Werner Enterprises, Inc. 2016 Annual Report

2016 ANNUAL REPORT FINANCIAL HIGHLIGHTS Dollars in thousands, except per share amounts 2016 2015 2014 2013 2012 Operating revenues $2,008,991 $2,093,529 $2,139,289 $2,029,183 $2,036,386 Net income 79,129 123,714 98,650 86,785 103,034 Diluted earnings per share 1.09 1.71 1.36 1.18 1.40 Cash dividends declared per share* 0.24 0.22 0.20 0.20 1.70 Return on average 8.2% 14.1% 12.4% 11.7% 13.6% stockholders’ equity Operating ratio 93.7% 90.4% 92.5% 93.1% 91.6% Operating ratio - 92.2% 86.7% 88.7% 90.8% 88.4% truckload segment** Total assets 1,793,003 1,585,647 1,480,462 1,354,097 1,334,900 Total debt 180,000 75,000 75,000 40,000 90,000 Stockholders’ 994,787 935,654 833,860 772,519 714,897 equity* * Cash dividends include the following special dividends (per share): $1.50 in 2012. ** Operating expenses (net of fuel surcharge revenues) expressed as a percentage of operating revenues (net of fuel surcharge revenues). OPERATING REVENUES $2,008,991 2016 $2,093,529 2015 $2,139,289 2014 $2,029,183 2013 $2,036,386 2012 TOTAL ASSETS $1,793,003 2016 $1,585,647 2015 $1,480,462 2014 $1,354,097 2013 $1,334,900 2012 DILUTED EARNINGS PER SHARE $1.09 2016 $1.71 2015 $1.36 2014 $1.18 2013 $1.40 2012 TO OUR SHAREHOLDERS We invested heavily in our trucks, trailers, talent, terminals 2016 was and technology in 2016 to propel Werner forward in our renewed and unwavering strategy to achieve best-in-class a year of customer service. A record $430 million of capital investment made our trucks significant newer, safer, more efficient and increasingly attractive to the best drivers. positive We invested aggressively in our trailer fleet, lowering our fleet age and rebranding for the future. Over 70% of our trailers developments now have enhanced features such as trailer skirts, tire inflation systems and GPS trailer tracking. and stressful Over the past two years, we raised driver pay by 15% to attract and retain the best drivers. In 2016, we achieved our lowest industry driver turnover rate in 17 years. We began upgrading, expanding and modernizing our challenges. terminal network to enhance our drivers’ experience and increase equipment throughout. We developed, strengthened and adapted our information technology systems and processes to meet the rapidly expanding needs and expectations of our customers and drivers. These significant investments added cost to our trucking network. By second quarter 2016, truckload industry freight market conditions became noticeably softer with too many trucks, excess customer inventories, a slow growth domestic economy and a weaker used truck sales market. Shippers demanded and obtained rate decreases, which significantly compressed our operating margin percentage and returns. The timing of these investments added cost in what turned out to be a challenging 2016 freight market. We remain convinced that the steps we are taking to produce best-in-class customer service will produce long-term benefits for Werner. In second quarter, we quickly adapted to the market conditions by reducing our fleet, cutting controllable costs and shifting trucks into our more stable Dedicated fleet business unit. By fourth quarter, we began to produce sequentially improved financial results. For the year, revenues declined 4% and earnings per diluted share declined 36%. Our growing Werner Logistics segment grew revenues by 6% and operating income by 23%. Over the longer term, our historical experience demonstrates that a newer fleet and better drivers will result in higher Werner operating margin performance and returns. In December 2017, the long awaited electronic logging device (ELD) mandate is scheduled to go into effect. It is estimated that over 50% of the truckload industry’s two million trucks have yet to adopt ELD’s, which will be required to electronically measure, manage and control driver hours of service in accordance with the federal safety regulations. We expect that a meaningful amount of truck capacity will effectively be reduced as ELD’s are implemented and enforced. Werner is the industry leader in ELD development and adoption, with over 20 years of knowledge and experience. Industry wide ELD compliance should level the competitive playing field for both driving hours and driver pay per mile. This improved competitive dynamic and the inherent effective reduction in supply should create improved market conditions for Werner. As we begin 2017, our fleet is better positioned. The elevated capital investment to lower our fleet age is nearly completed. We intend to keep our truck and trailer fleet new in 2017 and further cause the best drivers to stay with and select Werner. We believe our trucking and logistics segments are increasingly well positioned to capitalize on improved freight market conditions as they develop. We are also prepared to deal with market challenges that may occur. Thank you for your support as shareholders and for the confidence and trust you place in Werner Enterprises. March 1, 2017 Derek J. Leathers C.L. Werner President and Chief Executive Officer Executive Chairman 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, 2016 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 68145-0308 (Address of principal executive offices) (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 Name of Each Exchange on Which Registered Common Stock, $0.01 Par Value 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, 2016, the last business day of the Registrant’s most recently completed second fiscal quarter, was approximately $1.079 billion (based on the closing sale price of the Registrant’s Common Stock on that date as reported by Nasdaq). As of February 17, 2017, 72,192,743 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 9, 2017, are incorporated in Part III of this report. WERNER ENTERPRISES, INC. INDEX Page PART I Item 1. Business..................................................................................................................................................................... 1 Item 1A. Risk Factors............................................................................................................................................................... 6 Item 1B. Unresolved Staff Comments...................................................................................................................................... 9 Item 2. Properties................................................................................................................................................................... 9 Item 3. Legal Proceedings...................................................................................................................................................

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