditions. Our ability to adapt to changes in customer transportation
requirements is essential to efficiently deploy resources and make capital investments in tractors and trailers (with respect to our
Truckload segment) or obtain qualified third-party capacity at a reasonable price (with respect to our VAS segment). Although our
business volume is not highly concentrated, we may also be affected by our customers’ financial failures or loss of customer
business.
Revenues for our Truckload segment operating units (One-Way Truckload and Specialized Services) are typically generated
on a per-mile basis and also include revenues such as stop charges, loading and unloading charges, equipment detention charges
and equipment repositioning charges. To mitigate our risk to fuel price increases, we recover from our customers additional fuel
surcharges that generally recoup a majority of the increased fuel costs; however, we cannot assure that current recovery levels will
continue in future periods. Because fuel surcharge revenues fluctuate in response to changes in fuel costs, we identify them
separately and exclude them from the statistical calculations to provide a more meaningful comparison between periods. The key
statistics used to evaluate trucking revenues, net of fuel surcharge, are (i) average revenues per tractor per week, (ii) average
percentage of empty miles (miles without trailer cargo), (iii) average trip length (in loaded miles) and (iv) average number of
tractors in service. General economic conditions, seasonal trucking industry freight patterns and industry capacity are important
factors that impact these statistics. Our Truckload segment also generates a small amount of revenues categorized as non-trucking
revenues, related to shipments delivered to or from Mexico where the Truckload segment utilizes a third-party capacity provider.
We exclude such revenues from the statistical calculations.
Our most significant resource requirements are company drivers, independent contractors, tractors and trailers. Our financial
results are affected by company driver and independent contractor availability and the markets for new and used revenue equipment.
We are self-insured for a significant portion of bodily injury, property damage and cargo claims; workers’ compensation claims;
and associate health claims (supplemented by premium-based insurance coverage above certain dollar levels). For that reason, our
financial results may also be affected by driver safety, medical costs, weather, legal and regulatory environments and insurance
coverage costs to protect against catastrophic losses.
The operating ratio is a common industry measure used to evaluate our profitability and that of our Truckload segment
operating fleets. The operating ratio consists of operating expenses expressed as a percentage of operating revenues. The most
significant variable expenses that impact the Truckload segment are driver salaries and benefits, fuel, fuel taxes (included in taxes
and licenses expense), payments to independent contractors (included in rent and purchased transportation expense), supplies and
maintenance and insurance and claims. As discussed further in the comparison of operating results for 2015 to 2014, several
industry-wide issues have caused, and could continue to cause, costs to increase in future periods. These issues include shortages
of drivers or independent contractors, changing fuel prices, higher new truck and trailer purchase prices and compliance with new
or proposed regulations. Our main fixed costs include depreciation expense for tractors and trailers and equipment licensing fees
(included in taxes and licenses expense). The Truckload segment requires substantial cash expenditures for tractor and trailer
purchases. We fund these purchases with net cash from operations and financing available under our existing credit facilities, as
management deems necessary.
We provide non-trucking services primarily through the four operating units within our VAS segment (Brokerage, Freight
Management, Intermodal and WGL). Unlike our Truckload segment, the VAS segment is less asset-intensive and is instead
dependent upon qualified associates, information systems and qualified third-party capacity providers. The largest expense item
related to the VAS segment is the cost of purchased transportation we pay to third-party capacity providers. This expense item is
recorded as rent and purchased transportation expense. Other operating expenses consist primarily of salaries, wages and benefits.
We evaluate the VAS segment's financial performance by reviewing the gross margin percentage (revenues less rent and purchased
transportation expenses expressed as a percentage of revenues) and the operating income percentage. The gross margin percentage
can be impacted by the rates charged to customers and the costs of securing third-party capacity. We generally do not have contracted
long-term rates for the cost of third-party capacity, and we cannot assure that our operating results will not be adversely impacted
in the future if our ability to obtain qualified third-party capacity providers changes or the rates of such providers increase.
14
Results of Operations:
The following table sets forth the Consolidated Statements of Income in dollars and as a percentage of total operating revenues
and the percentage increase or decrease in the dollar amounts of those items compared to the prior year.
2015
2014
2013
$
%
$
%
$
%
Percentage Change in
Dollar Amounts
2015 to
2014 (%)
2014 to
2013 (%)
$ 2,093,529
100.0
$ 2,139,289
100.0
$ 2,029,183
100.0
(2.1)
5.4
(Amounts in thousands)
Operating revenues
Operating expenses:
Salaries, wages and benefits
Fuel
Supplies and maintenance
Taxes and licenses
Insurance and claims
Depreciation
Rent and purchased
transportation
Communications and utilities
Other
Total operating expenses
1,893,073
Operating income
Total other expense (income)
Income before income taxes
Income taxes
Net income
200,456
(705)
201,161
77,447
$
123,714
639,908
204,583
190,114
89,646
80,848
193,209
480,624
15,121
(980)
30.6
9.8
9.1
4.3
3.9
9.2
22.9
0.7
(0.1)
90.4
9.6
—
9.6
3.7
5.9
584,006
346,058
188,437
85,468
80,375
176,984
498,782
14,220
4,871
27.3
16.2
8.8
4.0
3.7
8.3
23.3
0.7
0.2
545,419
371,789
179,172
86,686
71,177
173,019
456,885
13,506
26.9
18.3
8.8
4.3
3.5
8.5
22.5
0.7
9.6
(40.9)
0.9
4.9
0.6
9.2
(3.6)
6.3
7.1
(6.9)
5.2
(1.4)
12.9
2.3
9.2
5.3
(8,196)
(0.4)
(120.1)
159.4
1,979,201
92.5
1,889,457
93.1
(4.4)
4.7
160,088
(1,686)
161,774
63,124
98,650
$
7.5
(0.1)
7.6
3.0
4.6
$
139,726
(1,985)
141,711
54,926
86,785
6.9
(0.1)
7.0
2.7
4.3
25.2
58.2
24.3
22.7
25.4
14.6
15.1
14.2
14.9
13.7
The following tables set forth the operating revenues, operating expenses and operating income for the Truckload segment,
as well as certain statistical data regarding our Truckload segment operations for the periods indicated.
Truckload Transportation Services (amounts in thousands)
Trucking revenues, net of fuel surcharge
2015
2014
2013
$
%
$
%
$
%
$ 1,411,099
$ 1,332,879
$ 1,287,656
Trucking fuel surcharge revenues
Non-trucking and other operating revenues
212,489
21,286
Operating revenues
Operating expenses
Operating income
1,644,874
100.0
1,455,024
189,850
88.5
11.5
349,763
19,495
1,702,137
1,549,145
152,992
100.0
91.0
9.0
354,616
15,582
1,657,854
1,538,257
119,597
100.0
92.8
7.2
15
Truckload Transportation Services
Operating ratio, net of fuel surcharge revenues (1)
Average revenues per tractor per week (2)
Average trip length in miles (loaded)
Average percentage of empty miles (3)
Average tractors in service
Total trailers (at year end)
Total tractors (at year end):
Company
Independent contractor
Total tractors
2015
2014
2013
86.7%
88.7%
90.8%
$
3,732
$
3,655
$
482
12.4%
7,271
22,630
6,635
815
7,450
473
12.1%
7,013
22,305
6,400
650
7,050
3,457
453
12.5%
7,162
21,980
6,380
670
7,050
(1) Calculated as if fuel surcharge revenues are excluded from total revenues and instead reported as a reduction of operating expenses, which provides a
more consistent basis for comparing results of operations from period to period.
(2) Net of fuel surcharge revenues.
(3)
"Empty" refers to miles without trailer cargo.
The following tables set forth the VAS segment’s revenues, rent and purchased transportation expense, gross margin, other
operating expenses (primarily salaries, wages and benefits expense) and operating income, as well as certain statistical data regarding
the VAS segment's shipments and average revenues (excluding logistics fee revenue) per shipment for the periods indicated.
Value Added Services (amounts in thousands)
Operating revenues
Rent and purchased transportation expense
Gross margin
Other operating expenses
Operating income
Value Added Services
Average tractors in service
Total trailers (at year end)
Total tractors (at year end)
2015 Compared to 2014
Operating Revenues
2015
2014
2013
$
%
$
%
$
$ 393,174
100.0
$ 390,645
100.0
$ 361,384
332,168
61,006
44,108
16,898
$
84.5
15.5
11.2
4.3
$
338,625
52,020
44,485
7,535
86.7
13.3
11.4
1.9
$
305,582
55,802
41,138
14,664
%
100.0
84.6
15.4
11.3
4.1
2015
2014
2013
56
1,460
62
50
1,670
55
45
1,725
49
Operating revenues decreased 2.1% in 2015 compared to 2014. When comparing 2015 to 2014, the Truckload segment
revenues decreased $57.3 million, or 3.4%, and the VAS segment revenues increased $2.5 million, or 0.6%. The significantly lower
fuel prices in 2015 compared to 2014 resulted in lower fuel surcharge revenues in the Truckload segment and lower revenues in
the VAS segment.
Assessing freight demand within the Truckload segment, 2014 and 2015 were cyclically contrasting years. 2014 provided
the benefits of gradually improving demand from a strengthening economy and constrained supply due to a tight driver market
and increasing safety regulations. Freight demand in 2015 did not strengthen as the year progressed, as the rate of economic growth
slowed. The truckload sector also experienced supply increases in 2015 as small carrier confidence rose as a result of better rates
in 2014 and much lower fuel prices beginning in late 2014. Finally, as 2015 ended, truckload supply began to stabilize as truck
orders declined significantly and safety regulators finalized the electronic logging device regulations. Freight demand thus far in
2016 has been seasonally consistent with the same periods of 2013, 2012, 2011. Compared to the same periods in 2015 and 2014,
freight demand was not as strong.
Trucking revenues, net of fuel surcharge, increased 5.9% in 2015 compared to 2014 due to a 3.7% increase in average number
of tractors in service and a 2.1% increase in average revenues per tractor per week, net of fuel surcharge revenues. Average revenues
per total mile, net of fuel surcharge revenues, increased 2.6% and average miles per truck declined by 0.5% in 2015 compared to
2014.
16
We continue to make progress implementing sustainable rate increases with our customers during 2015. These efforts are
on-going as we move forward in 2016 and work to recoup the cost increases associated with more expensive equipment, a shrinking
supply of qualified drivers and an increasingly challenging regulatory environment.
The average number of tractors in service in the Truckload segment increased 3.7% to 7,271 in 2015 from 7,013 in 2014, an
increase of 258 tractors. Following an ongoing and intense company-wide focus to improve our driver recruiting and retention,
we ended 2015 with 7,450 tractors in the Truckload segment (3,675 in our Specialized Services unit and 3,775 in our One-Way
Truckload unit). We cannot predict whether future driver shortages, if any, will adversely affect our ability to maintain our fleet
size. If such a driver market shortage were to occur, it could result in a fleet size reduction, and our results of operations could be
adversely affected.
Trucking fuel surcharge revenues represent collections from customers for the increase in fuel and fuel-related expenses,
including the fuel component of our independent contractor cost (recorded as rent and purchased transportation expense) and fuel
taxes (recorded in taxes and licenses expense), when diesel fuel prices rise. Conversely, when fuel prices decrease, fuel surcharge
revenues decrease. These revenues decreased 39.2% to $212.5 million in 2015 from $349.8 million in 2014 because of lower
average fuel prices in 2015. To lessen the effect of fluctuating fuel prices on our margins, we collect fuel surcharge revenues from
our customers for the cost of diesel fuel and taxes in excess of specified base fuel price levels according to terms in our customer
contracts. Fuel surcharge rates generally adjust weekly based on an independent U.S. Department of Energy fuel price survey
which is released every Monday. Our fuel surcharge programs are designed to (i) recoup higher fuel costs from customers when
fuel prices rise and (ii) provide customers with the benefit of lower fuel costs when fuel prices decline. These programs generally
enable us to recover a majority, but not all, of the fuel price increases. The remaining portion is generally not recoverable because
it results from empty and out-of-route miles (which are not billable to customers) and truck idle time. Fuel prices that change
rapidly in short time periods also impact our recovery because the surcharge rate in most programs only changes once per week.
VAS revenues are generated by its four operating units and exclude revenues for full truckload shipments transferred to the
Truckload segment, which are recorded as trucking revenues by the Truckload segment. VAS also recorded revenue and brokered
freight expense of $1.3 million in 2015 and $2.9 million in 2014 for Intermodal drayage movements performed by the Truckload
segment (also recorded as trucking revenues by the Truckload segment), and these transactions between reporting segments are
eliminated in consolidation. VAS revenues increased 0.6% to $393.2 million in 2015 from $390.6 million in 2014. VAS gross
margin dollars increased 17.3% to $61.0 million in 2015 from $52.0 million in 2014, and the VAS gross margin percentage improved
to 15.5% in 2015 from 13.3% in 2014. VAS results for 2014 were negatively impacted by lower gross margin percentages for
contractual business due to rising third-party carrier costs in a tight capacity market as well as regional capacity issues related to
the second quarter 2014 start-up of a large VAS customer. We addressed several customer pricing, contractual and operational
issues within VAS in fourth quarter 2014 which resulted in improved VAS financial performance in 2015. The VAS operating
income percentage improved to 4.3% in 2015 from 1.9% in 2014.
Operating Expenses
Our operating ratio (operating expenses expressed as a percentage of operating revenues) was 90.4% in 2015 compared to
92.5% in 2014. Expense items that impacted the overall operating ratio are described on the following pages. The tables on pages
15 through 16 show the Consolidated Statements of Income in dollars and as a percentage of total operating revenues and the
percentage increase or decrease in the dollar amounts of those items compared to the prior year, as well as the operating ratios,
operating margins and certain statistical information for our two reportable segments, Truckload and VAS.
Salaries, wages and benefits increased $55.9 million or 9.6% in 2015 compared to 2014 and increased 3.3% as a percentage
of operating revenues. The higher dollar amount of salaries, wages and benefits expense was due primarily to higher driver salaries
and payroll related fringe benefits due to higher driver pay rates and more company trucks and miles in 2015. We also recorded
a total of $3.9 million of expense in 2015 related to a class action suit involving an employment related claim and a separation
agreement for an executive resignation. When evaluated on a per-mile basis, driver and non-driver salaries, wages and benefits
increased as well, which we attribute primarily to higher driver pay. In mid-August 2014, we increased pay by varying percentage
amounts for many drivers within our One-Way Truckload unit. We also increased driver pay in multiple Dedicated fleets in 2014
and 2015. Non-driver salaries, wages and benefits in the non-trucking VAS segment decreased 1.6% in 2015 compared to 2014.
We renewed our workers' compensation insurance coverage for the policy year beginning April 1, 2015. Our coverage levels
are the same as the prior policy year. We continue to maintain a self-insurance retention of $1.0 million per claim. Our workers'
compensation insurance premiums for the policy year beginning April 2015 were similar to those for the previous policy year.
The driver recruiting market remained very challenging in 2015. Several difficult market factors persisted, including a
declining number of, and increased competition for, driver training school graduates, a gradually declining national unemployment
rate, aging truck driver demographics and increased truck safety regulations. Following our mid-August 2014 pay changes and an
ongoing and intense company-wide focus to improve our driver and retention, our driver retention metrics improved. During fourth
17
quarter 2015, we announced strategic and targeted company driver and independent contractor per-mile increases in our One-Way
Truckload business unit, totaling slightly more than $10 million on an annualized basis to nearly 20% of our drivers. Most of
these increases became effective January 2016. We are unable to predict whether we will experience future driver shortages. If
such a shortage were to occur and additional driver pay rate increases became necessary to attract and retain drivers, our results
of operations would be negatively impacted to the extent that we could not obtain corresponding freight rate increases.
Fuel decreased $141.5 million or 40.9% in 2015 compared to 2014 and decreased 6.4% as a percentage of operating revenues
due to (i) lower average diesel fuel prices and (ii) improved miles per gallon ("mpg"). Average diesel fuel prices in 2015 were
$1.18 per gallon lower than in 2014, a 41% decrease. These decreases were partially offset by higher company truck miles in 2015.
We continue to employ measures to improve our fuel mpg, including (i) limiting truck engine idle time, (ii) optimizing the
speed, weight and specifications of our equipment and (iii) implementing mpg-enhancing equipment changes to our fleet including
new trucks with EPA 2010 compliant engines, more aerodynamic truck features, idle reduction systems, trailer tire inflation systems,
trailer skirts and automated manual transmissions to reduce our fuel gallons purchased. However, fuel savings from mpg
improvement is partially offset by higher depreciation expense and the additional cost of diesel exhaust fluid (required in certain
tractors with engines that meet the 2010 EPA emission standards). Although our fuel management programs require significant
capital investment and research and development, we intend to continue these and other environmentally conscious initiatives,
including our active participation as an EPA SmartWay Transport Partner. The SmartWay Transport Partnership is a national
voluntary program developed by the EPA and freight industry representatives to reduce greenhouse gases and air pollution and
promote cleaner, more efficient ground freight transportation.
For the first eight weeks of 2016, the average diesel fuel price per gallon was approximately $0.71 lower than the average
diesel fuel price per gallon in the same period of 2015 and approximately $0.75 lower than the average for first quarter 2015.
Shortages of fuel, increases in fuel prices and petroleum product rationing can have a material adverse effect on our operations
and profitability. We are unable to predict whether fuel price levels will increase or decrease in the future or the extent to which
fuel surcharges will be collected from customers. As of December 31, 2015, we had no derivative financial instruments to reduce
our exposure to fuel price fluctuations.
Supplies and maintenance increased $1.7 million or 0.9% in 2015 compared to 2014 and increased 0.3% as a percentage of
operating revenues. Driver advertising and other driver related expenses were higher in 2015 than in 2014. These increases were
partially offset by lower tractor maintenance costs in 2015 due to a lower average age of company trucks in 2015 when compared
to 2014.
Taxes and licenses increased $4.2 million or 4.9% in 2015 compared to 2014 and increased 0.3% as a percentage of operating
revenues due to more miles in 2015 than in 2014, resulting from an increase in the average tractors in service, and an increase in
property taxes. These increases were partially offset by a higher mpg in 2015 compared to 2014. An improved mpg results in fewer
gallons of diesel fuel purchased and consequently less fuel taxes paid.
Insurance and claims increased $0.5 million or 0.6% in 2015 compared to 2014 and increased 0.2% as a percentage of
operating revenues. The increase in 2015 compared to 2014 is primarily the result of higher expense on large dollar liability claims,
partially offset by a decrease in expense related to cargo claims. Most of our insurance and claims expense results from our claim
experience and claim development under our self-insurance program; the remainder results from insurance premiums for claims
in excess of our self-insured limits. We renewed our liability insurance policies on August 1, 2015, and continue to be responsible
for the first $2.0 million per claim with an annual $8.0 million aggregate for claims between $2.0 million and $5.0 million and an
annual aggregate of $5.0 million for claims in excess of $5.0 million and less than $10.0 million. We maintain liability insurance
coverage with insurance carriers substantially in excess of the $10.0 million per claim. See Item 3 of Part I of this Form 10-K for
information on our bodily injury and property damage coverage levels since August 1, 2012. Our liability and cargo insurance
premiums for the policy year that began August 1, 2015, are slightly lower than premiums for the previous policy year on a per-
mile basis.
Depreciation increased $16.2 million or 9.2% in 2015 compared to 2014 and increased 0.9% as a percentage of operating
revenues. This expense increase is due primarily to the higher cost of new trucks purchased compared to the cost of used trucks
that were sold, as well as the growth in the number of company trucks. In addition, the purchase of new trailers to replace older
used trailers which were fully depreciated also contributed to the increase in depreciation expense.
Depreciation expense has been historically affected by a series of changes to engine emissions standards imposed by the
EPA that became effective in October 2002, January 2007 and January 2010, resulting in increased truck purchase costs. Trucks
with 2010-standard engines have a higher purchase price than trucks manufactured to meet the 2007 standards, but the 2010-
standard engines are more fuel efficient. As of December 31, 2015, nearly all of our company tractors had engines that comply
with the 2010 emissions standards.
18
Rent and purchased transportation expense decreased $18.2 million or 3.6% in 2015 compared to 2014 and decreased 0.4%
as a percentage of operating revenues. Rent and purchased transportation expense consists mostly of payments to third-party
capacity providers in the VAS segment and other non-trucking operations and payments to independent contractors in the Truckload
segment. The payments to third-party capacity providers generally vary depending on changes in the volume of services generated
by the VAS segment. VAS rent and purchased transportation expense decreased $6.5 million, despite higher VAS revenues, and
decreased to 84.5% of VAS revenues in 2015 from 86.7% in 2014. This decrease was due primarily to our ongoing efforts to
address customer pricing, contractual and operational issues within VAS.
Rent and purchased transportation expense for the Truckload segment decreased $13.0 million in 2015 compared to 2014.
This decrease is due primarily to lower fuel prices that resulted in lower reimbursement to independent contractors for fuel and a
higher average independent contractor settlement rate per mile in 2015 compared to 2014. In mid-August 2014 and in November
2015, we increased the per-mile settlement rate for certain independent contractors. Independent contractor miles as a percentage
of total miles were 11.9% in 2015 and 12.1% in 2014.
Challenging operating conditions continue to make independent contractor recruitment and retention difficult. Such conditions
include inflationary cost increases that are the responsibility of independent contractors and a shortage of financing available to
independent contractors for equipment purchases. We have historically been able to add company tractors and recruit additional
company drivers to offset any decrease in the number of independent contractors. If a shortage of independent contractors and
company drivers occurs, further increases in per-mile settlement rates (for independent contractors) and driver pay rates (for
company drivers) may become necessary to attract and retain these drivers. This could negatively affect our results of operations
to the extent that we would not be able to obtain corresponding freight rate increases.
Communications and utilities increased $0.9 million or 6.3% in 2015 compared to 2014 but did not change as a percentage
of operating revenues. The increase is due to higher equipment tracking expenses and higher communication costs.
Other operating expenses decreased $5.9 million in 2015 compared to 2014 and decreased 0.3% as a percentage of operating
revenues. Gains on sales of assets (primarily used trucks and trailers) are reflected as a reduction of other operating expenses and
are reported net of sales-related expenses (which include costs to prepare the equipment for sale). Gains on sales of assets increased
to $23.2 million in 2015 from $19.3 million in 2014, a $3.9 million increase. In 2015, we sold more trucks and trailers than in
2014. We realized higher average gains per trailer sold, while average gains per truck sold were flat. The used truck market weakened
in fourth quarter 2015, causing lower pricing. We expect this trend to continue in 2016. We also realized $0.7 million in gains from
the sale of real estate in 2015 compared to $1.6 million in 2014. Other operating expenses were lower in 2015 than in 2014.
Other Expense (Income)
Other expense (income) increased $1.0 million in 2015 compared to 2014 and increased 0.1% as a percentage of operating
revenues. Interest expense was higher in 2015 compared to 2014 because we recorded a full year of interest expense in 2015 after
entering into an interest rate swap agreement in September 2014 that effectively fixed our interest rate at 2.5% for five years on
debt of $75 million.
Income Taxes
Our effective income tax rate (income taxes expressed as a percentage of income before income taxes) decreased to 38.5%
for 2015 from 39.0% in 2014. The lower income tax rate in 2015 is primarily attributed to favorable tax adjustments for the
remeasurement of uncertain tax positions in 2015 and the effect of higher pre-tax income which caused non-deductible expenses
to comprise a lower percentage.
2014 Compared to 2013
Operating Revenues
Operating revenues increased 5.4% in 2014 compared to 2013. When comparing 2014 to 2013, the Truckload segment
revenues increased $44.3 million, or 2.7%, and the VAS segment revenues increased $29.3 million, or 8.1%.
Within the Truckload segment, freight demand was strong in 2014. Freight demand (as measured by our daily morning ratio
of loads available to trucks available in our One-Way Truckload network) showed consistent strength throughout the year, and we
were overbooked (more available freight than available trucks at the beginning of each business day) nearly every week of 2014. The
improved freight market dynamics began showing year-over-year improvement for Werner in mid-November 2013, and that
favorable trend continued through 2014. A tight capacity market in 2014 combined with a gradually firming economy as 2014
progressed were the primary contributing factors.
19
Trucking revenues, net of fuel surcharge, increased 3.5% in 2014 compared to 2013 due to a 5.7% increase in average revenues
per tractor per week, net of fuel surcharge, partially offset by a 2.1% decrease in the average number of tractors in service. Average
miles per truck improved by 2.7% and our empty mile percentage was 3.1% lower in 2014 than in 2013. Average revenues per
total mile, net of fuel surcharge, increased 3.0% in 2014 compared to 2013. Several factors had a positive impact on our average
revenues per tractor per week and profitability, while at the same time reduced the percentage increase in our revenue per total
mile. Our average trip length increased by 4.4% in 2014 compared to 2013, and longer length of haul shipments generally have a
lower rate per mile due to productivity benefits. Noting the improved freight market in 2014 compared to 2013, during 2014 we
accepted less brokerage freight (in which rates are inclusive of fuel) and instead supported our customers with additional capacity
priced with a base rate per mile and a fuel surcharge per mile. Finally, customer changes in fuel surcharge programs had a neutral
impact on profitability but an adverse effect on revenue per total mile, net of fuel surcharge. A few large customers modified their
fuel surcharge programs to "zero peg" in the past 12 months, which shifted revenues from base rates to fuel surcharges. A zero
peg fuel surcharge program starts with a base fuel price per gallon (the minimum price for fuel, above which a customer pays fuel
surcharge) of zero rather than a base fuel price per gallon more commonly ranging from $1.10 to $1.20.
The average number of tractors in service in the Truckload segment decreased 2.1% to 7,013 in 2014 from 7,162 in 2013, a
decrease of 149 tractors. We ended 2014 with 7,050 tractors in the Truckload segment (3,690 in our Specialized Services unit and
3,360 in our One-Way Truckload unit). In mid-August 2014, we increased pay by varying percentage amounts for many drivers
in certain fleets within our One-Way Truckload unit. After these driver pay changes, our driver and truck count recovered and
increased from July 2014 levels.
Trucking fuel surcharge revenues decreased 1.4% to $349.8 million in 2014 from $354.6 million in 2013 because of lower
average fuel prices in 2014, which more than offset the impact of the less brokerage freight and zero peg fuel surcharge items
described above and the effect of higher miles.
VAS revenues are generated by its four operating units and exclude revenues for full truckload shipments transferred to the
Truckload segment, which are recorded as trucking revenues by the Truckload segment. VAS also recorded revenue and brokered
freight expense of $2.9 million in 2014 and $4.5 million in 2013 for Intermodal drayage movements performed by the Truckload
segment (also recorded as trucking revenues by the Truckload segment), and these transactions between reporting segments are
eliminated in consolidation. VAS revenues increased 8.1% to $390.6 million in 2014 from $361.4 million in 2013. VAS gross
margin dollars decreased 6.8% to $52.0 million in 2014 from $55.8 million in 2013, and other operating expenses increased $3.3
million or 8.1%. VAS results for 2014 (especially mid-year) were negatively impacted by lower gross margin percentages for
contractual business due to rising third-party carrier costs in a tight capacity market as well as regional capacity issues related to
the second quarter 2014 start-up of a large VAS customer.
Operating Expenses
Our operating ratio was 92.5% in 2014 compared to 93.1% in 2013. Expense items that impacted the overall operating ratio
are described on the following pages. The tables on pages 15 through 16 show the Consolidated Statements of Income in dollars
and as a percentage of total operating revenues and the percentage increase or decrease in the dollar amounts of those items
compared to the prior year, as well as the operating ratios, operating margins, and certain statistical information for our two
reportable segments, Truckload and VAS.
Salaries, wages and benefits increased $38.6 million or 7.1% in 2014 compared to 2013 and increased 0.4% as a percentage
of operating revenues. The higher dollar amount of salaries, wages and benefits expense was due primarily to higher driver and
non-driver salaries. When evaluated on a per-mile basis, driver and non-driver salaries, wages and benefits increased as well, which
we attribute primarily to higher driver pay. In mid-August 2014, we increased pay by varying percentage amounts for many drivers
within our One-Way Truckload unit. In 2014, we also increased driver pay in multiple Dedicated fleets, most of which were funded
by customer rate increases to ensure capacity. Non-driver salaries, wages and benefits in the non-trucking VAS segment decreased
0.3% in 2014 compared to 2013.
We renewed our workers' compensation insurance coverage for the policy year beginning April 1, 2014. Our coverage levels
were the same as the prior policy year. We continued to maintain a self-insurance retention of $1.0 million per claim. Our workers'
compensation insurance premiums for the policy year beginning April 2014 were similar to those for the previous policy year.
The driver recruiting and retention market was more challenging in 2014 compared to 2013. We hired 3.4% fewer drivers
in 2014 compared to 2013, and the difficult driver market made it challenging to achieve our truck goal for the Truckload segment.
We believe that a declining number of, and increased competition for, driver training school graduates, a gradually declining
national unemployment rate and job competition from the housing construction and manufacturing industries were all contributing
factors. Following our mid-August pay changes, our driver retention metrics improved.
20
Fuel decreased $25.7 million or 6.9% in 2014 compared to 2013 and decreased 2.1% as a percentage of operating revenues
due to (i) lower average diesel fuel prices and (ii) slightly improved miles per gallon ("mpg"). Average diesel fuel prices in 2014
were 19 cents per gallon lower than in 2013, a 6% decrease. These decreases were partially offset by higher company truck miles.
During 2014, we continued to employ measures to improve our fuel mpg and invest in fuel saving equipment solutions,
which were also intended to lessen environmental impact. These measures resulted in an improvement in mpg in 2014 compared
to 2013. However, fuel savings from the mpg improvement is partially offset by higher depreciation expense and the additional
cost of diesel exhaust fluid.
Supplies and maintenance increased $9.3 million or 5.2% in 2014 compared to 2013 but did not change as a percentage of
operating revenues. Driver advertising and other driver related expenses were higher in 2014 than in 2013. Increased over the road
tractor and trailer maintenance also contributed to the increase in this expense category, some of which can be attributed to severe
weather conditions in first quarter 2014.
Taxes and licenses decreased $1.2 million or 1.4% in 2014 compared to 2013 and decreased 0.3% as a percentage of operating
revenues due to improvement in the company truck fuel mpg, despite driving more miles in 2014. An improved mpg results in
fewer gallons of diesel fuel purchased and consequently less fuel taxes paid.
Insurance and claims increased $9.2 million or 12.9% in 2014 compared to 2013 and increased 0.2% as a percentage of
operating revenues. The increase in 2014 compared to 2013 is primarily the result of an increase in the reserves for prior period
claims (unfavorable development) related to large dollar liability claims. Higher expense on new smaller dollar liability claims
was nearly offset by better development on small claims (favorable development in 2014 compared to unfavorable development
in 2013). We renewed our liability insurance policies on August 1, 2014, and continued to be responsible for the first $2.0 million
per claim with an annual $8.0 million aggregate for claims between $2.0 million and $5.0 million and an annual aggregate of $5.0
million for claims in excess of $5.0 million and less than $10.0 million. Our liability and cargo insurance premiums for the policy
year that began August 1, 2014, are slightly lower than premiums for the previous policy year on a per-mile basis.
Depreciation increased $4.0 million or 2.3% in 2014 compared to 2013 but decreased 0.2% as a percentage of operating
revenues. This expense increase is due primarily to the higher cost of new trucks purchased compared to the cost of used trucks
that were sold. In addition, the purchase of new trailers to replace older used trailers which were fully depreciated also contributed
to the increase in depreciation expense. These increases were partially offset by lower depreciation on auxiliary power units that
were sold with the older used trucks and not replaced.
Rent and purchased transportation expense increased $41.9 million or 9.2% in 2014 compared to 2013 and increased 0.8%
as a percentage of operating revenues. VAS rent and purchased transportation expense increased $33.0 million and increased to
86.7% of VAS revenues in 2014 from 84.6% in 2013. This increase was due primarily to rising third-party carrier costs in a tight
capacity market as well as regional capacity issues related to the second quarter 2014 start-up of a large VAS customer.
Rent and purchased transportation expense for the Truckload segment increased $5.3 million in 2014 compared to 2013.
This increase is due primarily to higher third-party capacity provider costs for shipments delivered to or from Mexico because of
volume increases and a higher average independent contractor pay per mile in 2014 compared to 2013. In August 2014, we increased
the per-mile settlement rate for certain owner-operators. Independent contractor miles as a percentage of total miles were 12.1%
in 2014 and 12.2% in 2013.
Communications and utilities increased $0.7 million or 5.3% in 2014 compared to 2013 but did not change as a percentage
of operating revenues. The increase is due to using a new driver route navigation program and higher other communication costs.
Other operating expenses increased $13.1 million or 159.4% in 2014 compared to 2013 and increased 0.6% as a percentage
of operating revenues. Gains on sales of assets increased to $19.3 million in 2014 from $16.4 million in 2013, a $2.9 million
increase. In 2014, we realized lower average gains per truck sold, higher average gains per trailer sold and sold more trucks and
trailers than in 2013. We also realized $1.6 million in gains from the sale of real estate in 2014 compared to $1.8 million in 2013.
Other operating expenses were higher in 2014 than in 2013.
Other Expense (Income)
Other expense (income) increased $0.3 million or 15.1% in 2014 compared to 2013 and did not change as a percentage of
operating revenues. Interest expense was higher in 2014 compared to 2013 because we had a higher amount of average debt
outstanding, and we entered into an interest rate swap agreement in September 2014 that effectively fixed our interest rate at 2.5%.
21
Income Taxes
Our effective income tax rate (income taxes expressed as a percentage of income before income taxes) increased to 39.0%
for 2014 from 38.8% in 2013. The higher income tax rate is primarily attributed to a smaller amount of favorable tax adjustments
for the remeasurement of uncertain tax positions in 2014 than in 2013, partially offset by the benefit of prior year state income tax
refunds received in 2014.
Liquidity and Capital Resources:
During the year ended December 31, 2015, we generated cash flow from operations of $370.4 million, a 79.3% increase
($163.8 million), compared to the year ended December 31, 2014. This increase in net cash provided by operating activities is
attributed primarily to a $76.6 million increase from general working capital activities (including a $50.8 million increase in cash
flows related to accounts receivable due to the timing of customer payments) and a $25.1 million increase in net income. Our
income tax payments were also $41.6 million lower in 2015 due to the timing of enacting tax regulation changes at the end of
2014 and 2015. Cash flow from operations decreased $25.9 million in 2014 from 2013, or 11.1%. This decrease is attributed
primarily to a $14.6 million decrease in cash flows related to accounts receivable and a $10.8 million increase in income tax
payments. We were able to make net capital expenditures, pay dividends and repurchase company stock with the net cash provided
by operating activities and existing cash balances, supplemented by net borrowings under our existing credit facilities.
Net cash used in investing activities increased by $132.0 million to $335.5 million in 2015 from $203.5 million in 2014 and
increased by $63.2 million from $140.3 million in 2013. Net property additions (primarily revenue equipment) were $351.5 million
for the year ended December 31, 2015 compared to $212.3 million during the same period of 2014 and $151.9 million during
2013. Net property additions were higher in 2015 and 2014 than in 2013 because starting in the second half of 2014, we increased
our capital expenditures to lower the average age of our truck fleet. As of December 31, 2015, we were committed to property and
equipment purchases of approximately $112.0 million. We currently estimate net capital expenditures (primarily revenue
equipment) in 2016 to be in the range of $400 million to $450 million, which we expect will enable us to further reduce the average
age of our truck fleet. If the freight market shows significant weakness during 2016, we will consider adjusting our capital
expenditures accordingly. We intend to fund these net capital expenditures in 2016 through cash flow from operations and financing
available under our existing credit facilities, as management deems necessary.
Net financing activities used $25.0 million in 2015, $3.7 million in 2014 and $83.5 million in 2013. During the year ended
December 31, 2015, we borrowed and repaid $10.0 million of debt. Our outstanding debt at December 31, 2015 totaled $75.0
million. During 2014, we borrowed $85.0 million and repaid $50.0 million of debt, and in 2013 we borrowed $10.0 million and
repaid $60.0 million. We also made a $3.1 million note payment in 2015. We paid quarterly dividends of $15.1 million in 2015,
$14.4 million in 2014 and $14.6 million in 2013. We increased our quarterly dividend rate by $0.01 per share, or 20%, beginning
with the dividend paid in October 2015. Financing activities for the year ended December 31, 2015, also included common stock
repurchases of 225,000 shares at a cost of $6.4 million, compared to $30.6 million in 2014 (1,200,000 shares) and $20.1 million
in 2013 (821,091 shares). From time to time, the Company has repurchased, and may continue to repurchase, shares of the
Company’s common stock. The timing and amount of such purchases depends on stock market conditions and other factors. As
of December 31, 2015, the Company had purchased 3,287,291 shares pursuant to our current Board of Directors repurchase
authorization and had 4,712,709 shares remaining available for repurchase.
Management believes our financial position at December 31, 2015 is strong. As of December 31, 2015, we had $31.8 million
of cash and cash equivalents and $935.7 million of stockholders’ equity. Cash is invested primarily in government portfolio money
market funds. As of December 31, 2015, we had a total of $325.0 million of credit pursuant to three credit facilities (see Note 2
in the Notes to Consolidated Financial Statements under Item 8 of Part II of this Form 10-K for information regarding our credit
agreements as of December 31, 2015), of which we had borrowed $75.0 million. The remaining $250.0 million of credit available
under these facilities is reduced by the $31.0 million in stand-by letters of credit under which we are obligated. These stand-by
letters of credit are primarily required as security for insurance policies. Based on our strong financial position, management does
not foresee any significant barriers to obtaining sufficient financing, if necessary.
22
Contractual Obligations and Commercial Commitments:
The following table sets forth our contractual obligations and commercial commitments as of December 31, 2015.
(Amounts in millions)
Contractual Obligations
Unrecognized tax benefits
Long-term debt, including current
maturities
Interest payments on debt
Property and equipment purchase
commitments
Total contractual cash obligations
Other Commercial Commitments
Unused lines of credit
Stand-by letters of credit
Total commercial commitments
Total obligations
Payments Due by Period
Total
Less than
1 year
(2016)
1-3 years
(2017-2018)
3-5 years
(2019-2020)
More
than 5
years
(After 2020)
Period
Unknown
$
7.7
$
— $
— $
— $
— $
75.0
7.0
112.0
201.7
219.0
31.0
250.0
451.7
$
$
$
$
—
1.9
112.0
113.9
$
— $
31.0
31.0
144.9
$
$
$
$
$
$
—
3.8
—
3.8
$
— $
—
— $
$
3.8
75.0
1.3
—
76.3
219.0
—
219.0
295.3
$
$
$
$
—
—
—
— $
— $
—
— $
— $
7.7
—
—
—
7.7
—
—
—
7.7
As of December 31, 2015, we had unsecured committed credit facilities with three banks as well as a term commitment with
one of these banks. We had with Wells Fargo Bank, N.A., a $100 million credit facility which will expire on July 12, 2020, and a
$75 million term commitment with principal due and payable on September 15, 2019. On July 13, 2015, we amended our existing
credit agreement, dated June 1, 2012, as previously amended, with Wells Fargo Bank, N.A. This amendment lowered the maximum
principal amount of the unsecured line of credit to $100 million from $175 million and extended the term of the credit agreement
to July 12, 2020. Also on July 13, 2015, we entered into a new credit agreement with U.S. Bank, N.A. The new credit agreement
is an unsecured line of credit of $75 million and expires on July 13, 2020. On March 5, 2015, we replaced our existing $75 million
credit agreement with BMO Harris Bank, N.A., with a new credit agreement. The new BMO Harris Bank, N.A., agreement includes
a $75 million credit facility which will expire on March 5, 2020. Borrowings under these credit facilities and term note bear variable
interest (0.93% at December 31, 2015) based on the London Interbank Offered Rate (“LIBOR”), with interest on the term note
effectively fixed at 2.5% with an interest rate swap agreement. Interest payments on debt are based on the debt balance and interest
rate at December 31, 2015. The credit available under these facilities is further reduced by the amount of stand-by letters of credit
under which we are obligated. The stand-by letters of credit are primarily required for insurance policies. The unused lines of
credit are available to us in the event we need financing for the replacement of our fleet or for other significant capital expenditures.
Management believes our financial position is strong, and we therefore expect that we could obtain additional financing, if necessary.
Property and equipment purchase commitments relate to committed equipment expenditures, primarily for revenue equipment.
As of December 31, 2015, we had recorded a $7.7 million liability for unrecognized tax benefits. We are unable to reasonably
determine when the $7.7 million categorized as “period unknown” will be settled.
Off-Balance Sheet Arrangements:
We began leasing certain tractors under non-cancelable operating leases in May 2011. During second quarter 2015, we
satisfied all lease agreements and have no future payment obligation under these leases at December 31, 2015.
Critical Accounting Policies and Estimates:
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the
United States of America requires us to make estimates and assumptions that affect the (i) reported amount of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and (ii) reported amounts of
revenues and expenses during the reporting period. We evaluate these estimates on an ongoing basis as events and circumstances
change, utilizing historical experience, consultation with experts and other methods considered reasonable in the particular
circumstances. Actual results could differ from those estimates and may significantly impact our results of operations from period
to period. It is also possible that materially different amounts would be reported if we used different estimates or assumptions.
23
The most critical accounting policies and estimates that require us to make significant judgments and estimates and affect
our financial statements include the following:
• Depreciation and impairment of tractors and trailers. We operate a significant number of tractors and trailers in connection
with our business and must select estimated useful lives and salvage values for calculating depreciation. Depreciable lives
of tractors and trailers range from 80 months to 12 years. Estimates of salvage value at the expected date of trade-in or
sale are based on the expected market values of equipment at the time of disposal. We consider our experience with similar
assets, conditions in the used revenue equipment market and operational information such as average annual miles. We
believe that these methods properly spread the costs over the useful life of the assets. We continually monitor the adequacy
of the lives and salvage values used in calculating depreciation expense and adjust these assumptions appropriately when
warranted. We review our long-lived assets for impairment whenever events or circumstances indicate the carrying amount
of a long-lived asset may not be recoverable. An impairment loss would be recognized if the carrying amount of the long-
lived asset is not recoverable and the carrying amount exceeds its fair value.
• Estimates of accrued liabilities for insurance and claims for liability and physical damage losses and workers’
compensation. The insurance and claims accruals (current and non-current) 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 using loss development factors based upon past experience. An actuary reviews our undiscounted self-
insurance reserves for bodily injury and property damage claims and workers’ compensation claims at year-end. The actual
cost to settle our self-insured claim liabilities can differ from our reserve estimates because of a number of uncertainties,
including the inherent difficulty in estimating the severity of a claim and the potential amount to defend and settle a claim.
• Accounting for income taxes. Significant management judgment is required to determine (i) the provision for income taxes,
(ii) whether deferred income taxes will be realized in full or in part and (iii) the liability for unrecognized tax benefits
related to uncertain tax positions. Deferred income tax assets and liabilities are measured using enacted tax rates that are
expected to apply to taxable income in the years when those temporary differences are expected to be recovered or settled.
When it is more likely that all or some portion of specific deferred income tax assets will not be realized, a valuation
allowance must be established for the amount of deferred income tax assets that are determined not to be realizable. A
valuation allowance for deferred income tax assets has not been deemed necessary due to our profitable operations.
Accordingly, if facts or financial circumstances change and consequently impact the likelihood of realizing the deferred
income tax assets, we would need to apply management’s judgment to determine the amount of valuation allowance required
in any given period. We believe that we have adequately provided for our future tax consequences based upon current facts
and circumstances and current tax law. However, should our positions be challenged, different outcomes could result and
have a significant impact on our results of operations.
Inflation:
Inflation may impact our operating costs. A prolonged inflation period could cause rises in interest rates, fuel, wages and
other costs. These inflationary increases could adversely affect our results of operations unless freight rates could be increased
correspondingly. However, the effect of inflation has been minimal over the past three years.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates, commodity prices and foreign currency exchange rates.
Commodity Price Risk
The price and availability of diesel fuel are subject to fluctuations attributed to changes in the level of global oil production,
refining capacity, seasonality, weather and other market factors. Historically, we have recovered a majority, but not all, of fuel
price increases from customers in the form of fuel surcharges. We implemented customer fuel surcharge programs with most of
our customers to offset much of the higher fuel cost per gallon. However, we do not recover all of the fuel cost increase through
these surcharge programs. We cannot predict the extent to which fuel prices will increase or decrease in the future or the extent
to which fuel surcharges could be collected. As of December 31, 2015, we had no derivative financial instruments to reduce our
exposure to fuel price fluctuations.
Foreign Currency Exchange Rate Risk
We conduct business in several foreign countries, including Mexico, Canada, China and Australia. To date, most foreign
revenues are denominated in U.S. Dollars, and we receive payment for foreign freight services primarily in U.S. Dollars to reduce
direct foreign currency risk. Assets and liabilities maintained by a foreign subsidiary company in the local currency are subject to
foreign exchange gains or losses. Foreign currency translation gains and losses primarily relate to changes in the value of revenue
equipment owned by a subsidiary in Mexico, whose functional currency is the Peso. Foreign currency translation losses were $3.9
24
million in 2015, $3.6 million in 2014, and $0.5 million in 2013 and were recorded in accumulated other comprehensive loss within
stockholders’ equity in the Consolidated Balance Sheets. The exchange rate between the Mexican Peso and the U.S. Dollar was
17.21 Pesos to $1.00 at December 31, 2015 compared to 14.72 Pesos to $1.00 at December 31, 2014 and 13.08 Pesos to $1.00 at
December 31, 2013.
Interest Rate Risk
We manage interest rate exposure through a mix of variable rate debt and interest rate swap agreements. We had $75.0 million
of debt outstanding at December 31, 2015, for which the interest rate is effectively fixed at 2.5% through September 2019 with
an interest rate swap agreement. Interest rates on our unused credit facilities are based on the LIBOR. Increases in interest rates
could impact our annual interest expense on future borrowings. As of December 31, 2015, we had one effective interest rate swap
agreement with a notional amount of $75.0 million to reduce our exposure to interest rate increases.
25
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Werner Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of Werner Enterprises, Inc. and subsidiaries (the Company)
as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, stockholders’
equity, and cash flows for each of the years in the three-year period ended December 31, 2015. In connection with our audits of
the consolidated financial statements, we have also audited the financial statement schedule listed in Item 15(a)(2) of this Form
10-K. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Werner Enterprises, Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and
their cash flows for each of the years in the three-year period ended December 31, 2015, in conformity with U.S. generally accepted
accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Werner Enterprises, Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated February 26, 2016 expressed an unqualified opinion on the effectiveness of the
Company’s internal control over financial reporting.
Omaha, Nebraska
February 26, 2016
/s/ KPMG LLP
26
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Operating revenues
Operating expenses:
Salaries, wages and benefits
Fuel
Supplies and maintenance
Taxes and licenses
Insurance and claims
Depreciation
Rent and purchased transportation
Communications and utilities
Other
Total operating expenses
Operating income
Other expense (income):
Interest expense
Interest income
Other
Total other income
Income before income taxes
Income taxes
Net income
Earnings per share:
Basic
Diluted
Weighted-average common shares outstanding:
Basic
Diluted
Years Ended December 31,
2015
2014
2013
$ 2,093,529
$ 2,139,289
$ 2,029,183
639,908
204,583
190,114
89,646
80,848
193,209
480,624
15,121
(980)
1,893,073
200,456
1,974
(2,875)
196
(705)
201,161
77,447
123,714
1.72
1.71
71,957
72,556
$
$
$
584,006
346,058
188,437
85,468
80,375
176,984
498,782
14,220
4,871
1,979,201
160,088
881
(2,538)
(29)
(1,686)
161,774
63,124
98,650
1.37
1.36
72,122
72,738
$
$
$
$
$
$
545,419
371,789
179,172
86,686
71,177
173,019
456,885
13,506
(8,196)
1,889,457
139,726
454
(2,269)
(170)
(1,985)
141,711
54,926
86,785
1.19
1.18
72,866
73,428
See Notes to Consolidated Financial Statements.
27
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive income (loss):
Foreign currency translation adjustments
Change in fair value of interest rate swap
Other comprehensive income (loss)
Comprehensive income
Years Ended December 31,
2015
2014
2013
$
123,714
$
98,650
$
86,785
(3,930)
242
(3,688)
120,026
$
$
(3,564)
(1,180)
(4,744)
93,906
$
(475)
—
(475)
86,310
See Notes to Consolidated Financial Statements.
28
WERNER ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, trade, less allowance of $10,298 and $10,017, respectively
Other receivables
Inventories and supplies
Prepaid taxes, licenses and permits
Current deferred income taxes
Income taxes receivable
Other current assets
Total current assets
Property and equipment, at cost:
Land
Buildings and improvements
Revenue equipment
Service equipment and other
Total property and equipment
Less – accumulated depreciation
Property and equipment, net
Other non-current assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Insurance and claims accruals
Accrued payroll
Other current liabilities
Total current liabilities
Long-term debt, net of current portion
Other long-term liabilities
Insurance and claims accruals, net of current portion
Deferred income taxes
Commitments and contingencies
Stockholders’ equity:
December 31,
2015
2014
$
31,833
$
22,604
251,023
266,727
17,241
16,415
15,657
28,037
20,052
27,281
20,316
17,824
14,914
34,066
23,435
26,458
407,539
426,344
34,356
134,595
32,213
130,618
1,530,617
1,413,178
209,032
210,220
1,908,600
1,786,229
754,130
772,447
1,154,470
1,013,782
51,675
40,336
$ 1,613,684
$ 1,480,462
$
70,643
$
64,106
25,233
23,720
183,702
75,000
19,832
125,195
274,301
64,827
73,814
28,121
19,768
186,530
75,000
20,021
123,445
241,606
Common stock, $0.01 par value, 200,000,000 shares authorized; 80,533,536 shares
issued; 71,998,750 and 72,038,368 shares outstanding, respectively
Paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost; 8,534,786 and 8,495,168 shares, respectively
Total stockholders’ equity
Total liabilities and stockholders’ equity
805
102,734
1,022,966
(13,063)
(177,788)
935,654
805
101,803
915,085
(9,375)
(174,458)
833,860
$ 1,613,684
$ 1,480,462
See Notes to Consolidated Financial Statements.
29
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Years Ended December 31,
2015
2014
2013
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$ 123,714
$
98,650
$
86,785
Depreciation
Deferred income taxes
Gain on disposal of property and equipment
Non-cash equity compensation
Insurance and claims accruals, net of current portion
Other
Changes in certain working capital items:
Accounts receivable, net
Other current assets
Accounts payable
Other current liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Additions to property and equipment
Proceeds from sales of property and equipment
Decrease in notes receivable
Other
Net cash used in investing activities
Cash flows from financing activities:
Repayments of short-term debt
Proceeds from issuance of short-term debt
Repayments of long-term debt
Proceeds from issuance of long-term debt
Payment of notes payable
Dividends on common stock
Repurchases of common stock
Tax withholding related to net share settlements of restricted stock awards
Stock options exercised
Excess tax benefits from equity compensation
Net cash used in financing activities
Effect of exchange rate fluctuations on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosures of cash flow information:
Interest paid
Income taxes paid
Supplemental schedule of non-cash investing activities:
Notes receivable issued upon sale of property and equipment
Issuance of notes payable
Change in fair value of interest rate swap
Property and equipment acquired included in accounts payable
Property and equipment disposed included in other receivables
193,209
38,442
(23,240)
4,361
1,750
9,103
15,704
9,455
7,256
(9,362)
370,392
176,984
5,038
(19,260)
6,070
(8,455)
1,107
(35,080)
(25,926)
(1,497)
8,934
206,565
173,019
(8,389)
(16,408)
4,809
6,400
(541)
(20,514)
3,398
2,793
1,105
232,457
(454,097)
102,614
19,517
(3,580)
(335,546)
(296,649)
84,355
14,390
(5,583)
(203,487)
(211,329)
59,413
10,679
979
(140,258)
(10,000)
10,000
—
—
(3,117)
(15,115)
(6,438)
(1,724)
846
556
(24,992)
(625)
9,229
22,604
31,833
1,978
35,205
36,060
—
242
627
21
(10,000)
10,000
(40,000)
75,000
—
(14,440)
(30,587)
(1,977)
7,012
1,324
(3,668)
(484)
(1,074)
23,678
22,604
820
76,849
14,385
6,233
(1,180)
2,067
—
(20,000)
—
(40,000)
10,000
—
(14,587)
(20,060)
(1,804)
2,548
379
(83,524)
(425)
8,250
15,428
23,678
466
66,032
17,110
—
—
5,403
434
$
$
$
$
$
$
$
$
$
See Notes to Consolidated Financial Statements.
30
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share and per share
amounts)
BALANCE, December 31, 2012
Comprehensive income
Purchases of 821,091 shares of
common stock
Dividends on common stock ($0.20
per share)
Equity compensation activity,
288,413 shares, including excess tax
benefits
Non-cash equity compensation
expense
BALANCE, December 31, 2013
Comprehensive income
Purchases of 1,200,000 shares of
common stock
Dividends on common stock ($0.20
per share)
Equity compensation activity,
524,448 shares, including excess tax
benefits
Non-cash equity compensation
expense
BALANCE, December 31, 2014
Comprehensive income
Purchases of 225,000 shares of
common stock
Dividends on common stock ($0.22
per share)
Equity compensation activity,
185,382 shares, including excess tax
benefits
Non-cash equity compensation
expense
Common
Stock
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Stockholders’
Equity
$
805
$
97,457
$
758,617
$
(4,156) $ (137,826) $
714,897
86,785
(475)
—
86,310
—
—
—
—
—
805
—
—
—
—
—
805
—
—
—
—
—
—
—
—
(3,732)
4,809
98,534
—
—
—
(2,801)
6,070
101,803
—
—
—
—
(14,560)
—
—
830,842
98,650
—
(14,407)
—
—
915,085
123,714
—
(15,833)
(3,430)
4,361
—
—
—
—
—
(20,060)
(20,060)
—
(14,560)
4,855
1,123
—
(4,631)
(4,744)
—
(153,031)
—
4,809
772,519
93,906
—
—
—
(30,587)
(30,587)
—
(14,407)
9,160
6,359
—
(9,375)
(3,688)
—
(174,458)
—
6,070
833,860
120,026
—
—
—
—
(6,438)
(6,438)
—
(15,833)
3,108
(322)
—
4,361
BALANCE, December 31, 2015
$
805
$
102,734
$ 1,022,966
$
(13,063) $ (177,788) $
935,654
See Notes to Consolidated Financial Statements.
31
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business: Werner Enterprises, Inc. (the “Company”) is a truckload transportation and logistics company operating
under the jurisdiction of the U.S. Department of Transportation, similar governmental transportation agencies in the foreign
countries in which we operate and various U.S. state regulatory authorities. For the year ended December 31, 2015, our ten largest
customers comprised 45% of our revenues. For the years ended December 31, 2014 and 2013, our ten largest customers comprised
41% and 40%, respectively, of our revenues. No single customer generated more than 10% of the Company’s total revenues in
2015, 2014, and 2013.
Principles of Consolidation: The accompanying consolidated financial statements include the accounts of Werner
Enterprises, Inc. and our majority-owned subsidiaries. All significant intercompany accounts and transactions relating to these
majority-owned entities have been eliminated.
Use of Management Estimates: The preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates and assumptions that affect
the (i) reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and (ii) reported amounts of revenues and expenses during the reporting period. The most significant estimates
that affect our financial statements include the useful lives and salvage values of property and equipment, accrued liabilities for
insurance and claims, estimates for incomes taxes and the allowance for doubtful accounts. Actual results could differ from those
estimates.
Cash and Cash Equivalents: We consider all highly liquid investments, purchased with a maturity of three months or less,
to be cash equivalents. Accounts at banks with an aggregate excess of the amount of checks issued over cash balances are included
in current liabilities in the Consolidated Balance Sheets, and changes in such accounts are reported as a financing activity in the
Consolidated Statements of Cash Flows.
Trade Accounts Receivable: We record trade accounts receivable at the invoiced amounts, net of an allowance for doubtful
accounts. The allowance for doubtful accounts is our estimate of the amount of probable credit losses and revenue adjustments in
our existing accounts receivable. We review the financial condition of customers for granting credit and determine the allowance
based on analysis of individual customers’ financial condition, historical write-off experience and national economic conditions.
We evaluate the adequacy of our allowance for doubtful accounts quarterly. Past due balances over 90 days and exceeding a
specified amount are reviewed individually for collectibility. Account balances are charged off against the allowance after all
means of collection have been exhausted and the potential for recovery is considered remote. We do not have any off-balance-
sheet credit exposure related to our customers.
Inventories and Supplies: Inventories and supplies are stated at the lower of average cost or market and consist primarily
of revenue equipment parts, tires, fuel and supplies. Tires placed on new revenue equipment are capitalized as a part of the equipment
cost. Replacement tires are expensed when placed in service.
Property, Equipment, and Depreciation: Additions and improvements to property and equipment are capitalized at cost,
while maintenance and repair expenditures are charged to operations as incurred. Gains and losses on the sale or exchange of
equipment are recorded in other operating expenses.
Depreciation is calculated based on the cost of the asset, reduced by the asset’s estimated salvage value, using the straight-
line method. Accelerated depreciation methods are used for income tax purposes. The lives and salvage values assigned to certain
assets for financial reporting purposes are different than for income tax purposes. For financial reporting purposes, assets are
generally depreciated using the following estimated useful lives and salvage values:
Building and improvements
Tractors
Trailers
Service and other equipment
Lives
30 years
80 months
12 years
3-10 years
Salvage Values
0%
0%
$1,000
0%
Long-Lived Assets: We review our long-lived assets for impairment whenever events or circumstances indicate the carrying
amount of a long-lived asset may not be recoverable. An impairment loss would be recognized if the carrying amount of the long-
32
lived asset is not recoverable and the carrying amount exceeds its fair value. For long-lived assets classified as held and used, the
carrying amount is not recoverable when the carrying value of the long-lived asset exceeds the sum of the future net cash flows.
We do not separately identify assets by operating segment because tractors and trailers are routinely transferred from one operating
fleet to another. As a result, none of our long-lived assets have identifiable cash flows from use that are largely independent of the
cash flows of other assets and liabilities. Thus, the asset group used to assess impairment would include all of our assets.
Insurance and Claims Accruals: Insurance and claims accruals (both current and non-current) reflect the estimated cost
(including estimated loss development and loss adjustment expenses) for (i) cargo loss and damage, (ii) bodily injury and property
damage, (iii) group health and (iv) workers’ compensation claims not covered by insurance. The costs for cargo, bodily injury and
property damage insurance and claims are included in insurance and claims expense in the Consolidated Statements of Income;
the costs of group health and workers’ compensation claims are included in salaries, wages and benefits expense. The insurance
and claims accruals are recorded at the estimated ultimate payment amounts. Such insurance and claims accruals are based upon
individual case estimates (including negative development) and estimates of incurred-but-not-reported losses using loss
development factors based upon past experience. Actual costs related to insurance and claims have not differed materially from
estimated accrued amounts for all years presented. An actuary reviews our undiscounted self-insurance reserves for bodily injury
and property damage claims and workers’ compensation claims at year-end.
For the years ended December 31, 2015, 2014, and 2013 our self-insured retention (“SIR”) and deductible amount for liability
claims is $2.0 million plus administrative expenses, for each occurrence involving bodily injury or property damage. We are also
responsible for varying annual aggregate amounts of liability for claims in excess of the SIR/deductible. Liability claims in excess
of these aggregates are covered under premium-based policies (issued by insurance companies) to coverage levels that our
management considers adequate. We are also responsible for administrative expenses for each occurrence involving bodily injury
or property damage.
Our SIR for workers’ compensation claims is $1.0 million per claim, with premium-based insurance coverage for claims
exceeding this amount. We also maintain a $29.8 million bond for the State of Nebraska and a $6.9 million bond for our workers’
compensation insurance carrier.
Under these insurance arrangements, we maintained $31.0 million in letters of credit as of December 31, 2015.
Revenue Recognition: The Consolidated Statements of Income reflect recognition of operating revenues (including fuel
surcharge revenues) and related direct costs when the shipment is delivered. For shipments where a third-party capacity provider
(including independent contractors under contract with us) is utilized to provide some or all of the service and we (i) are the primary
obligor in regard to the shipment delivery, (ii) establish customer pricing separately from carrier rate negotiations, (iii) generally
have discretion in carrier selection and/or (iv) have credit risk on the shipment, we record both revenues for the dollar value of
services we bill to the customer and rent and purchased transportation expense for transportation costs we pay to the third-party
provider upon the shipment’s delivery. In the absence of the conditions listed above, we record revenues net of those expenses
related to third-party providers.
Derivative Financial Instrument: We manage our interest rate risk through an interest rate swap. The derivative financial
instrument is recognized in the Consolidated Balance Sheets at fair value. The effect on earnings from recognizing the fair value
of this derivative financial instrument depends on its intended use, its hedge designation, and its effectiveness in offsetting changes
in the fair value of the exposure it is hedging. Changes in the fair value of the instrument designated to reduce or eliminate adverse
fluctuations in the fair values of recognized assets and liabilities and unrecognized firm commitments are reported currently in
earnings along with changes in the fair values of the hedged items. Changes in the effective portion of the fair value of the instrument
used to reduce or eliminate adverse fluctuations in cash flows of anticipated or forecasted transactions is reported in equity as a
component of accumulated other comprehensive income (loss), net of income tax effects. Amounts in accumulated other
comprehensive income (loss) are reclassified to earnings when the related hedged items affect earnings or the anticipated
transactions are no longer probable. Amounts reported in earnings are classified consistent with the item being hedged.
Foreign Currency Translation: Local currencies are generally considered the functional currencies outside the United
States. Assets and liabilities are translated at year-end exchange rates for operations in local currency environments. Foreign
revenues and expense items denominated in the functional currency are translated at the average rates of exchange prevailing
during the year. Foreign currency translation adjustments reflect the changes in foreign currency exchange rates applicable to the
net assets of the foreign operations. Foreign currency translation adjustments are recorded in accumulated other comprehensive
loss within stockholders’ equity in the Consolidated Balance Sheets and as a separate component of comprehensive income in the
Consolidated Statements of Comprehensive Income.
Income Taxes: We use the asset and liability method in accounting for income taxes. Under this method, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured
33
using the enacted tax rates that are expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled.
In accounting for uncertain tax positions, we recognize the tax benefit from an uncertain tax position only if it is more likely
than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit
that has a greater than 50% likelihood of being realized upon ultimate settlement. We recognize interest and penalties directly
related to income tax matters in income tax expense.
Common Stock and 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. Diluted earnings per share is computed by dividing net income
by the weighted average number of common shares outstanding plus the effect of dilutive potential common shares outstanding
during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and restricted
stock awards. There are no differences in the numerators of our computations of basic and diluted earnings per share for any
periods presented. The computation of basic and diluted earnings per share is shown below (in thousands, except per share amounts).
Net income
Weighted average common shares outstanding
Dilutive effect of stock-based awards
Shares used in computing diluted earnings per share
Basic earnings per share
Diluted earnings per share
Years Ended December 31,
2015
2014
2013
$
$
$
123,714
$
98,650
$
71,957
599
72,556
1.72
1.71
$
$
72,122
616
72,738
1.37
1.36
$
$
86,785
72,866
562
73,428
1.19
1.18
There were no options to purchase shares of common stock that were outstanding during the periods indicated above that
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 during the period. Performance awards are excluded from the calculation of dilutive potential
common shares until the threshold performance conditions have been satisfied.
Equity Compensation: We have an equity compensation plan that provides for grants of non-qualified stock options,
restricted stock, restricted stock units and stock appreciation rights to our associates and directors. We apply the fair value method
of accounting for equity compensation awards. Issuances of stock upon an exercise of stock options or vesting of restricted stock
are made from treasury stock; shares reacquired to satisfy tax withholding obligations upon vesting of restricted stock are recorded
as treasury stock. Grants of stock options, restricted stock, and performance awards vest in increments, and we recognize
compensation expense over the requisite service period of each award. We accrue compensation expense for performance awards
for the estimated number of shares expected to be issued using the most current information available at the date of the financial
statements. If the performance objectives are not met, no compensation expense will be recognized, and any previously recognized
compensation expense will be reversed.
Comprehensive Income: Comprehensive income consists of net income and other comprehensive income (loss). Other
comprehensive income (loss) refers to revenues, expenses, gains and losses that are not included in net income, but rather are
recorded directly in stockholders’ equity. For the years ended December 31, 2015 and 2014, comprehensive income consists of
net income, foreign currency translation adjustments and change in fair value of interest rate swap. For the year ended December 31,
2013, comprehensive income consists of net income and foreign currency translation adjustments.
New Accounting Pronouncements Adopted: We did not adopt any new accounting standards during 2015.
Accounting Standards Updates Not Yet Effective: On May 28, 2014, the FASB issued ASU No. 2014-09, “Revenue from
Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the
transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S.
GAAP when it becomes effective. In July 2015, the FASB voted to approve a one-year deferral of the effective date of the new
revenue recognition standard and to permit early adoption but no earlier than the original effective date (annual periods beginning
after December 15, 2016); such decisions were documented in the FASB's ASU No. 2015-14 “Revenue from Contracts with
Customers (Topic 606): Deferral of the Effective Date.” As a result of the deferral, the new standard will become effective for us
beginning January 1, 2018, unless we choose to adopt early on January 1, 2017. The standard permits the use of either the
retrospective or cumulative effect transition method. We are evaluating the effect that ASU 2014-09 will have on our consolidated
financial statements and related disclosures and have not yet selected a transition method.
34
In April 2015, the FASB issued ASU No. 2015-3, “Interest - Imputation of Interest: Simplifying the Presentation of Debt
Issuance Costs,” which requires debt issuance costs to be recorded as a direct reduction of the debt liability on the balance sheet
rather than as an asset. The provisions of this update are effective as of January 1, 2016, and are not expected to have a material
effect on our consolidated financial position, results of operations or cash flows.
In July 2015, the FASB issued ASU No. 2015-11, “Inventory: Simplifying the Measurement of Inventory,” which requires
inventory to be recorded at the lower of cost and net realizable value. The provisions of this update are effective as of January 1,
2017, and are not expected to have a material effect on our consolidated financial position, results of operations or cash flows.
In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes: Balance Sheet Classification of Deferred Taxes,”
which requires presentation of deferred tax assets and liabilities as non-current in the balance sheet. The provisions of this update
are effective as of January 1, 2017, and early adoption is permitted as of the beginning of an interim or annual reporting period.
The amendments in the update are not expected to have a material effect on our consolidated financial position, results from
operations or cash flows.
Other ASUs not identified above and which are not effective until after December 31, 2015 are not expected to have a
material effect on our consolidated financial position, results of operations or cash flows.
(2) CREDIT FACILITIES
As of December 31, 2015, we had unsecured committed credit facilities with three banks as well as a term commitment with
one of these banks. We had with Wells Fargo Bank, N.A., a $100.0 million credit facility which will expire on July 12, 2020, and
a $75.0 million term commitment with principal due and payable on September 15, 2019. On July 13, 2015, we amended our
existing credit agreement, dated June 1, 2012, as previously amended, with Wells Fargo Bank, N.A. This amendment lowered the
maximum principal amount of the unsecured line of credit to $100.0 million from $175.0 million and extended the term of the
credit agreement to July 12, 2020 from May 31, 2016. Also on July 13, 2015, we entered into a new credit agreement with U.S.
Bank, N.A. The new credit agreement is an unsecured line of credit of $75.0 million and expires on July 13, 2020. We also had a
$75.0 million credit facility with BMO Harris Bank, N.A., which will expire on March 5, 2020. On March 5, 2015, we replaced
our existing $75.0 million credit agreement with BMO Harris Bank, N.A., with a new credit agreement. The new BMO Harris
Bank, N.A., agreement includes a $75.0 million credit facility which will expire on March 5, 2020. Borrowings under these credit
facilities and term note bear variable interest (0.9305% at December 31, 2015) based on the London Interbank Offered Rate
(“LIBOR”), with interest on the term note effectively fixed at 2.5% with an interest rate swap agreement.
As of December 31, 2015 and 2014, our outstanding debt totaled $75.0 million. The $325.0 million of credit available under
these facilities is further reduced by $31.0 million in stand-by letters of credit under which we are obligated. Each of the debt
agreements includes, among other things, financial covenants requiring us (i) not to exceed a maximum ratio of total debt to total
capitalization and/or (ii) not to exceed a maximum ratio of total funded debt to earnings before interest, income taxes, depreciation
and amortization (as such terms are defined in each credit facility). At December 31, 2015, we were in compliance with these
covenants.
At December 31, 2015, the aggregate future maturities of long-term debt by year are as follows (in thousands):
2016
2017
2018
2019
2020
Total
$
—
—
—
75,000
—
$ 75,000
The carrying amounts of our long-term debt approximate fair value due to the duration of the notes and the variable interest
rates.
35
(3) NOTES RECEIVABLE
Notes receivable are included in other current assets and other non-current assets in the Consolidated Balance Sheets. At
December 31, notes receivable consisted of the following (in thousands):
Independent contractor notes receivable
Other notes receivable
Less current portion
Notes receivable – non-current
December 31,
2015
2014
$
$
38,450
$
7,474
45,924
11,597
34,327
$
19,021
6,780
25,801
8,464
17,337
We provide financing to some individuals who want to become independent contractors by purchasing a tractor from us and
leasing their services to us. At December 31, 2015, we had 682 notes receivable from these independent contractors and at
December 31, 2014, we had 472 such notes receivable. We maintain a primary security interest in the tractor until the independent
contractor pays the note balance in full.
(4) LEASES
In 2011, we entered into leases of certain tractors under operating leases which expired in 2015. Rental expense for these
leases was included in rent and purchased transportation expense within the Consolidated Statements of Income. At December 31,
2015, we had no future lease payments under non-cancelable revenue equipment operating leases.
Rental expense under these non-cancelable revenue equipment operating leases for the years ended December 31, 2015,
2014, and 2013 was as follows (in thousands):
2015
2014
2013
$
584
1,565
1,593
(5) INCOME TAXES
Income tax expense consisted of the following (in thousands):
Years Ended December 31,
2015
2014
2013
Current:
Federal
State
Foreign
Deferred:
Federal
State
$
32,090
$
51,260
$
5,665
1,250
39,005
33,912
4,530
38,442
6,606
220
58,086
4,503
535
5,038
Total income tax expense
$
77,447
$
63,124
$
55,227
6,616
1,472
63,315
(9,668)
1,279
(8,389)
54,926
36
The effective income tax rate differs from the federal corporate tax rate of 35% in 2015, 2014 and 2013 as follows (in
thousands):
Tax at statutory rate
State income taxes, net of federal tax benefits
Non-deductible meals and entertainment
Income tax credits
Other, net
Total income tax expense
Years Ended December 31,
2015
2014
2013
$
$
70,406
$
56,621
$
6,627
1,687
(1,700)
427
4,641
1,497
(1,600)
1,965
77,447
$
63,124
$
49,599
5,132
1,577
(1,574)
192
54,926
At December 31, deferred tax assets and liabilities consisted of the following (in thousands):
Deferred tax assets:
Insurance and claims accruals
Allowance for uncollectible accounts
Other
Gross deferred tax assets
Deferred tax liabilities:
Property and equipment
Prepaid expenses
Other
Gross deferred tax liabilities
Net deferred tax liability
December 31,
2015
2014
$
71,285
$
6,138
16,478
93,901
330,580
7,229
2,356
340,165
$
246,264
$
74,651
8,260
14,724
97,635
295,628
6,913
2,634
305,175
207,540
These amounts are presented in the accompanying Consolidated Balance Sheets as of December 31 as follows (in thousands):
Current deferred tax asset
Non-current deferred tax liability
Net deferred tax liability
December 31,
2015
2014
$
$
28,037
274,301
246,264
$
$
34,066
241,606
207,540
We have not recorded a valuation allowance because we believe that all deferred tax assets are more likely than not to be
realized as a result of our historical profitability, future taxable income and reversal of deferred tax liabilities.
We recognized a $551 thousand decrease in the net liability for unrecognized tax benefits for the year ended December 31,
2015 and a $37 thousand decrease for the year ended December 31, 2014. We accrued interest expense of $0.2 million during
2015 and $0.2 million during 2014, excluding from both years the reversal of accrued interest related to the adjustment of uncertain
tax positions. If recognized, $5.0 million of unrecognized tax benefits as of December 31, 2015 and $5.5 million as of December
31, 2014 would impact our effective tax rate. Interest of $1.4 million as of December 31, 2015 and $1.7 million as of December
31, 2014 has been reflected as a component of the total liability. We expect no other significant increases or decreases for uncertain
tax positions during the next twelve months.
37
The reconciliations of beginning and ending gross balances of unrecognized tax benefits for 2015 and 2014 are shown below
(in thousands).
Unrecognized tax benefits, beginning balance
Gross increases – tax positions in prior period
Gross increases – current-period tax positions
Settlements
Unrecognized tax benefits, ending balance
December 31,
2015
2014
$
$
8,583
$
229
769
(1,864)
7,717
$
8,644
244
745
(1,050)
8,583
We file U.S. federal income tax returns, as well as income tax returns in various states and several foreign jurisdictions. The
years 2011 through 2014 are open for examination by the U.S. Internal Revenue Service (“IRS”), and various years are open for
examination by state and foreign tax authorities. In December 2015, we were notified that the IRS will perform an audit of our
amended 2011 federal income tax return. State and foreign jurisdictional statutes of limitations generally range from three to four
years.
(6) DERIVATIVE FINANCIAL INSTRUMENT
In the normal course of business we are subject to risk from adverse fluctuations in foreign exchange and interest rates and
commodity prices. We manage our risks for interest rate changes through use of an interest rate swap. At December 31, 2015, we
had one interest rate swap outstanding, which matures in September 2019, with a notional value of $75.0 million and a pre-tax
fair value loss of $1.5 million. The counterparty to this contract is a major financial institution. We are exposed to credit loss in
the event of non-performance by the counterparty. We do not use derivative instruments for trading or speculative purposes and
have no derivative financial instruments to reduce our exposure to fuel price fluctuations.
Our objective in managing exposure to interest rate risk is to limit the impact on earnings and cash flow. The extent to which
we use such instruments is dependent on our access to these contracts in the financial markets and its success using other methods.
Our outstanding derivative financial instrument is recognized as an other long-term liability in the Consolidated Balance
Sheets at fair value. The interest rate swap is accounted for as a cash flow hedging instrument. At inception, we formally designated
and documented the financial instrument as a hedge of a specific underlying exposure, the risk management objective, and the
manner in which effectiveness of the hedge will be assessed. We formally assess, both at inception and at each reporting period
thereafter, whether the derivative financial instrument is effective in offsetting changes in cash flows of the related underlying
exposure. All changes in fair value of outstanding derivatives in cash flow hedges, except any ineffective portion, are recorded in
other comprehensive income until earnings are impacted by the hedged transaction. Classification of the gain or loss in the
Consolidated Statements of Income upon release from comprehensive income is the same as that of the underlying exposure. Any
ineffective portion of the change in fair value of the instruments is recognized immediately in earnings.
We will discontinue the use of hedge accounting prospectively when (i) the derivative instrument is no longer effective in
offsetting changes in fair value or cash flows of the underlying hedged item; (ii) the derivative instrument expires, is sold, terminated,
or exercised; or (iii) designating the derivative instrument as a hedge is no longer appropriate.
Should we discontinue hedge accounting because it is no longer probable that an anticipated transaction will occur in the
originally expected period, or within an additional two-month period thereafter, changes to fair value accumulated in other
comprehensive income are recognized immediately in earnings.
FASB ASC 815-10 requires companies to recognize the derivative instrument as an asset or a liability at fair value in the
statement of financial position. Fair value of the derivative instrument is required to be measured under the FASB’s Fair Value
Measurements and Disclosures guidance, which establishes a hierarchy that distinguishes between market participant assumptions
based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels
1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs
classified within Level 3 of the hierarchy). Level 1 inputs use quoted prices (unadjusted) in active markets for identical assets or
liabilities that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable
for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability, which are
typically based on an entity’s own assumptions, as there is little, if any, related market activity. The fair value of our interest rate
swap is based on Level 2 inputs.
38
(7) EQUITY COMPENSATION AND EMPLOYEE BENEFIT PLANS
Equity Plan
The Werner Enterprises, Inc. Amended and Restated Equity Plan (the “Equity Plan”), approved by the Company's
shareholders, provides for grants to employees and non-employee directors of the Company in the form of nonqualified stock
options, restricted stock and units (“restricted awards”), performance stock and units (“performance awards”), and stock
appreciation rights. The Board of Directors or the Compensation Committee of our Board of Directors determines the terms of
each award, including the type, recipients, number of shares subject to and vesting conditions of each award. No awards of stock
appreciation rights have been issued under the Equity Plan to date. The maximum number of shares of common stock that may
be awarded under the Equity Plan is 20,000,000 shares. The maximum aggregate number of shares that may be awarded to any
one person in any one calendar year under the Equity Plan is 500,000. As of December 31, 2015, there were 7,357,396 shares
available for granting additional awards.
Equity compensation expense is included in salaries, wages and benefits within the Consolidated Statements of Income. As
of December 31, 2015, the total unrecognized compensation cost related to non-vested equity compensation awards was
approximately $9.9 million and is expected to be recognized over a weighted average period of 2.5 years. The following table
summarizes the equity compensation expense and related income tax benefit recognized in the Consolidated Statements of Income
(in thousands):
Stock options:
Pre-tax compensation expense
Tax benefit
Stock option expense, net of tax
Restricted awards:
Pre-tax compensation expense
Tax benefit
Restricted stock expense, net of tax
Performance awards:
Pre-tax compensation expense
Tax benefit
Restricted stock expense, net of tax
Years Ended December 31,
2015
2014
2013
$
$
$
$
$
$
30
11
19
1,875
722
1,153
2,514
968
1,546
$
$
$
$
$
$
116
46
70
4,134
1,622
2,512
1,859
724
1,135
$
$
$
$
$
$
84
31
53
4,727
1,831
2,896
—
—
—
We do not have a formal policy for issuing shares upon an exercise of stock options or vesting of restricted and performance
awards. Such shares are generally issued from treasury stock. From time to time, we repurchase shares of our common stock, the
timing and amount of which depends on market and other factors. Historically, the shares acquired from such repurchases have
provided us with sufficient quantities of stock to issue for equity compensation. Based on current treasury stock levels, we do not
expect to repurchase additional shares specifically for equity compensation during 2016.
Stock Options
Stock options are granted at prices equal to the market value of the common stock on the date the option award is granted.
Option awards currently outstanding become exercisable in installments from 24 to 72 months after the date of grant. The options
are exercisable over a period not to exceed ten years and one day from the date of grant.
39
The following table summarizes stock option activity for the year ended December 31, 2015:
Outstanding at beginning of period
Granted
Exercised
Forfeited
Expired
Outstanding at end of period
Exercisable at end of period
Number of
Options
(in thousands)
Weighted
Average
Exercise
Price ($)
Weighted
Average
Remaining
Contractual
Term
(Years)
Aggregate
Intrinsic Value
(in thousands)
$
248
—
(48)
(8)
—
192
182
18.18
—
17.46
19.96
—
18.29
18.06
2.89
2.72
$
$
980
969
We did not grant any stock options during the years ended December 31, 2015, 2014 and 2013. The fair value of stock option
grants is estimated using a Black-Scholes valuation model.
The total intrinsic value of stock options exercised was as follows (in thousands):
2015
2014
2013
$
655
3,687
896
Restricted Awards
Restricted stock entitles the holder to shares of common stock when the award vests. Restricted stock units entitle the holder
to a combination of cash or stock equal to the value of common stock when the unit vests. The value of these shares may fluctuate
according to market conditions and other factors. Restricted awards currently outstanding vest over periods ranging from 12 to
84 months from the grant date of the award. The restricted awards do not confer any voting or dividend rights to recipients until
such shares vest and do not have any post-vesting sales restrictions.
The following table summarizes restricted award activity for the year ended December 31, 2015:
Nonvested at beginning of period
Granted
Vested
Forfeited
Nonvested at end of period
Number of
Restricted
Awards (in
thousands)
Weighted
Average Grant
Date Fair
Value ($)
$
643
126
(164)
(160)
445
22.92
26.30
22.03
22.58
24.32
We estimate the fair value of restricted awards based upon the market price of the underlying common stock on the date of
grant, reduced by the present value of estimated future dividends because the awards are not entitled to receive dividends prior to
vesting. Our estimate of future dividends is based on the most recent quarterly dividend rate at the time of grant, adjusted for any
known future changes in the dividend rate. Cash settled restricted stock units are recorded as a liability within the Consolidated
Balance Sheets and are adjusted to fair value each reporting period. The following table summarizes the number of restricted
awards granted (in thousands) and the weighted-average assumptions used to calculate the present value of estimated future
dividends:
Number of shares granted
Dividends per share (quarterly amounts)
Risk-free interest rate
Years Ended December 31,
2015
2014
2013
$
126
0.06
1.6%
$
140
0.05
1.6%
$
115
0.05
1.4%
40
The total fair value of previously granted restricted awards vested during the years ended December 31, 2015, 2014, and
2013 was $4.5 million, $5.8 million, and $5.5 million, respectively. We withheld shares based on the closing stock price on the
vesting date to settle the employees' minimum statutory obligation for the applicable income and other employment taxes. Total
cash remitted for the employees' tax obligations to the relevant taxing authorities is reflected as a financing activity within the
Consolidated Statements of Cash Flows, and the shares withheld to satisfy the minimum tax withholding obligations were recorded
as treasury stock.
Performance Awards
Performance awards entitle the recipient to shares of common stock upon attainment of performance objectives as pre-
established by the Compensation Committee. If the performance objectives are achieved, performance awards currently outstanding
vest, subject to continued employment, over periods ranging from 12 to 60 months from the grant date of the award. The performance
awards do not confer any voting or dividend rights to recipients until such shares vest and do not have any post-vesting sales
restrictions.
The following table summarizes performance award activity for the year ended December 31, 2015:
Nonvested at beginning of period
Granted
Vested
Forfeited
Nonvested at end of period
Number of
Performance Awards (in
thousands)
Weighted
Average Grant
Date Fair
Value ($)
$
183
202
(37)
(90)
258
25.06
28.79
25.06
27.19
27.23
The performance awards are earned based upon the level of attainment by the Company of specified performance objectives
related to earnings per share for the fiscal year, as established by the Compensation Committee. The number of shares which are
ultimately earned for the 2015 awards will range from 0 percent to 132 percent of the target number based on the level of attainment
of the performance objectives and ranged from 0 percent to 133 percent for the 2014 awards. We estimate the fair value of
performance awards based upon the market price of the underlying common stock on the date of grant, reduced by the present
value of estimated future dividends because the awards are not entitled to receive dividends prior to vesting. Our estimate of future
dividends is based on the most recent quarterly dividend rate at the time of grant, adjusted for any known future changes in the
dividend rate. The following table summarizes the number of performance awards granted (in thousands) and the assumptions
used to calculate the present value of estimated future dividends:
Number of shares granted
Dividends per share (quarterly amounts)
Risk-free interest rate
Years Ended December 31,
2015
2014
$
202
0.06
1.6%
$
183
0.05
1.5%
During the year ended December 31, 2015, the Compensation Committee determined that the 2014 fiscal year performance
objectives were achieved at the target level and 182,813 shares of common stock were earned, subject to time-based vesting. The
vesting date fair value of the performance awards vested during the year ended December 31, 2015 was $1.1 million. We withheld
shares based on the closing stock price on the vesting date to settle the employees’ minimum statutory obligation for the applicable
income and other employment taxes. Total cash remitted for employees’ tax obligations to the relevant taxing authorities is reflected
as a financing activity within the Consolidated Statements of Cash Flows, and the shares withheld to satisfy the minimum tax
withholding obligations are recorded as treasury stock.
Employee Stock Purchase Plan
Employee associates that meet certain eligibility requirements may participate in our Employee Stock Purchase Plan (the
“Purchase Plan”). Eligible participants designate the amount of regular payroll deductions and/or a single annual payment (each
subject to a yearly maximum amount) that is used to purchase shares of our common stock on the over-the-counter market. The
maximum annual contribution amount is currently $20,000. These purchases are subject to the terms of the Purchase Plan. We
contribute an amount equal to 15% of each participant’s contributions under the Purchase Plan. Interest accrues on Purchase Plan
41
contributions at a rate of 5.25% until the purchase is made. We pay the broker’s commissions and administrative charges related
to purchases of common stock under the Purchase Plan. Our contributions for the Purchase Plan were as follows (in thousands):
2015
2014
2013
$
182
188
210
401(k) Retirement Savings Plan
We have an Employees’ 401(k) Retirement Savings Plan (the “401(k) Plan”). Associates are eligible to participate in the
401(k) Plan if they have been continuously employed with us or one of our subsidiaries for six months or more. We match a portion
of each associate’s 401(k) Plan elective deferrals. Salaries, wages and benefits expense in the accompanying Consolidated
Statements of Income includes our 401(k) Plan contributions and administrative expenses, which were as follows (in thousands):
2015
2014
2013
$
2,041
1,812
1,722
Nonqualified Deferred Compensation Plan
The Executive Nonqualified Excess Plan (the “Excess Plan”) is our nonqualified deferred compensation plan for the benefit
of eligible key managerial associates whose 401(k) Plan contributions are limited because of IRS regulations affecting highly
compensated associates. Under the terms of the Excess Plan, participants may elect to defer compensation on a pre-tax basis within
annual dollar limits we establish. At December 31, 2015, there were 56 participants in the Excess Plan. Although our current
intention is not to do so, we may also make matching credits and/or profit sharing credits to participants’ accounts as we so
determine each year. Each participant is fully vested in all deferred compensation and earnings; however, these amounts are subject
to general creditor claims until distributed to the participant. Under current federal tax law, we are not allowed a current income
tax deduction for the compensation deferred by participants, but we are allowed a tax deduction when a distribution payment is
made to a participant from the Excess Plan. The accumulated benefit obligation is included in other long-term liabilities in the
Consolidated Balance Sheets. We purchased life insurance policies to fund the future liability. The aggregate market value of the
life insurance policies is included in other non-current assets in the Consolidated Balance Sheets.
The accumulated benefit obligation and aggregate market value of the life insurance policies were as follows (in thousands):
Accumulated benefit obligation
Aggregate market value
December 31,
2015
2014
$
7,068
$
6,216
6,785
6,055
(8) COMMITMENTS AND CONTINGENCIES
We have committed to property and equipment purchases of approximately $112.0 million at December 31, 2015.
We are involved in certain claims and pending litigation arising in the ordinary course of business. The majority of these
claims relate to bodily injury, property damage, cargo and workers’ compensation incurred in the transportation of freight, as well
as certain class action litigation related to personnel and employments matters. We accrue for the uninsured portion of contingent
losses from these and other pending claims when it is both probable that a liability has been incurred and the amount of the loss
can be reasonably estimated. Based on the knowledge of the facts, management believes the resolution of claims and pending
litigation, taking into account existing reserves, will not have a material adverse effect on our consolidated financial statements.
Moreover, the results of complex legal proceedings are difficult to predict and our view of these matters may change in the future
as the litigation and events related thereto unfold.
We are involved in class action litigation in the U.S. District Court for the District of Nebraska, alleging that we owe drivers
for unpaid wages under the Fair Labor Standards Act and the Nebraska Wage Payment and Collection Act and failed to pay
minimum wage per hour for drivers in our student driver training program, related to short break time and sleeper berth time. The
period covered by this class action suit dates back to 2008 through March 2014. In August 2015, the court denied our motion for
summary judgment and granted the plaintiff's motion for summary judgment, ruling in plaintiff's favor on both theories of liability
(short breaks and sleeper berth time). As a result, we accrued $2.0 million during third quarter 2015 related to the short break
matter. Based on the knowledge of the facts related to the sleeper berth matter, management does not currently believe a loss is
42
probable, thus we have not accrued for the sleeper berth matter. We are currently unable to determine the possible loss or range
of loss. We intend to vigorously defend the merits of these claims and to appeal any adverse verdict in this case.
We are also involved in certain class action litigation in which the plaintiffs allege claims for failure to provide meal and
rest breaks, unpaid wages, unauthorized deduction and other items. Based on the knowledge of the facts, management does not
currently believe the outcome of the litigation is likely to have a material adverse effect on our financial position or results of
operations. However, the final disposition of these matters and the impact of such final disposition cannot be determined at this
time.
(9) RELATED PARTY TRANSACTIONS
The Company leases land from a trust in which the Company’s principal stockholder is the sole trustee. The annual rent
payments under this lease are $1.00 per year. The Company is responsible for all real estate taxes and maintenance costs related
to the property, which were $52,000 in 2015 and are recorded as expenses in the Consolidated Statements of Income. The Company
has made leasehold improvements to the land totaling approximately $6.5 million for facilities used for business meetings and
customer promotion.
The Company transacts business with TDR Transportes, S.A. de C.V. (“TDR”), a truckload carrier in the Republic of Mexico,
for certain purchased transportation needs. The Company recorded operating revenues from TDR of approximately $4,421,000
in 2015, $4,623,000 in 2014 and $4,141,000 in 2013 related primarily to leasing revenue equipment and a terminal building. The
Company recorded purchased transportation expense to TDR of approximately $477,000 in 2015, $651,000 in 2014 and $603,000
in 2013. The Company also sells used revenue equipment to this entity. These sales totaled $164,000 in 2015, $2,154,000 in 2014
and $2,275,000 in 2013, and the Company recognized net gains of $41,000 in 2015, $858,000 in 2014 and $1,449,000 in 2013.
The Company had receivables from TDR, primarily related to the leases and revenue equipment sales, of $504,000 at December
31, 2015, $442,000 at December 31, 2014 and $858,000 at December 31, 2013.
(10) SEGMENT INFORMATION
We have two reportable segments – Truckload Transportation Services (“Truckload”) and Value Added Services (“VAS”).
The Truckload segment consists of two operating units, One-Way Truckload and Specialized Services, that are aggregated
because they have similar economic characteristics and meet the other aggregation criteria described in the accounting guidance
for segment reporting. One-Way Truckload is comprised of the following operating fleets: (i) the medium-to-long-haul van (“Van”)
fleet transports a variety of consumer nondurable products and other commodities in truckload quantities over irregular routes
using dry van trailers; (ii) the expedited (“Expedited”) fleet provides time-sensitive truckload services utilizing driver teams; and
(iii) the regional short-haul (“Regional”) fleet provides comparable truckload van service within geographic regions across the
United States. Specialized Services provides truckload services dedicated to a specific customer, generally for a retail distribution
center or manufacturing facility, including services for products requiring specialized trailers such as flatbed or temperature-
controlled trailers. Revenues for the Truckload segment include a small amount of non-trucking revenues which consist primarily
of the portion of shipments delivered to or from Mexico where we utilize a third-party capacity provider.
The VAS segment generates the majority of our non-trucking revenues through four operating units that provide non-trucking
services to our customers. These four VAS operating units are as follows: (i) truck brokerage (“Brokerage”) uses contracted carriers
to complete customer shipments; (ii) freight management (“Freight Management”) offers a full range of single-source logistics
management services and solutions; (iii) the intermodal (“Intermodal”) unit offers rail transportation through alliances with rail
and drayage providers as an alternative to truck transportation; and (iv) Werner Global Logistics international (“WGL”) provides
complete management of global shipments from origin to destination using a combination of air, ocean, truck and rail transportation
modes.
We generate other revenues from our driver training schools and from transportation-related activities such as third-party
equipment maintenance, equipment leasing and other business activities. None of these operations meets the quantitative reporting
thresholds. As a result, these operations are grouped in “Other” in the tables below. “Corporate” includes revenues and expenses
that are incidental to our activities and are not attributable to any of our operating segments. We do not prepare separate balance
sheets by segment and, as a result, assets are not separately identifiable by segment. Inter-segment eliminations in the table below
represent transactions between reporting segments that are eliminated in consolidation.
43
The following table summarizes our segment information (in thousands):
Years Ended December 31,
2015
2014
2013
Revenues
Truckload Transportation Services
Value Added Services
Other
Corporate
Subtotal
Inter-segment eliminations
Total
Operating Income
Truckload Transportation Services
Value Added Services
Other
Corporate
Total
$
1,644,874
$
1,702,137
$
393,174
54,512
2,297
390,645
46,588
2,803
2,094,857
(1,328)
2,093,529
$
2,142,173
(2,884)
2,139,289
$
189,850
$
152,992
$
16,898
(7,513)
1,221
7,535
(3,991)
3,552
$
$
$
1,657,854
361,384
11,342
3,081
2,033,661
(4,478)
2,029,183
119,597
14,664
3,947
1,518
200,456
$
160,088
$
139,726
Information about the geographic areas in which we conduct business is summarized below (in thousands) as of and for the
years ended December 31, 2015, 2014 and 2013. Operating revenues for foreign countries include revenues for (i) shipments with
an origin or destination in that country and (ii) other services provided in that country. If both the origin and destination are in a
foreign country, the revenues are attributed to the country of origin.
Revenues
United States
Foreign countries
Mexico
Other
Total foreign countries
Total
Long-lived Assets
United States
Foreign countries
Mexico
Other
Total foreign countries
Total
2015
2014
2013
$
1,821,026
$
1,857,624
$
1,768,442
191,453
81,050
272,503
187,124
94,541
281,665
172,009
88,732
260,741
2,093,529
$
2,139,289
$
2,029,183
1,134,433
$
989,815
$
955,543
$
$
19,879
158
20,037
23,734
233
23,967
$
1,154,470
$
1,013,782
$
21,654
321
21,975
977,518
We generate substantially all of our revenues within the United States or from North American shipments with origins or
destinations in the United States. No customer generated more than 10% of our total revenues for 2015, 2014 and 2013.
44
(11) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share amounts)
2015:
Operating revenues
Operating income
Net income
Basic earnings per share
Diluted earnings per share
(In thousands, except per share amounts)
2014:
Operating revenues
Operating income
Net income
Basic earnings per share
Diluted earnings per share
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
495,654
$
534,644
$
534,448
$
38,185
23,142
0.32
0.32
52,210
31,848
0.44
0.44
52,800
32,076
0.45
0.44
528,783
57,261
36,648
0.51
0.51
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
492,022
$
542,120
$
551,961
$
23,441
14,339
0.20
0.20
42,330
25,632
0.36
0.35
41,690
25,970
0.36
0.36
553,186
52,627
32,709
0.45
0.45
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
No disclosure under this item was required within the two most recent fiscal years ended December 31, 2015, or any
subsequent period, involving a change of accountants or disagreements on accounting and financial disclosure.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures, as defined in Exchange Act Rule 15d-15(e). Our disclosure controls and
procedures are designed to provide reasonable assurance of achieving the desired control objectives. Based upon that evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at a
reasonable assurance level in enabling us to record, process, summarize and report information required to be included in our
periodic filings with the SEC within the required time period and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure.
We have confidence in our internal controls and procedures. Nevertheless, our 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 that resource constraints exist, and the benefits of controls must be evaluated 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,
misstatements and instances of fraud, if any, have been prevented or detected.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal
control over financial reporting is a process designed to provide reasonable assurance to our management and Board of Directors
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
U.S. generally accepted accounting principles. Internal control over financial reporting includes (i) maintaining records that in
reasonable detail accurately and fairly reflect our transactions; (ii) providing reasonable assurance that transactions are recorded
as necessary for preparation of our financial statements; (iii) providing reasonable assurance that receipts and expenditures of
company assets are made in accordance with management authorization; and (iv) providing reasonable assurance that unauthorized
45
acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented
or detected on a timely basis.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
(i) changes in conditions may occur or (ii) the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2015. This
assessment is based on the criteria for effective internal control described in Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, management
concluded that our internal control over financial reporting was effective as of December 31, 2015.
Management has engaged KPMG LLP (“KPMG”), the independent registered public accounting firm that audited the
consolidated financial statements included in this Form 10-K, to attest to and report on the effectiveness of our internal control
over financial reporting. KPMG’s report is included herein.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Werner Enterprises, Inc.:
We have audited Werner Enterprises, Inc.’s internal control over financial reporting as of December 31, 2015, based on
criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). Werner Enterprises, Inc.’s management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion
on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures
as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Werner Enterprises, Inc. maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2015 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of Werner Enterprises, Inc. and subsidiaries as of December 31, 2015 and 2014, and the related
consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-
year period ended December 31, 2015, and our report dated February 26, 2016, expressed an unqualified opinion on those
consolidated financial statements.
Omaha, Nebraska
February 26, 2016
/s/ KPMG LLP
46
Changes in Internal Control over Financial Reporting
Management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer,
concluded that no changes in our internal control over financial reporting occurred during the quarter ended December 31, 2015
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
OTHER INFORMATION
During fourth quarter 2015, no information was required to be disclosed in a report on Form 8-K, but not reported.
PART III
Certain information required by Part III is omitted from this Form 10-K because we will file a definitive proxy statement
pursuant to Regulation 14A (the “Proxy Statement”) not later than 120 days after the end of the fiscal year covered by this Form
10-K, and certain information included therein is incorporated herein by reference. Only those sections of the Proxy Statement
which specifically address the items set forth herein are incorporated by reference.
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item, with the exception of the Code of Corporate Conduct discussed below, is incorporated
herein by reference to our Proxy Statement.
Code of Corporate Conduct
We adopted our Code of Corporate Conduct, which is our code of ethics, that applies to our principal executive officer,
principal financial officer, principal accounting officer and all other officers, employee associates and directors. The Code of
Corporate Conduct is available on our website, www.werner.com under the “Investors” tab. We will post on our website any
amendment to, or waiver from, any provision of our Code of Corporate Conduct that applies to our Chief Executive Officer, Chief
Financial Officer or Chief Accounting Officer (if any) within four business days of any such event.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to our Proxy Statement.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by this Item, with the exception of the equity compensation plan information presented below, is
incorporated herein by reference to our Proxy Statement.
Equity Compensation Plan Information
The following table summarizes, as of December 31, 2015, information about compensation plans under which our equity
securities are authorized for issuance:
Plan Category
Equity compensation plans
approved by stockholders
Number of Securities to
be Issued upon Exercise
of Outstanding Options,
Warrants and Rights
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(a)
895,815 (1)
(b)
$18.29 (2)
Number of Securities
Remaining Available for
Future Issuance under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
(c)
7,357,396
Includes 694,040 shares to be issued upon vesting of outstanding restricted stock awards.
(1)
(2) The weighted-average exercise price does not take into account the shares to be issued upon vesting of outstanding restricted stock awards, which have
no exercise price.
We do not have any equity compensation plans that were not approved by stockholders.
47
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated herein by reference to our Proxy Statement.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item is incorporated herein by reference to our Proxy Statement.
PART IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements and Schedules.
(1) Financial Statements: See Part II, Item 8 hereof.
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders’ Equity
Notes to Consolidated Financial Statements
Page
26
27
28
29
30
31
32
(2) Financial Statement Schedules: The consolidated financial statement schedule set forth under the following caption
is included herein. The page reference is to the consecutively numbered pages of this report on Form 10-K.
Schedule II—Valuation and Qualifying Accounts
Page
50
Schedules not listed above have been omitted because they are not applicable or are not required or the information
required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto.
(3) Exhibits: The response to this portion of Item 15 is submitted as a separate section of this Form 10-K (see Exhibit
Index on pages 51 and 52).
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 26th day of February, 2016.
WERNER ENTERPRISES, INC.
By:
/s/ Clarence L. Werner
Clarence L. Werner
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Position
Date
/s/ Clarence L. Werner
Clarence L. Werner
Chairman and Chief Executive Officer
February 26, 2016
/s/ Gregory L. Werner
Gregory L. Werner
Director
/s/ Michael L. Steinbach
Michael L. Steinbach
Director
/s/ Kenneth M. Bird, Ed.D.
Kenneth M. Bird, Ed.D.
Director
/s/ Patrick J. Jung
Patrick J. Jung
/s/ Duane K. Sather
Duane K. Sather
Director
Director
/s/ Dwaine J. Peetz, Jr., M.D.
Dwaine J. Peetz, Jr., M.D.
Director
February 26, 2016
February 26, 2015
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
/s/ John J. Steele
John J. Steele
Executive Vice President, Treasurer
and Chief Financial Officer (Principal Financial Officer)
February 26, 2016
/s/ James L. Johnson
James L. Johnson
Executive Vice President, Chief Accounting Officer
and Corporate Secretary (Principal Accounting Officer)
February 26, 2016
49
SCHEDULE II
WERNER ENTERPRISES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Year ended December 31, 2015:
Allowance for doubtful accounts
Year ended December 31, 2014:
Allowance for doubtful accounts
Year ended December 31, 2013:
Allowance for doubtful accounts
Balance at
Beginning of
Period
Charged to
Costs and
Expenses
Write-offs
(Recoveries)
of Doubtful
Accounts
Balance at
End of
Period
$
$
$
10,017
9,939
10,528
$
$
$
692
206
15
$
$
$
411
128
604
$
$
$
10,298
10,017
9,939
See report of independent registered public accounting firm.
50
EXHIBIT INDEX
Exhibit
Number
Description
Incorporated by Reference to:
3(i)
3(ii)
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Restated Articles of Incorporation of Werner
Enterprises, Inc.
Exhibit 3(i) to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 2007
Revised and Restated By-Laws of Werner
Enterprises, Inc.
Exhibit 3.1 to the Company's Current Report on Form 8-K
dated August 27, 2015
Werner Enterprises, Inc. Amended and
Restated Equity Plan
Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 2013
Non-Employee Director Compensation
Filed herewith
The Executive Nonqualified Excess Plan of
Werner Enterprises, Inc., as amended
Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 2009
Named Executive Officer Compensation
Filed herewith
Lease Agreement, as amended February 8,
2007, between the Company and Clarence L.
Werner, Trustee of the Clarence L. Werner
Revocable Trust
License Agreement, dated February 8, 2007
between the Company and Clarence L.
Werner, Trustee of the Clarence L. Werner
Revocable Trust
Exhibit 10.5 to the Company's Annual Report on Form
10-K for the year ended December 31, 2006
Exhibit 10.6 to the Company's Annual Report on Form
10-K for the year ended December 31, 2006
Form of Notice of Grant of Nonqualified
Stock Option
Exhibit 10.1 to the Company's Current Report on Form 8-K
dated November 29, 2007
Form of Restricted Stock Award Agreement
Exhibit 10.1 to the Company's Current Report on Form 8-K
dated December 1, 2009
Form of Performance-Based Restricted Stock
Award Agreement
Exhibit 10.1 to the Company's Current Report on Form 8-K
dated February 10, 2014
10.10
Severance Agreement and Release between
the Registrant and Greg Werner
Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 2015
11
21
23.1
31.1
31.2
Statement Re: Computation of Per Share
Earnings
See Note 1 (Common Stock and Earnings Per Share) in the
Notes to Consolidated Financial Statements under Item 8
herein
Subsidiaries of the Registrant
Filed herewith
Consent of KPMG LLP
Certification of the Chief Executive Officer
pursuant to Rules 13a-14(a) and 15d-14(a) of
the Securities Exchange Act of 1934 (Section
302 of the Sarbanes-Oxley Act of 2002)
Filed herewith
Filed herewith
Certification of the Chief Financial Officer
pursuant to Rules 13a-14(a) and 15d-14(a) of
the Securities Exchange Act of 1934 (Section
302 of the Sarbanes-Oxley Act of 2002)
Filed herewith
51
Exhibit
Number
32.1
32.2
Description
Incorporated by Reference to:
Certification of the Chief Executive Officer
pursuant to 18 U.S.C. Section 1350 (Section
906 of the Sarbanes-Oxley Act of 2002)
Furnished herewith
Certification of the Chief Financial Officer
pursuant to 18 U.S.C. Section 1350 (Section
906 of the Sarbanes-Oxley Act of 2002)
Furnished herewith
101.INS
XBRL Instance Document
Filed herewith
101.SCH
XBRL Taxonomy Extension Schema
Document
Filed herewith
101.CAL
XBRL Taxonomy Extension Calculation
Linkbase Document
Filed herewith
101.DEF
XBRL Taxonomy Extension Definition
Linkbase Document
Filed herewith
101.LAB
XBRL Taxonomy Extension Label Linkbase
Document
Filed herewith
101.PRE
XBRL Taxonomy Extension Presentation
Linkbase Document
Filed herewith
52
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO RULES 13a-14(a) AND 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 (SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002)
EXHIBIT 31.1
I, Clarence L. Werner, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Werner Enterprises, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: February 26, 2016
/s/ Clarence L. Werner
Clarence L. Werner
Chairman and Chief Executive Officer
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO RULES 13a-14(a) AND 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 (SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002)
EXHIBIT 31.2
I, John J. Steele, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Werner Enterprises, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: February 26, 2016
/s/ John J. Steele
John J. Steele
Executive Vice President, Treasurer and Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
In connection with the Annual Report of Werner Enterprises, Inc. (the “Company”) on Form 10-K for the period ending
December 31, 2015 (the “Report”), filed with the Securities and Exchange Commission, I, Clarence L. Werner, Chairman and
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
February 26, 2016
/s/ Clarence L. Werner
Clarence L. Werner
Chairman and Chief Executive Officer
EXHIBIT 32.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
In connection with the Annual Report of Werner Enterprises, Inc. (the “Company”) on Form 10-K for the period ending
December 31, 2015 (the “Report”), filed with the Securities and Exchange Commission, I, John J. Steele, Executive Vice President,
Treasurer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
February 26, 2016
/s/ John J. Steele
John J. Steele
Executive Vice President, Treasurer and
Chief Financial Officer
EXECUTIVE
OFFICERS
Clarence L. Werner, 78
Chairman and Chief Executive Officer
Derek J. Leathers, 46
President and Chief Operating Officer
H. Marty Nordlund, 54
Senior Executive Vice President - Specialized Services
John J. Steele, 58
Executive Vice President, Treasurer and Chief Financial Officer
Jim S. Schelble, 55
Executive Vice President of Marketing and Driver Resources
James A. Mullen, 47
Executive Vice President and General Counsel
James L. Johnson, 52
Executive Vice President, Chief Accounting Officer and
Corporate Secretary
BOARD OF
DIRECTORS
Clarence L. Werner, 78
Chairman and Chief Executive Officer. Founder of the Company.
Served on Board since inception in 1986.
Gregory L. Werner, 56
Director. Served on Board since 1994.
Michael L. Steinbach, 61
Owner - Steinbach Farms and Equipment Sales and
Steinbach Truck and Trailer.
Served on Board since 2002. (1) (3)
Kenneth M. Bird, Ed.D., 68
President and Chief Executive Officer - Avenue Scholars Foundation.
Served on Board since 2002. (1) (2)
Patrick J. Jung, 68
Chief Operating Officer - Surdell & Partners LLC.
Served on Board since 2003. (1) (2)
Duane K. Sather, 71
Former President of Sather Trucking Corporation and
Former Chairman of Sathers Inc.
Served on Board since 2006. (1) (3)
Dwaine J. Peetz, Jr., M.D., 65
Former Thoracic Surgeon and Clinical Assistant Professor
of Surgery at Creighton University School of Medicine and
University of Nebraska Medical Center.
Served on Board since 2011. (1) (2) (3)
(1) Serves on audit committee.
(2) Serves on compensation committee.
(3) Serves on nominating and corporate governance committee.
GLOBAL HEADQUARTERS
Werner Enterprises, Inc.
14507 Frontier Road
P.O. Box 45308
Omaha, Nebraska 68145-0308
Telephone: 402.895.6640
werner.com
email: werner@werner.com
ANNUAL MEETING
The Annual Meeting will be held on
Tuesday, May 10, 2016, at 10 a.m. CDT,
at the Embassy Suites Omaha-LaVista
Hotel and Conference Center,
12520 Westport Parkway,
LaVista, Nebraska.
STOCK LISTING
The company’s common stock trades on The NASDAQ Global
Select MarketSM under the symbol WERN.
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG LLP
1212 North 96th Street, Suite 300
Omaha, Nebraska 68114-2274
STOCK TRANSFER AGENT AND REGISTRAR
Wells Fargo Bank, N.A.
Shareowner Services
P.O. Box 64854
St. Paul, Minnesota 55164-0854
Telephone: 800.468.9716
shareowneronline.com
werner.com
Global Headquarters
14507 Frontier Road I P.O. Box 45308
Omaha, Nebraska I 68145-0308
402.895.6640 I 800.228.2240
2 0 1 5 E XC E L L E N C E AWA R D R E C I P I E N T
A N N UA L
REPORT 2015