10-Q 1 wern-2013630x10q.htm 10-Q WERN-2013.6.30-10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 10-Q
 
 
[Mark
one]
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2013
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-14690
 
WERNER ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
 
 
NEBRASKA
 
47-0648386
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
14507 FRONTIER ROAD
POST OFFICE BOX 45308
OMAHA, NEBRASKA
 
68145-0308
(Address of principal executive offices)
 
(Zip Code)
(402) 895-6640
(Registrant’s telephone number, including area code)
 
 
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  ý    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  ý    No  ¨
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
 
ý
  
Accelerated filer
 
¨
Non-accelerated filer
 
o  (Do not check if a smaller reporting company)
  
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  ý
As of July 31, 2013, 72,719,858 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.



WERNER ENTERPRISES, INC.
INDEX
 
 
 
PAGE
 
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
Item 1.
Item 2.
Item 6.

2


PART I
FINANCIAL INFORMATION
Cautionary Note Regarding Forward-Looking Statements:
This Quarterly Report on Form 10-Q 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 Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of Part I, 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 our Annual Report on Form 10-K for the year ended December 31, 2012 (“2012 Form 10-K”). Readers should not unduly rely on the forward-looking statements included in this Form 10-Q 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.

Item 1. Financial Statements.
The interim consolidated financial statements contained herein reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the financial condition, results of operations and cash flows for the periods presented. The interim consolidated financial statements have been prepared in accordance with the U.S. Securities and Exchange Commission (“SEC”) instructions to Form 10-Q and were also prepared without audit. The interim consolidated financial statements do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements; although in management’s opinion, the disclosures are adequate so that the information presented is not misleading.
Operating results for the three-month and six-month periods ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. In the opinion of management, the information set forth in the accompanying consolidated condensed balance sheets is fairly stated in all material respects in relation to the consolidated balance sheets from which it has been derived.
These interim consolidated financial statements and notes thereto should be read in conjunction with the financial statements and accompanying notes contained in our 2012 Form 10-K.

3


WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
 
  
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(In thousands, except per share amounts)
2013
 
2012
 
2013
 
2012
 
(Unaudited)
Operating revenues
$
506,648

 
$
521,812

 
$
999,535

 
$
1,020,188

Operating expenses:
 
 
 
 
 
 
 
Salaries, wages and benefits
135,236

 
138,512

 
268,341

 
272,360

Fuel
90,191

 
99,322

 
186,984

 
202,259

Supplies and maintenance
43,934

 
44,741

 
87,062

 
86,578

Taxes and licenses
21,586

 
22,967

 
43,210

 
45,499

Insurance and claims
17,320

 
15,103

 
37,121

 
34,327

Depreciation
42,367

 
41,506

 
84,698

 
82,177

Rent and purchased transportation
115,060

 
108,496

 
221,378

 
209,006

Communications and utilities
3,187

 
3,344

 
6,329

 
7,163

Other
(4,594
)
 
(3,292
)
 
(6,642
)
 
(5,696
)
Total operating expenses
464,287

 
470,699

 
928,481

 
933,673

Operating income
42,361

 
51,113

 
71,054

 
86,515

Other expense (income):
 
 
 
 
 
 
 
Interest expense
91

 
65

 
235

 
207

Interest income
(535
)
 
(433
)
 
(1,040
)
 
(855
)
Other
(82
)
 
(82
)
 
(92
)
 
(106
)
Total other income
(526
)
 
(450
)
 
(897
)
 
(754
)
Income before income taxes
42,887

 
51,563

 
71,951

 
87,269

Income taxes
17,047

 
20,883

 
28,600

 
35,344

Net income
$
25,840

 
$
30,680

 
$
43,351

 
$
51,925

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.35

 
$
0.42

 
$
0.59

 
$
0.71

Diluted
$
0.35

 
$
0.42

 
$
0.59

 
$
0.71

Dividends declared per share
$
0.050

 
$
0.050

 
$
0.100

 
$
0.100

Weighted-average common shares outstanding:
 
 
 
 
 
 
 
Basic
73,022

 
72,859

 
73,140

 
72,857

Diluted
73,598

 
73,412

 
73,690

 
73,401

See Notes to Consolidated Financial Statements (Unaudited).

4


WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
  
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(In thousands)
2013
 
2012
 
2013
 
2012
 
(Unaudited)
Net income
$
25,840

 
$
30,680

 
$
43,351

 
$
51,925

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments
(1,147
)
 
(819
)
 
(184
)
 
366

Other comprehensive income (loss)
(1,147
)
 
(819
)
 
(184
)
 
366

Comprehensive income
$
24,693

 
$
29,861

 
$
43,167

 
$
52,291

See Notes to Consolidated Financial Statements (Unaudited).

5


WERNER ENTERPRISES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
 
(In thousands, except share amounts)
June 30,
2013
 
December 31,
2012
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
24,248

 
$
15,428

Accounts receivable, trade, less allowance of $10,540 and $10,528, respectively
223,990

 
211,133

Other receivables
10,453

 
8,004

Inventories and supplies
20,249

 
23,260

Prepaid taxes, licenses and permits
7,039

 
14,893

Current deferred income taxes
25,662

 
25,139

Other current assets
36,225

 
21,330

Total current assets
347,866

 
319,187

Property and equipment
1,671,280

 
1,690,490

Less – accumulated depreciation
721,800

 
696,647

Property and equipment, net
949,480

 
993,843

Other non-current assets
23,102

 
21,870

Total assets
$
1,320,448

 
$
1,334,900

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
69,339

 
$
56,397

Current portion of long-term debt

 
20,000

Insurance and claims accruals
57,543

 
57,679

Accrued payroll
24,023

 
21,134

Other current liabilities
18,394

 
20,983

Total current liabilities
169,299

 
176,193

Long-term debt, net of current portion
40,000

 
70,000

Other long-term liabilities
16,799

 
15,779

Insurance and claims accruals, net of current portion
127,400

 
125,500

Deferred income taxes
228,069

 
232,531

Commitments and contingencies

 

Stockholders’ equity:
 
 
 
Common stock, $0.01 par value, 200,000,000 shares authorized; 80,533,536 shares
 
 
 
issued; 72,692,730 and 73,246,598 shares outstanding, respectively
805

 
805

Paid-in capital
99,681

 
97,457

Retained earnings
794,669

 
758,617

Accumulated other comprehensive loss
(4,340
)
 
(4,156
)
Treasury stock, at cost; 7,840,806 and 7,286,938 shares, respectively
(151,934
)
 
(137,826
)
Total stockholders’ equity
738,881

 
714,897

Total liabilities and stockholders’ equity
$
1,320,448

 
$
1,334,900

See Notes to Consolidated Financial Statements (Unaudited).

6


WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
  
Six Months Ended
June 30,
(In thousands)
2013
 
2012
 
(Unaudited)
Cash flows from operating activities:
 
 
 
Net income
$
43,351

 
$
51,925

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
84,698

 
82,177

Deferred income taxes
(4,458
)
 
(5,588
)
Gain on disposal of property and equipment
(10,046
)
 
(10,446
)
Stock-based compensation
2,590

 
2,233

Insurance and claims accruals, net of current portion
1,900

 
(300
)
Other
31

 
(449
)
Changes in certain working capital items:
 
 
 
Accounts receivable, net
(12,857
)
 
(923
)
Other current assets
(3,654
)
 
26,069

Accounts payable
9,165

 
(8,848
)
Other current liabilities
188

 
2,948

Net cash provided by operating activities
110,908

 
138,798

Cash flows from investing activities:
 
 
 
Additions to property and equipment
(64,865
)
 
(152,429
)
Retirements of property and equipment
30,336

 
30,503

Decrease in notes receivable
4,439

 
2,371

Net cash used in investing activities
(30,090
)
 
(119,555
)
Cash flows from financing activities:
 
 
 
Repayments of short-term debt
(20,000
)
 
(120,000
)
Proceeds from issuance of short-term debt

 
120,000

Repayments of long-term debt
(30,000
)
 

Change in net checks issued in excess of cash balances

 
(6,671
)
Dividends on common stock
(7,326
)
 
(7,285
)
Repurchases of common stock
(15,065
)
 

Tax withholding related to net share settlements of restricted stock awards
(166
)
 

Stock options exercised
733

 
379

Excess tax benefits from exercise of stock options
24

 
22

Net cash used in financing activities
(71,800
)
 
(13,555
)
Effect of exchange rate fluctuations on cash
(198
)
 
84

Net increase in cash and cash equivalents
8,820

 
5,772

Cash and cash equivalents, beginning of period
15,428

 
12,412

Cash and cash equivalents, end of period
$
24,248

 
$
18,184

Supplemental disclosures of cash flow information:
 
 
 
Interest paid
$
262

 
$
207

Income taxes paid
40,765

 
26,192

Supplemental schedule of non-cash investing activities:
 
 
 
Notes receivable issued upon sale of property and equipment
$
7,238

 
$
4,593

Property and equipment acquired included in accounts payable
3,886

 
9,541

Property and equipment disposed included in other receivables
1,104

 
587

See Notes to Consolidated Financial Statements (Unaudited).

7


WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
(1)
Credit Facilities
Long-term debt consisted of the following (in thousands):
 
June 30,
 
2013
 
2012
Notes payable to banks under committed credit facilities
$
40,000

 
$

Less current portion

 

Long-term debt, net
$
40,000

 
$


As of June 30, 2013, we have committed credit facilities with two banks. These include a $175 million four-year credit facility which will expire on May 31, 2016 and a $75 million five-year credit facility which will expire on May 31, 2017. Borrowings under these credit facilities bear variable interest (0.85% at June 30, 2013) based on the London Interbank Offered Rate (“LIBOR”). As of June 30, 2013, we had $40 million outstanding under these credit facilities with banks. The $250 million of credit available under these facilities is further reduced by $33.7 million in standby letters of credit under which we are obligated. Each of the debt agreements includes, among other things, two financial covenants requiring us (i) not to exceed a maximum ratio of total debt to total capitalization and (ii) not to exceed a maximum ratio of total funded debt to earnings before interest, income taxes, depreciation and amortization (as such terms are defined in each credit facility). At June 30, 2013, we were in compliance with these covenants.
At June 30, 2013, the aggregate future maturities of long-term debt by year are as follows (in thousands):
2013
$

2014

2015

2016
40,000

Total
$
40,000


The carrying amounts of our long-term debt approximate fair value due to the duration of the notes and the variable interest rates.

(2)
Income Taxes
For the three-month and six-month periods ended June 30, 2013, there were no material changes to the total amount of unrecognized tax benefits. We accrued interest of $86 thousand and $80 thousand during the three-month periods ended June 30, 2013 and June 30, 2012, respectively, and $165 thousand and $151 thousand during the six-month periods ended June 30, 2013 and June 30, 2012, respectively. Our total gross liability for unrecognized tax benefits at June 30, 2013 is $12.1 million. If recognized, $7.7 million of unrecognized tax benefits would impact our effective tax rate. Interest of $3.8 million 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.
We file U.S. federal income tax returns, as well as income tax returns in various states and several foreign jurisdictions. The years 2009 through 2012 are open for examination by the Internal Revenue Service (“IRS”), and various years are open for examination by state and foreign tax authorities. State and foreign jurisdictional statutes of limitations generally range from three to four years.
In May 2010, the IRS began an audit of our 2007 and 2008 federal income tax returns. During the second quarter of 2012, we received a notice of deficiency including proposed penalties related to our like-kind exchange program for tractors and trailers. The proposed tax deficiency relates to timing differences for recognition of gains on sales of equipment. The IRS position would subject us to interest charges, which we estimated as of March 31, 2013 to be approximately $2.1 million after considering the tax deductibility of the interest payments, plus proposed penalties. In July 2012, we filed a petition in the United States Tax Court to contest the notice of deficiency. The IRS responded to our petition in September 2012. Prior to holding a scheduled appeals conference in June 2013, the IRS appeals officer decided to no longer contest this issue based on the merits of our position.  In July 2013, we entered into a stipulation with the IRS that there are no deficiencies in federal income tax and no penalties due for

8


the tax years 2007 and 2008. The IRS decision has no impact on our financial condition, results of operations or income tax rate because we had not previously accrued a liability for any proposed interest or penalties related to this issue.
 
(3)
Commitments and Contingencies
As of June 30, 2013, we have committed to property and equipment purchases of approximately $100.1 million.
In November 2012, the IRS issued a Notice of Proposed Adjustment for tax years 2009 and 2010 related to an employment tax audit which focused on our driver per diem program. Under the program, eligible drivers may elect to receive a nontaxable reimbursement of certain expenses that are otherwise included in and contemplated as a portion of their compensation while away from home. The notice proposes that the nontaxable per diem payments are wages, resulting in additional FICA and FUTA taxes and federal income tax withholding obligations. If the IRS position is upheld, we estimate the additional expense for the 2009 and 2010 tax years to be approximately $16.5 million after considering the tax deductibility of the payments. We submitted a formal protest prior to the deadline of March 15, 2013. A pre-appeals conference is currently scheduled for August 2013. We believe our driver per diem program complies with applicable tax law, and we will vigorously defend against the IRS position. We have not accrued a liability because we believe we will ultimately prevail in this matter.
We are involved in certain claims and pending litigation arising in the ordinary course of business. At this time, management believes the ultimate resolution of these matters will not materially affect our consolidated financial statements.
 
(4)
Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. 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 period presented. The computation of basic and diluted earnings per share is shown below (in thousands, except per share amounts).
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2013
 
2012
 
2013
 
2012
Net income
$
25,840

 
$
30,680

 
$
43,351

 
$
51,925

Weighted average common shares outstanding
73,022

 
72,859

 
73,140

 
72,857

Dilutive effect of stock-based awards
576

 
553

 
550

 
544

Shares used in computing diluted earnings per share
73,598

 
73,412

 
73,690

 
73,401

Basic earnings per share
$
0.35

 
$
0.42

 
$
0.59

 
$
0.71

Diluted earnings per share
$
0.35

 
$
0.42

 
$
0.59

 
$
0.71

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.
 
(5)
Stock-Based Compensation
At the May 14, 2013 Annual Meeting of Stockholders, the stockholders approved and adopted an amended and restated Werner Enterprises, Inc. Equity Plan (the "Equity Plan). The Equity Plan amendments added specific requirements that must be followed when issuing qualified performance-based compensation; permitted grants of restricted stock units in addition to nonqualified stock options, restricted stock and stock appreciation rights; and replaced the provision that limited the number of shares granted to any one person to 2,562,500 over the term of the plan with an annual limit of 500,000 shares. A copy of the Equity Plan is filed as an exhibit to this 10-Q.
Our Equity Plan provides for grants of nonqualified stock options, restricted stock, restricted stock units 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. Stock option and restricted stock awards are described below. No awards of restricted stock units or 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.

9


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 June 30, 2013, there were 7,695,712 shares available for granting additional awards.
We apply the fair value method of accounting for stock-based compensation awards granted under our Equity Plan. Stock-based employee compensation expense is included in salaries, wages and benefits within the Consolidated Statements of Income. As of June 30, 2013, the total unrecognized compensation cost related to non-vested stock-based compensation awards was approximately $8.1 million and is expected to be recognized over a weighted average period of 2.6 years. The following table summarizes the stock-based compensation expense and related income tax benefit recognized in the Consolidated Statements of Income (in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2013
 
2012
 
2013
 
2012
Stock options:
 
 
 
 
 
 
 
Pre-tax compensation expense
$
66

 
$
84

 
$
132

 
$
186

Tax benefit
26

 
34

 
52

 
75

Stock option expense, net of tax
$
40

 
$
50

 
$
80

 
$
111

Restricted stock:
 
 
 
 
 
 
 
Pre-tax compensation expense
$
1,223

 
$
1,027

 
$
2,458

 
$
2,047

Tax benefit
486

 
416

 
977

 
829

Restricted stock expense, net of tax
$
737

 
$
611

 
$
1,481

 
$
1,218

We do not have a formal policy for issuing shares upon an exercise of stock options or vesting of restricted stock, so such shares are generally issued from treasury stock. From time to time, we repurchase shares of our common stock, the timing and amount of which depends on market and other factors. Historically, the shares acquired from such repurchases have provided us with sufficient quantities of stock to issue for stock-based compensation. Based on current treasury stock levels, we do not expect to repurchase additional shares specifically for stock-based compensation during 2013.
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, one day from the date of grant.
The following table summarizes stock option activity for the six months ended June 30, 2013:
 
 
Number of
Options
(in thousands)
 
Weighted
Average
Exercise
Price ($)
 
Weighted
Average
Remaining
Contractual
Term
(Years)
 
Aggregate
Intrinsic Value
(in thousands)
Outstanding at beginning of period
800

 
$
17.92

 

 

Options granted

 
$

 

 

Options exercised
(41
)
 
$
17.93

 

 

Options forfeited
(5
)
 
$
20.39

 

 

Options expired

 
$

 

 

Outstanding at end of period
754

 
$
17.90

 
3.54
 
$
4,727

Exercisable at end of period
571

 
$
17.60

 
2.75
 
$
3,750

We did not grant any stock options during the three-month and six-month periods ended June 30, 2013 and June 30, 2012. The fair value of stock option grants is estimated using a Black-Scholes valuation model. The total intrinsic value of stock options exercised was $0.2 million and $0.1 million for the three-month periods ended June 30, 2013 and June 30, 2012, respectively, and $0.3 million and $0.2 million for the six-month periods ended June 30, 2013 and June 30, 2012, respectively.

10


Restricted Stock
Restricted stock awards entitle the holder to shares of common stock when the award vests. The value of these shares may fluctuate according to market conditions and other factors. Restricted stock awards currently outstanding vest over periods ranging from 12 to 84 months from the grant date of the award. The restricted shares do not confer any voting or dividend rights to recipients until such shares fully vest and do not have any post-vesting sales restrictions.
The following table summarizes restricted stock activity for the six months ended June 30, 2013:
 
 
Number of
Restricted
Shares (in
thousands)
 
Weighted
Average Grant
Date Fair
Value ($)
Nonvested at beginning of period
815

 
$
20.69

Shares granted

 
$

Shares vested
(21
)
 
$
23.27

Shares forfeited
(1
)
 
$
20.64

Nonvested at end of period
793

 
$
20.62

We did not grant any shares of restricted stock during the three-month and six-month periods ended June 30, 2013 and granted 5,000 shares of restricted stock during the three-month and six-month periods ended June 30, 2012. We estimate the fair value of restricted stock 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 present value of estimated future dividends for the 2012 grant was calculated using the following assumptions:
Dividends per share (quarterly amounts)
 
 
 
 
 
 
$
0.05

Risk-free interest rate
 
 
 
 
 
 
0.9
%

The total fair values of previously granted restricted stock awards vested during the three-month and six-month periods ended June 30, 2013 were $25 thousand and $503 thousand, respectively. No shares of restricted stock vested during the three-month and six-month periods ended June 30, 2012. 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 was $9 thousand and $166 thousand for the three-month and six-month periods ended June 30, 2013 and is reflected as a financing activity within the Consolidated Statements of Cash Flows; the 6,952 shares withheld to satisfy the tax withholding obligations were recorded as treasury stock.

(6)
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 regional short-haul (“Regional”) fleet transports a variety of consumer nondurable products and other commodities in truckload quantities within geographic regions across the United States using dry van trailers; (ii) the medium-to-long-haul van (“Van”) fleet provides comparable truckload van service over irregular routes; and (iii) the expedited (“Expedited”) fleet provides time-sensitive truckload services utilizing driver teams. 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

11


complete management of global shipments from origin to destination using a combination of air, ocean, truck and rail transportation modes.
We generate other revenues related to 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. VAS segment revenues for the three-month and six-month periods ended June 30, 2012 have been revised to conform with the current presentation.
The following table summarizes our segment information (in thousands):
 
 
Three Months Ended
 June 30,
 
Six Months Ended
 June 30,
 
2013
 
2012
 
2013
 
2012
Revenues
 
 
 
 
 
 
 
Truckload Transportation Services
$
412,869

 
$
432,888

 
$
821,769

 
$
850,378

Value Added Services
91,185

 
85,109

 
173,695

 
162,626

Other
2,083

 
3,481

 
4,127

 
6,538

Corporate
996

 
1,419

 
1,646

 
2,494

Subtotal
507,133

 
522,897

 
1,001,237

 
1,022,036

Inter-segment eliminations
(485
)
 
(1,085
)
 
(1,702
)
 
(1,848
)
Total
$
506,648

 
$
521,812

 
$
999,535

 
$
1,020,188

Operating Income
 
 
 
 
 
 
 
Truckload Transportation Services
$
34,442

 
$
45,074

 
$
58,057

 
$
76,438

Value Added Services
4,489

 
4,302

 
8,102

 
8,288

Other
1,623

 
855

 
2,528

 
1,359

Corporate
1,807

 
882

 
2,367

 
430

Total
$
42,361

 
$
51,113

 
$
71,054

 
$
86,515



12


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “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:
Overview
Results of Operations
Liquidity and Capital Resources
Contractual Obligations and Commercial Commitments
Off-Balance Sheet Arrangements
Regulations
Critical Accounting Policies
Accounting Standards
The MD&A should be read in conjunction with our 2012 Form 10-K.
Overview:
We have two reportable segments, Truckload Transportation Services ("Truckload") and Value Added Services ("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 second quarter 2013 to second quarter 2012, 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

13


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.

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.  
 
 
Three Months Ended (3ME) June 30,
 
Six Months Ended (6ME) June 30,
 
Percentage Change in Dollar Amounts
 
2013
 
2012
 
2013
 
2012
 
3ME
6ME
(Amounts in thousands)
$
%
 
$
%
 
$
%
 
$
%
 
%
%
Operating revenues
$
506,648

100.0

 
$
521,812

100.0

 
$
999,535

100.0

 
$
1,020,188

100.0

 
(2.9
)%
(2.0
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 


Salaries, wages and benefits
135,236

26.7

 
138,512

26.5

 
268,341

26.9

 
272,360

26.7

 
(2.4
)%
(1.5
)%
Fuel
90,191

17.8

 
99,322

19.0

 
186,984

18.7

 
202,259

19.8

 
(9.2
)%
(7.6
)%
Supplies and maintenance
43,934

8.7

 
44,741

8.6

 
87,062

8.7

 
86,578

8.5

 
(1.8
)%
0.6
 %
Taxes and licenses
21,586

4.2

 
22,967

4.4

 
43,210

4.3

 
45,499

4.5

 
(6.0
)%
(5.0
)%
Insurance and claims
17,320

3.4

 
15,103

2.9

 
37,121

3.7

 
34,327

3.4

 
14.7
 %
8.1
 %
Depreciation
42,367

8.4

 
41,506

8.0

 
84,698

8.5

 
82,177

8.0

 
2.1
 %
3.1
 %
Rent and purchased transportation
115,060

22.7

 
108,496

20.8

 
221,378

22.2

 
209,006

20.5

 
6.0
 %
5.9
 %
Communications and utilities
3,187

0.6

 
3,344

0.6

 
6,329

0.6

 
7,163

0.7

 
(4.7
)%
(11.6
)%
Other
(4,594
)
(0.9
)
 
(3,292
)
(0.6
)
 
(6,642
)
(0.7
)
 
(5,696
)
(0.6
)
 
(39.6
)%
(16.6
)%
Total operating expenses
464,287

91.6

 
470,699

90.2

 
928,481

92.9

 
933,673

91.5

 
(1.4
)%
(0.6
)%
 
 
 
 
 
 
 
 
 
 
 
 
 


Operating income
42,361

8.4

 
51,113

9.8

 
71,054

7.1

 
86,515

8.5

 
(17.1
)%
(17.9
)%
Total other expense (income)
(526
)
(0.1
)
 
(450
)
(0.1
)
 
(897
)
(0.1
)
 
(754
)
(0.1
)
 
(16.9
)%
(19.0
)%
Income before income taxes
42,887

8.5

 
51,563

9.9

 
71,951

7.2

 
87,269

8.6

 
(16.8
)%
(17.6
)%
Income taxes
17,047

3.4

 
20,883

4.0

 
28,600

2.9

 
35,344

3.5

 
(18.4
)%
(19.1
)%
Net income
$
25,840

5.1

 
$
30,680

5.9

 
$
43,351

4.3

 
$
51,925

5.1

 
(15.8
)%
(16.5
)%


14


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.
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2013
 
2012
 
2013
 
2012
Truckload Transportation Services (amounts in thousands)
$
 
%
 
$
 
%
 
$
 
%
 
$
 
%
Trucking revenues, net of fuel surcharge
$
320,000

 
 
 
$
331,974

 
 
 
$
633,400

 
 
 
$
653,200

 
 
Trucking fuel surcharge revenues
88,574

 
 
 
97,389

 
 
 
180,159

 
 
 
190,596

 
 
Non-trucking and other operating revenues
4,295

 
 
 
3,525

 
 
 
8,210

 
 
 
6,582

 
 
Operating revenues
412,869

 
100.0
 
432,888

 
100.0
 
821,769

 
100.0
 
850,378

 
100.0
Operating expenses
378,427

 
91.7
 
387,814

 
89.6
 
763,712

 
92.9
 
773,940

 
91.0
Operating income
$
34,442

 
8.3
 
$
45,074

 
10.4
 
$
58,057

 
7.1
 
$
76,438

 
9.0

 
Three Months Ended
June 30,
 
 
 
Six Months Ended
June 30,
 
 
Truckload Transportation Services
2013
 
2012
 
% Change
 
2013
 
2012
 
% Change
Operating ratio, net of fuel surcharge revenues
89.4
%
 
86.6
%
 
 
 
91.0
%
 
88.4
%
 
 
Average revenues per tractor per week (1)
$
3,450

 
$
3,485

 
(1.0
)%
 
$
3,409

 
$
3,460

 
(1.5
)%
Average trip length in miles (loaded)
441

 
476

 
(7.4
)%
 
453

 
483

 
(6.2
)%
Average percentage of empty miles (2)
12.93
%
 
12.23
%
 
5.7
 %
 
12.98
%
 
12.06
%
 
7.6
 %
Average tractors in service
7,134

 
7,327

 
(2.6
)%
 
7,146

 
7,261

 
(1.6
)%
Total trailers (at quarter end)
22,005

 
22,355

 
 
 
22,005

 
22,355

 
 
Total tractors (at quarter end):
 
 
 
 
 
 
 
 
 
 
 
     Company
6,480

 
6,675

 
 
 
6,480

 
6,675

 
 
     Independent contractor
670

 
650

 
 
 
670

 
650

 
 
          Total tractors
7,150

 
7,325

 
 
 
7,150

 
7,325

 
 

(1)
Net of fuel surcharge revenues.
(2) 
“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.
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
  
2013
 
2012
 
2013
 
2012
Value Added Services (amounts in thousands)
$
 
%
 
$
 
%
 
$
 
%
 
$
 
%
Operating revenues
$
91,185

 
100.0
 
$
85,109

 
100.0
 
$
173,695

 
100.0
 
$
162,626

 
100.0
Rent and purchased transportation expense
76,255

 
83.6
 
72,239

 
84.9
 
145,452

 
83.7
 
138,265

 
85.0
Gross margin
14,930

 
16.4
 
12,870

 
15.1
 
28,243

 
16.3
 
24,361

 
15.0
Other operating expenses
10,441

 
11.5
 
8,568

 
10.0
 
20,141

 
11.6
 
16,073

 
9.9
Operating income
$
4,489

 
4.9
 
$
4,302

 
5.1
 
$
8,102

 
4.7
 
$
8,288

 
5.1

15


 
Three Months Ended
June 30,
 
 
 
Six Months Ended
June 30,
 
 
Value Added Services
2013
 
2012
 
% Change
 
2013
 
2012
 
% Change
Total VAS shipments
70,383

 
68,376

 
2.9
%
 
134,749

 
135,196

 
(0.3
)%
Less: Non-committed shipments to Truckload segment
19,411

 
18,808

 
3.2
%
 
39,357

 
37,965

 
3.7
 %
Net VAS shipments
50,972

 
49,568

 
2.8
%
 
95,392

 
97,231

 
(1.9
)%
Average revenue per shipment
$
1,632

 
$
1,595

 
2.3
%
 
$
1,653

 
$
1,559

 
6.0
 %
 


 


 
 
 


 


 
 
Average tractors in service
45

 
17

 
 
 
42

 
14

 
 
Total trailers (at quarter end)
1,755

 
1,000

 
 
 
1,755

 
1,000

 
 
Total tractors (at quarter end)
43

 
17

 
 
 
43

 
17

 
 

Three Months Ended June 30, 2013 Compared to Three Months Ended June 30, 2012
Operating Revenues
Operating revenues decreased 2.9% for the three months ended June 30, 2013, compared to the same period of the prior year. Trucking revenues, net of fuel surcharge, decreased 3.6% due to a 1.0% decrease in average revenues per tractor per week and a 2.6% decrease in the average number of tractors in service.
Second quarter 2013 freight demand was softer in April 2013 than April 2012, due in part to unfavorable temperature and weather comparisons which negatively affected retail volumes. Freight demand improved and seasonally strengthened during May and June 2013 and was comparable to May and June 2012. In July 2013 freight demand was comparable to July 2012, with typical seasonal demand trends throughout the month.
Average revenues per tractor per week declined by 1.0% due to a 2.6% decrease in average miles per truck offset partially by a 1.6% increase in average revenue per total mile, net of fuel surcharge. The decrease in the average miles per truck in second quarter 2013 compared to second quarter 2012 was due primarily to the freight softness in April combined with truck mix changes (more Dedicated, less One-Way Truckload) and a 7.4% shorter length of haul. Average revenues per loaded mile, net of fuel surcharge, increased 2.5% in second quarter 2013 compared to second quarter 2012. Our average percentage of empty miles increased from 12.23% in second quarter 2012 to 12.93% in second quarter 2013; however, our empty miles decreased slightly when measured on a per-trip basis. Base rate increases showed modestly positive momentum as second quarter 2013 progressed. Spot market rates were lower in the second quarter 2013 than in second quarter 2012 due to lower transactional project business, particularly in the Midwest market.
The average number of tractors in service in the Truckload segment decreased 2.6%, from 7,327 in second quarter 2012 to 7,134 in second quarter 2013, a decrease of 193 tractors. We ended the quarter with 7,150 tractors in the Truckload segment, an increase of 60 trucks from the end of first quarter 2013. A difficult driver market is making it challenging to achieve our 7,300 truck goal for the Truckload segment. We cannot predict whether future driver shortages may occur, which if they did, could adversely affect our ability to maintain our fleet size or return our fleet to our goal of 7,300 trucks. 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 9.1% from $97.4 million in second quarter 2012 to $88.6 million in second quarter 2013 because of lower average fuel prices and lower miles in second quarter 2013. 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.
We continue to diversify our business model. Our goal is to attain a more balanced revenue portfolio comprised of one-way truckload, specialized and logistics (which includes the VAS segment) services by growing our logistics services revenues. Our

16


Specialized Services unit, primarily Dedicated, ended second quarter 2013 with 3,620 tractors or 51% of our Truckload segment fleet (an increase of 125 from the end of second quarter 2012).
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 $0.5 million in second quarter 2013 and $1.1 million in second quarter 2012 for Intermodal drayage movements performed by the Truckload segment (also recorded as trucking revenue by the Truckload segment), and these transactions between reporting segments are eliminated in consolidation. VAS revenues increased 7.1% from $85.1 million in second quarter 2012 to $91.2 million in second quarter 2013, resulting from higher average revenues per VAS shipment and an increase in the number of VAS shipments. VAS gross margin dollars increased 16.0% from $12.9 million in second quarter 2012 to $14.9 million for the same period in 2013, and other operating expenses increased $1.9 million or 21.9%; these changes are partially attributed to Intermodal's development of its own drayage fleet, which had the effect of lowering rent and purchased transportation expense and increasing other operating expenses. The average number of tractors in service in the VAS segment (dray trucks) increased from 17 in second quarter 2012 to 45 in second quarter 2013, an increase of 28 tractors. VAS operating income increased 4.3% from $4.3 million in second quarter 2012 to $4.5 million in second quarter 2013.
    
Brokerage revenues in second quarter 2013 increased 10.6% compared to second quarter 2012 due to an increase in average revenue per shipment and a 3% increase in shipment volume. Brokerage gross margin percentage improved 28 basis points, and Brokerage operating income in second quarter 2013 was higher than in second quarter 2012. Intermodal revenues increased 10.7%, and Intermodal operating income was also higher comparing second quarter 2013 to second quarter 2012. WGL revenues and operating income decreased in second quarter 2013 compared to second quarter 2012.
Operating Expenses
Our operating ratio (operating expenses expressed as a percentage of operating revenues) was 91.6% for the three months ended June 30, 2013, compared to 90.2% for the three months ended June 30, 2012. Expense items that impacted the overall operating ratio are described on the following pages. The tables on pages 14-16 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 same quarter of 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 decreased $3.3 million or 2.4% in second quarter 2013 compared to second quarter 2012 but increased 0.2% as a percentage of operating revenues. The lower dollar amount of salaries, wages and benefits expense resulted from the lower average miles per truck and the shift from this expense category to rent and purchased transportation expense because of the increase in independent contractor miles as a percentage of total miles. However, when evaluated on a per-mile basis, salaries wages and benefits expense increased, which we attribute to (i) higher driver pay, including discretionary pay items in a more competitive driver market and driver pay related to new fleet startups, (ii) higher non-driver pay, and (iii) lower average miles per truck during second quarter 2013. Non-driver salaries, wages and benefits in the non-trucking VAS segment increased 4.2%, and net VAS shipments retained by VAS increased by 2.8%.
We renewed our workers' compensation insurance coverage for the policy year beginning April 1, 2013. 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 2013 were similar to those for the previous policy year.
The driver recruiting and retention market remained challenging in second quarter 2013 and was similar to first quarter 2013. We believe that a declining number of, and increased competition for, driver training school graduates, a gradually declining national unemployment rate and a strengthening housing construction market were all contributing factors. We were able to hire more drivers during second quarter 2013 compared to second quarter 2012, but the difficult driver market is making it challenging to achieve our 7,300 truck goal for the Truckload segment. However, we continue to believe our position in the current driver market is better than that of many competitors because over 70% of our driving jobs are in more attractive, shorter-haul Regional and Specialized Services fleet operations that enable us to return drivers to their homes on a more frequent and consistent basis. In the event the domestic economy strengthens, we anticipate the driver market could become even more challenging. We are unable to predict whether we will experience future driver shortages. If such a shortage were to occur and 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 $9.1 million or 9.2% in second quarter 2013 compared to second quarter 2012 and decreased 1.2% as a percentage of operating revenues due to (i) fewer miles, (ii) improved miles per gallon ("mpg"), (iii) lower average diesel fuel prices and (iv) a shift from this expense category to rent and purchased transportation expense because of the increase in independent

17


contractor miles as a percentage of total miles. Average diesel fuel prices were 3 cents per gallon lower in second quarter 2013 than in second quarter 2012, a 1.1% decrease.
We continue to employ measures to improve our fuel mpg such as (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 such as new trucks with EPA 2010 compliant engines, more aerodynamic truck features, idle reduction systems, tire inflation systems and trailer skirts to reduce our fuel gallons purchased and improve our mpg. These measures resulted in an improvement in mpg in second quarter 2013 compared to second quarter 2012. However, fuel savings from the 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 a U.S. Environmental Protection Agency (the “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 July 2013, the average diesel fuel price per gallon was approximately 11 cents higher than the average diesel fuel price per gallon in the same period of 2012 and approximately 11 cents lower than in third quarter 2012.
Shortages of fuel, increases in fuel prices and petroleum product rationing can have a materially adverse effect on our operations and profitability. We are unable to predict whether fuel price levels will increase or decrease in the future or the extent to which fuel surcharges will be collected from customers. As of June 30, 2013, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.
Supplies and maintenance decreased $0.8 million or 1.8% in second quarter 2013 compared to second quarter 2012 and increased 0.1% as a percentage of operating revenues. Increases in over the road tractor maintenance and toll expenses were offset by a shift from this expense category to rent and purchased transportation expense because of the increase in independent contractor miles as a percentage of total miles. The average age of our company truck fleet at the end of second quarter 2013 was 2.4 years (the same as at the end of first quarter 2013) and was 2.3 years at the end of second quarter 2012. Our goal is to maintain our average truck age at approximately this level during 2013.
Taxes and licenses decreased $1.4 million or 6.0% in second quarter 2013 compared to second quarter 2012 and decreased 0.2% as a percentage of operating revenues. The decrease resulted from fewer miles driven and the resulting decrease in fuel taxes associated with fewer gallons purchased. Improved company truck fuel mpg, which results in fewer gallons of diesel fuel purchased and consequently less fuel taxes paid, also contributed but to a lesser extent.
Insurance and claims increased $2.2 million or 14.7% in second quarter 2013 compared to second quarter 2012 and increased 0.5% as a percentage of operating revenues. The increase was the result of a higher average cost per claim and higher frequency of claims related to smaller dollar claims that occurred during the quarter and higher negative development of smaller dollar claims that occurred in prior quarters. The majority 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, 2013 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. Our liability and cargo insurance premiums for the policy year that began August 1, 2013 are slightly higher than premiums for the previous policy year on a per-mile basis.
Depreciation expense increased $0.9 million or 2.1% in second quarter 2013 compared to second quarter 2012 and increased 0.4% as a percentage of operating revenues. This increase was due primarily to the higher cost of new trucks purchased compared to the cost of used trucks that were sold over the past 12 months. 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.
Depreciation expense was historically affected by two changes to engine emissions standards imposed by the EPA that became effective in October 2002 and in January 2007, resulting in increased truck purchase costs. We began to take delivery of trucks with these 2007-standard engines in first quarter 2008 to replace older trucks in our fleet. A final set of more rigorous EPA-mandated emissions standards became effective for all new engines manufactured after January 1, 2010. 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. In 2013, we continue to purchase trucks with 2010-standard engines to replace older trucks that we sell or trade, and as of June 30, 2013, approximately 65% of our company tractors had engines that comply with the 2010 emissions standards. Depreciation expense increased in second quarter 2013 due to higher prices for these new trucks and is expected to increase further as we continue to replace tractors with 2007-standard engines.

18


Rent and purchased transportation expense increased $6.6 million or 6.0% in second quarter 2013 compared to second quarter 2012 and increased 1.9% as a percentage of operating revenues. Rent and purchased transportation expense consists mainly of payments to third-party capacity providers in the VAS segment and other non-trucking operations and payments to 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 increased $4.0 million but decreased from 84.9% of VAS revenues in second quarter 2012 to 83.6% of VAS revenues in second quarter 2013.
Rent and purchased transportation for the Truckload segment increased $1.9 million in second quarter 2013 compared to second quarter 2012. This increase was due primarily to a shift from salaries, wages and benefits and several other expense categories to rent and purchased transportation expense because of the increase in independent contractor truck miles as a percentage of total miles and increased rent and purchased transportation expense related to a higher volume of Truckload segment shipments delivered to or from Mexico utilizing a third-party capacity provider, partially offset by lower reimbursement rate to independent contractors for fuel due to decreased fuel prices. Independent contractor miles as a percentage of total miles were 12.2% in second quarter 2013 compared to 10.9% in second quarter 2012.
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, 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.
Communication and utilities decreased $0.2 million or 4.7% in second quarter 2013 compared to second quarter 2012 but did not change as a percentage of operating revenues. This decrease is due to the installation of Qualcomm MCP 200 units, which was started in early 2011 and substantially completed by mid-2012, that have a lower monthly service fee than the Qualcomm OmniTRACS units that were replaced.
Other operating expenses decreased $1.3 million or 39.6% in second quarter 2013 compared to second quarter 2012 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 $6.5 million in second quarter 2013, including a $1.1 million gain from the sale of real estate. This compares to gains of $5.7 million in second quarter 2012 and $3.5 million in first quarter 2013. We sold fewer trucks and trailers in second quarter 2013 compared to second quarter 2012 and realized higher average gains per truck. We expect to sell approximately the same number of trucks but fewer trailers in the second half of 2013 compared to the second half of 2012.
Other Expense (Income)
Other expense (income) decreased $0.1 million or 16.9% in second quarter 2013 compared to second quarter 2012 and didn't change as a percentage of operating revenues. Interest income net of interest expense increased $0.1 million in second quarter 2013 compared to second quarter 2012.
Income Taxes
Our effective income tax rate (income taxes expressed as a percentage of income before income taxes) decreased to 39.75% for second quarter 2013 from 40.50% for second quarter 2012. The lower income tax rate is attributed to lower non-deductible expenses, primarily driver per diem, and higher employment tax credits.

Six Months Ended June 30, 2013 Compared to Six Months Ended June 30, 2012
Operating Revenues
Operating revenues decreased 2.0% for the six months ended June 30, 2013, compared to the same period of the prior year. Trucking revenues, net of fuel surcharge, decreased 3.0% due primarily to decreases in average revenues per tractor per week and average number of tractors in service. Average revenues per total mile, net of fuel surcharge, increased 1.5% in the first half of 2013 compared to the same period in 2012, and average monthly miles per tractor declined by 2.9%. Fuel surcharge revenues decreased 5.5% from $190.6 million in the 2012 year-to-date period to $180.2 million in the 2013 year-to-date period because of lower miles and lower diesel fuel prices. VAS revenues increased 6.8%, from $162.6 million in the first six months of 2012 to $173.7 million in the same 2013 period. The increases occurred in Brokerage, Intermodal and WGL.

19


Operating Expenses
Our operating ratio (operating expenses expressed as a percentage of operating revenues) was 92.9% for the six months ended June 30, 2013, compared to 91.5% for the same period of 2012. Expense items that impacted the overall operating ratio are described on the following pages. The tables on pages 14-16 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 same period of 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 decreased $4.0 million or 1.5% in the 2013 year-to-date period but increased 0.2% as a percentage of operating revenues. The lower dollar amount of salaries, wages, and benefits expense was due primarily to the lower average miles per truck and the shift from this expense category to rent and purchased transportation expense that occurred because of the increase in independent contractor miles as a percentage of total miles. However, when evaluated on a per-mile basis, salaries, wages and benefits increased, which we attribute primarily to higher driver pay, including discretionary pay items in a more competitive driver market and driver pay related to new fleet startups. Non-driver salaries, wages and benefits in the non-trucking VAS segment increased 12.8%. VAS handled 0.3% fewer shipments, including those transferred to the Truckload segment, and the net shipments retained by VAS decreased by 6.0%.
Fuel decreased $15.3 million or 7.6% in the first six months of 2013 compared to the same period in 2012 and decreased 1.1% as a percentage of operating revenues. The decrease resulted from (i) fewer miles, (ii) improved mpg, (iii) lower average diesel fuel prices, and (iv) a shift from this expense category to rent and purchased transportation expense because of the increase in independent contractor miles as a percentage of total miles. Average diesel fuel prices were 4 cents per gallon lower in the first six months of 2013 than in the same 2012 period.
Supplies and maintenance expense increased $0.5 million or 0.6% in the 2013 year-to-date period compared to the same 2012 period and increased 0.2% as a percentage of operating revenues. More severe winter weather in first quarter 2013 compared to unusually mild conditions in first quarter 2012 contributed to the higher expense as did increases in a combination of miscellaneous expenses including driver advertising and travel expenses.
Taxes and licenses decreased $2.3 million or 5.0% in the first six months of 2013 compared to the same period in 2012 and decreased 0.2% as a percentage of operating revenues. The decrease is primarily attributed to fewer miles driven and the resulting decrease in fuel taxes associated with fewer gallons purchased.
Insurance and claims increased $2.8 million or 8.1% in the first six months of 2013 compared to the same period in 2012 and increased 0.3% as a percentage of operating revenues due primarily to an increase in the reserve for prior period claims (unfavorable development) related to smaller liability claims.
Depreciation increased $2.5 million or 3.1% in the first six months of 2013 compared to the same period in 2012 and increased 0.5% as a percentage of operating revenues. This increase was due primarily to higher tractor and trailer depreciation resulting from the higher cost of new equipment and replacing fully-depreciated trailers, offset partially by lower depreciation expense on auxiliary power units that were sold with the older used trucks and not replaced.
Rent and purchased transportation expense increased $12.4 million or 5.9% in the first six months of 2013 compared to the same period in 2012 and increased 1.7% as a percentage of operating revenues. Rent and purchased transportation for the Truckload segment was $5.0 million higher because of the shift from salaries, wages and benefits expense and several other expense categories to rent and purchased transportation expense because of the increase in independent contractor miles as a percentage of total miles. Independent contractor miles as a percentage of total miles were 12.0% in the first six months of 2013 compared to 10.8% during the same period of 2012. Rent and purchased transportation expense for the VAS segment increased in response to higher VAS revenues. VAS rent and purchased transportation expense increased $7.2 million but decreased from 85.0% of VAS revenues in the 2012 period to 83.7% in the 2013 period.
Communications and utilities expense decreased $0.8 million or 11.6% in the first six months of 2013 compared to the same period in 2012 and increased 0.1% as a percentage of operating revenues because of lower monthly service fees on the new Qualcomm MCP200 units and lower telephone costs.
Other operating expenses decreased $0.9 million or 16.6% in the first six months of 2013 compared to the same period in 2012 and decreased 0.1% as a percentage of operating revenues. Gains on sales of assets (primarily used trucks and trailers) decreased to $10.0 million in the six months ended June 30, 2012 from $10.4 million in the six months ended June 30, 2012. In the 2013 year-to-date period, we sold fewer trucks and trailers compared to the 2012 year-to-date period and realized higher average gains per truck sold. The 2013 year-to-date period also included a $1.1 million gain from the sale of real estate. Bad debt expense was lower in the 2013 year-to-date period, partially offset by higher legal fees compared to the same 2012 period.

20


Other Expense (Income)
Other expense (income) decreased $0.1 million or 19.0% in the 2013 year-to-date period and didn't change as a percentage of revenues. Interest income net of interest expense increased $0.2 million year over year.
Income Taxes
Our effective income tax rate (income taxes expressed as a percentage of income before income taxes) decreased to 39.75% for the six months ended June 30, 2013 from 40.5% for the same period in 2012. The lower income tax rate is attributed to lower projected non-deductible expenses, primarily driver per diem, and higher projected employment tax credits.

Liquidity and Capital Resources:
During the six months ended June 30, 2013, net cash provided by operating activities decreased to $110.9 million, a 20% decrease ($27.9 million) in cash flows compared to the same six-month period one year ago. The decrease in net cash provided by operating activities resulted primarily from a $29.7 million decrease in cash flows related to other current assets (including the portion attributable to higher income tax payments noted below) and an $11.9 million decrease in cash flows related to accounts receivable, partially offset by an $18.0 million increase in cash flows related to accounts payable. Income tax payments increased $14.6 million in the 2013 period compared to the 2012 period, and this increase is reflected in the net change in deferred income taxes, other current assets and other current liabilities on the consolidated statements of cash flows. We were able to make net capital expenditures and pay dividends with the net cash provided by operating activities and existing cash balances, supplemented by net short-term borrowings under our existing credit facilities.
Net cash used in investing activities decreased from $119.6 million for the six-month period ended June 30, 2012 to $30.1 million for the six-month period ended June 30, 2013. Net property additions (primarily revenue equipment) were $34.5 million for the six-month period ended June 30, 2013, compared to $121.9 million during the same period of 2012. This decrease occurred because our purchases of new trucks and trailers, net of dispositions, were significantly lower in the 2013 period than in the 2012 period.
As of June 30, 2013, we were committed to property and equipment purchases of approximately $100.1 million. We currently expect our net capital expenditures (primarily revenue equipment) in 2013 to be in the range of $150.0 million to $200.0 million, compared to net capital expenditures in 2012 of $224.9 million. Our estimate of capital expenditures for 2013 increased by $50.0 million as the market for our used equipment was better in second quarter 2013 than we anticipated. We intend to fund these net capital expenditures through cash flow from operations and financing available under our existing credit facilities, as management deems necessary.
Net financing activities used $71.8 million during the six months ended June 30, 2013 and $13.6 million during the same period in 2012. During the six-month period ended June 30, 2013, we repaid $50.0 million of short-term and long-term debt, and our outstanding debt at June 30, 2013 was $40.0 million. During the same period in 2012, we borrowed and repaid short-term debt totaling $120.0 million. We paid dividends of $7.3 million in both the six-month periods ended June 30, 2013 and 2012. Financing activities for the six months ended June 30, 2013 also included common stock repurchases of 608,791 shares at a cost of $15.1 million. From time to time, Werner Enterprises, Inc. (the "Company") has repurchased, and may continue to repurchase, shares of the Company’s common stock. The timing and amount of such purchases depend upon stock market conditions and other factors. As of June 30, 2013, the Company had purchased 1,649,991 shares pursuant to our current Board of Directors repurchase authorization and had 6,350,009 shares remaining available for repurchase.
Management believes our financial position at June 30, 2013 is strong. As of June 30, 2013, we had $24.2 million of cash and cash equivalents and $738.9 million of stockholders’ equity. Cash is invested primarily in government portfolio money market funds. As of June 30, 2013, we had a total of $250.0 million of credit pursuant to two credit facilities, of which we had borrowed $40.0 million. The remaining $210.0 million of credit available under these facilities is reduced by the $33.7 million in standby 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.

21


Contractual Obligations and Commercial Commitments:
The following tables set forth our contractual obligations and commercial commitments as of June 30, 2013.
Payments Due by Period
 
(Amounts in millions)
Total
 
Less than
1 year
 
1-3 years
 
3-5 years
 
More than
5 years
 
Period
Unknown
Contractual Obligations
 
 
 
 
 
 
 
 
 
 
 
Unrecognized tax benefits
$
12.1

 
$
0.5

 
$

 
$

 
$

 
$
11.6

Long-term debt
40.0

 

 
40.0

 

 

 

Property and equipment purchase commitments
100.1

 
100.1

 

 

 

 

Operating leases
3.0

 
1.6

 
1.4

 

 

 

Total contractual cash obligations
$
155.2

 
$
102.2

 
$
41.4

 
$

 
$

 
$
11.6

Other Commercial Commitments
 
 
 
 
 
 
 
 
 
 
 
Unused lines of credit
$
176.3

 
$

 
$
101.3

 
$
75.0

 
$

 
$

Stand-by letters of credit
33.7

 
33.7

 

 

 

 

Total commercial commitments
$
210.0

 
$
33.7

 
$
101.3

 
$
75.0

 
$

 
$

Total obligations
$
365.2

 
$
135.9

 
$
142.7

 
$
75.0

 
$

 
$
11.6

    
We have committed credit facilities with two banks totaling $250.0 million that mature in May 2016 ($175.0 million) and May 2017 ($75.0 million). At June 30, 2013, we had borrowed $40.0 million under these facilities. Borrowings under these credit facilities bear variable interest (0.85% at June 30, 2013) based on the London Interbank Offered Rate (“LIBOR”). The credit available under these facilities is further reduced by the amount of standby letters of credit under which we are obligated. The standby 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 June 30, 2013, we have recorded a $12.1 million liability for unrecognized tax benefits. We expect $0.5 million to be settled within the next twelve months and are unable to reasonably determine when the $11.6 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. Our future payment obligation under these leases at June 30, 2013 was approximately $3.0 million.
Regulations:
Item 1 of Part I of our 2012 Form 10-K includes a discussion of pending proposed regulations that may have an effect on our operations if they become adopted and effective as proposed. Except as described below, there have been no material changes in the status of these proposed regulations previously disclosed in the 2012 Form 10-K.
In December 2011, the Federal Motor Carrier Safety Administration ("FMCSA") adopted and issued a final rule that amended the driver hours of service ("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. It is too early to measure the ongoing impact of the HOS changes on driver and truck productivity. We are taking steps to attempt to minimize the impact of the HOS changes. However, government restrictions of available driving hours will 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 the 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).


22


Critical Accounting Policies:
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 amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and (ii) reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Information regarding our Critical Accounting Policies can be found in our 2012 Form 10-K. Together with the effects of the matters described there, these factors may significantly impact our results of operations from period to period. The most significant accounting policies and estimates that affect our financial statements include the following:
Selections of estimated useful lives and salvage values for purposes of depreciating tractors and trailers.
Impairment of long-lived assets.
Estimates of accrued liabilities for insurance and claims for liability and physical damage losses and workers’ compensation.
Policies for revenue recognition.
Accounting for income taxes.
Allowance for doubtful accounts.
We periodically evaluate these policies and estimates as events and circumstances change. There have been no material changes to these critical accounting policies and estimates from those discussed in our 2012 Form 10-K.
Accounting Standards:
In the descriptions under “New Accounting Pronouncements Adopted” and “Accounting Standards Updates Not Yet Effective” that follow, references in quotations identify guidance and Accounting Standards Updates relating to the topics and subtopics (and their descriptive titles, as appropriate) of the Accounting Standards Codification of the Financial Accounting Standards Board (“FASB”).
New Accounting Pronouncements Adopted
We did not adopt any new accounting standards during second quarter 2013.
Accounting Standards Updates Not Yet Effective
Accounting Standards Updates not effective until after June 30, 2013 are not expected to have a material effect on our consolidated financial position, results of operations or cash flows.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risk from changes in commodity prices, foreign currency exchange rates and interest rates.
Commodity Price Risk
The price and availability of diesel fuel are subject to fluctuations 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 June 30, 2013, 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 $1.1 million for second quarter 2013 and $0.8 million for second quarter 2012 and were recorded in accumulated other comprehensive loss within stockholders’ equity in the Consolidated Balance Sheets.

23


Interest Rate Risk
We had $40.0 million of variable rate debt outstanding at June 30, 2013. Interest rates on the variable rate debt and our unused credit facilities are based on the LIBOR. Increases in interest rates could impact our annual interest expense on future borrowings. Assuming this level of borrowings, a hypothetical one-percentage point increase in the LIBOR interest rate would increase our annual interest expense by $400,000. As of June 30, 2013, we had no derivative financial instruments to reduce our exposure to interest rate increases.

Item 4. 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 Rule 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). 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.
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 our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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.


24


PART II
OTHER INFORMATION

Item 1. Legal Proceedings.
Information regarding material pending legal proceedings is incorporated by reference from Note 2 and Note 3 to our Consolidated Financial Statements set forth in Part I of this report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On October 15, 2007, we announced that on October 11, 2007 our Board of Directors approved an increase in the number of shares of our common stock that the Company is authorized to repurchase. Under this authorization, the Company is permitted to repurchase an additional 8,000,000 shares. As of June 30, 2013, the Company had purchased 1,649,991 shares pursuant to this authorization and had 6,350,009 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.
The following table summarizes our common stock repurchases during the second quarter of 2013 made pursuant to this authorization. The Company did not purchase any shares during the second quarter of 2013 other than pursuant to this authorization. All stock repurchases were made by the Company or on its behalf and not by any “affiliated purchaser,” as defined by Rule 10b-18 of the Exchange Act.
Issuer Purchases of Equity Securities
 
Period
Total Number of Shares (or Units) Purchased
Average Price Paid per Share (or Unit)
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
April 1-30, 2013



6,958,800

May 1-31, 2013
547,969

$
24.72

547,969

6,410,831

June 1-30, 2013
60,822

$
24.96

60,822

6,350,009

Total
608,791

$
24.75

608,791

6,350,009



25


Item 6. Exhibits.
 
Exhibit No.
  
Exhibit
  
Incorporated by Reference to:
3(i)
  
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
 
 
 
3(ii)
  
Revised and Restated By-Laws of Werner Enterprises, Inc.
  
Exhibit 3(ii) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007
 
 
 
 
 
10.1
 
Werner Enterprises, Inc. Amended and Restated Equity Plan
 
Filed herewith
 
 
 
 
 
11
 
Statement Re: Computation of Per Share Earnings
 
See Note 4 (Earnings Per Share) in the Notes to Consolidated Financial Statements (Unaudited) under Item 1 of Part I of this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013
 
 
 
31.1
  
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
 
 
 
31.2
  
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
 
 
 
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)
  
Furnished herewith
 
 
 
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)
  
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.LAB
  
XBRL Taxonomy Extension Label Linkbase Document
  
Filed herewith
 
 
 
 
 
101.PRE
  
XBRL Taxonomy Extension Presentation Linkbase Document
  
Filed herewith
 
 
 
101.DEF
  
XBRL Taxonomy Extension Definition Linkbase Document
  
Filed herewith
 


26


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
WERNER ENTERPRISES, INC.
 
 
 
Date: August 5, 2013
By:
 
/s/ John J. Steele
 
 
 
John J. Steele
 
 
 
Executive Vice President, Treasurer and
Chief Financial Officer
 
 
 
Date: August 5, 2013
By:
 
/s/ James L. Johnson
 
 
 
James L. Johnson
 
 
 
Executive Vice President, Chief Accounting
Officer and Corporate Secretary

27