General

Werner Enterprises, Inc. ("Werner" or the "Company") is a transportation and logistics company engaged primarily in hauling truckload shipments of general commodities in both interstate and intrastate commerce as well as providing logistics services through its Value Added Services ("VAS") division. Werner is one of the five largest truckload carriers in the United States based on total operating revenues and maintains its headquarters in Omaha, Nebraska, near the geographic center of its truckload service area. Werner was founded in 1956 by Chairman, Clarence L. Werner, who started the business with one truck at the age of 19 and was incorporated in the state of Nebraska on September 14, 1982. Werner completed its initial public offering in June 1986 with a fleet of 632 trucks as of February 28, 1986. Werner ended 2006 with a fleet of 9,000 trucks, of which 8,180 were owned by the Company and 820 were owned and operated by owner-operators (independent contractors).

The Company has two reportable segments - Truckload Transportation Services and Value Added Services. Financial information regarding these segments and the Company's geographic areas can be found in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K. The Company's truckload fleets operate throughout the 48 contiguous states pursuant to operating authority, both common and contract, granted by the United States Department of Transportation ("DOT") and pursuant to intrastate authority granted by various states. The Company also has authority to operate in the ten provinces of Canada and provides through trailer service in and out of Mexico. The principal types of freight transported by the Company include retail store merchandise, consumer products, manufactured products, and grocery products. The Company's emphasis is to transport consumer nondurable products that ship more consistently throughout the year and throughout changes in the economy.

The Company's VAS division is a non-asset based transportation and logistics provider. VAS includes freight management (single-source logistics), truck brokerage, intermodal, and international freight forwarding. In July 2006, the Company formed Werner Global Logistics U.S., LLC ("WGL"), a separate company that operates within the VAS segment, and through its subsidiaries established its Wholly Owned Foreign Entity ("WOFE") headquartered in Shanghai, China. WGL and its subsidiaries obtained business licenses to operate as an Ocean Transport Intermediary (NVOCC and Ocean Freight Forwarder), U.S. Customs Broker, Class A Freight Forwarder in China, and an Indirect Air Carrier.

Marketing and Operations

Werner's business philosophy is to provide superior on-time service to its customers at a competitive cost. To accomplish this, Werner operates premium, modern tractors and trailers. This equipment has a lower frequency of breakdowns and helps attract and retain qualified drivers. Werner has continually developed technology to improve service to customers and improve retention of drivers. Werner focuses on shippers that value the broad geographic coverage, diversified truck and logistics service offerings, equipment capacity, technology, customized services, and flexibility available from a large, financially- stable carrier. These shippers are generally less sensitive to rate levels, preferring to have their freight handled by a few core carriers with whom they can establish service-based, long- term relationships.

Werner operates in the truckload segment of the trucking industry. Within the truckload segment, Werner provides specialized services to customers based on their trailer needs (van, flatbed, temperature-controlled), geographic area (medium to long haul throughout the 48 contiguous states, Mexico, and Canada; regional), time-sensitive nature of shipments (expedited), or conversion of their private fleet to Werner (dedicated). Trucking revenues accounted for 86% of total revenues, and non-trucking and other operating revenues, primarily brokerage revenues, accounted for 14% of total revenues

in 2006. Werner's VAS division manages the transportation and logistics requirements for individual customers, providing customers with additional sources of capacity and access to alternative modes of transportation. The VAS portfolio includes freight management, truck brokerage, intermodal, load/mode and network optimization, transloading, and other services. The new product offering in China includes site selection analysis, vendor and purchase order management, full container load consolidation and warehousing, as well as door-to-door freight forwarding and customs brokerage. Value Added Services is a non- asset-based business that is highly dependent on qualified employees, information systems, and the services of qualified third-party capacity providers. Compared to trucking operations which require a significant capital equipment investment, VAS's operating income percentage is lower and return on assets is substantially higher. Revenues generated by services accounting for more than 10% of consolidated revenues, consisting of Truckload Transportation Services and Value Added Services, for the last three years can be found under Item 7 of this Form 10-K.

Werner has a diversified freight base but is dependent on a small group of customers for a significant portion of its freight. During 2006, the Company's largest 5, 10, 25, and 50 customers comprised 26%, 37%, 58%, and 72% of the Company's revenues, respectively. The Company's largest customer, Dollar General, accounted for 11% of the Company's revenues in 2006, of which approximately two-thirds is dedicated fleet business and the remainder is primarily VAS. No other customer exceeded 5% of revenues in 2006. By industry group, the Company's top 50 customers consist of 46% retail and consumer products, 25% grocery products, 20% manufacturing/industrial, and 9% logistics and other. Many of our non-dedicated customer contracts are cancelable on 30 days notice, which is standard in the trucking industry. Most dedicated customer contracts are one to three years in length, and are cancelable on 90 days notice following the expiration of the initial term of the contract.

Virtually all of Werner's company and owner-operator tractors are equipped with satellite communications devices manufactured by Qualcomm that enable the Company and drivers to conduct two-way communication using standardized and freeform messages. This satellite technology, installed in trucks beginning in 1992, also enables the Company to plan and monitor the progress of shipments. The Company obtains specific data on the location of all trucks in the fleet at least every hour of every day. Using the real-time data obtained from the satellite devices, Werner has developed advanced application systems to improve customer service and driver service. Examples of such application systems include (1) the Company's proprietary Paperless Log System used to electronically preplan the assignment of shipments to drivers based on real-time available driving hours and to automatically keep track of truck movement and drivers' hours of service, (2) software which preplans shipments that can be swapped by drivers enroute to meet driver home time needs, without compromising on-time delivery schedules, (3) automated "possible late load" tracking which informs the operations department of trucks that may be operating behind schedule, thereby allowing the Company to take preventive measures to avoid a late delivery, and (4) automated engine diagnostics to continually monitor mechanical fault tolerances. In June 1998, Werner became the first, and only, trucking company in the United States to receive authorization from the DOT, under a pilot program, to use a global positioning system based paperless log system in place of the paper logbooks traditionally used by truck drivers to track their daily work activities. On September 21, 2004, the DOT's Federal Motor Carrier Safety Administration ("FMCSA") agency approved the Company's exemption for its paperless log system that moves this exemption from the FMCSA-approved pilot program to permanent status. The exemption is to be renewed every two years. On September 7, 2006, the FMCSA announced in the Federal Register its decision to renew for two additional years the Company's exemption from the FMCSA's requirement that drivers of commercial motor vehicles operating in interstate commerce prepare handwritten records of duty status (logs).

Seasonality

In the trucking industry, revenues generally show a seasonal pattern as some customers reduce shipments during and after the winter holiday season. The Company's operating expenses have historically been higher in the winter months due primarily to decreased fuel efficiency, increased maintenance costs of revenue equipment in colder weather, and increased insurance and claims

costs due to adverse winter weather conditions. The Company attempts to minimize the impact of seasonality through its marketing program that seeks additional freight from certain customers during traditionally slower shipping periods. Revenue can also be affected by bad weather and holidays, since revenue is directly related to available working days of shippers.

Employees and Owner-Operator Drivers

As of December 31, 2006, the Company employed 11,198 drivers, 1,038 mechanics and maintenance personnel, 1,796 office personnel for the trucking operation, and 294 personnel for the VAS and other non-trucking operations. The Company also had 820 contracts with owner-operators for services that provide both a tractor and a qualified driver or drivers. None of the Company's U.S. or Canadian employees are represented by a collective bargaining unit, and the Company considers relations with all of its employees to be good.

The Company recognizes that its professional driver workforce is one of its most valuable assets. Most of Werner's drivers are compensated based upon miles driven. For company- employed drivers, the rate per mile generally increases with the drivers' length of service. Additional compensation may be earned through a mileage bonus, an annual achievement bonus, and for extra work associated with their job (loading and unloading, extra stops, and shorter mileage trips, for example).

At times, there are shortages of drivers in the trucking industry. The number of qualified drivers in the industry has not kept pace with freight growth because of changes in the demographic composition of the workforce, alternative jobs to truck driving which become available in an improving economy, and individual drivers' desire to be home more often. In recent months, the driver recruiting and retention market remained challenging, but was less difficult than the extremely challenging driver market experienced earlier in the year. The Company anticipates that the competition for drivers will continue to be very high and cannot predict whether it will experience shortages in the future. If such a shortage were to occur and increases in driver pay rates became necessary to attract and retain drivers, the Company's results of operations would be negatively impacted to the extent that corresponding freight rate increases were not obtained.

The Company also recognizes that carefully selected owner- operators complement its company-employed drivers. Owner- operators are independent contractors that supply their own tractor and driver and are responsible for their operating expenses. Because owner-operators provide their own tractors, less financial capital is required from the Company. Also, owner- operators provide the Company with another source of drivers to support its fleet. The Company intends to continue its emphasis on recruiting owner-operators, as well as company drivers. However, it has continued to be difficult for the Company and the industry to recruit and retain owner-operators over the past several years due to factors including high fuel prices, tightening of equipment financing standards, and declining values for older used trucks.

Revenue Equipment

As of December 31, 2006, Werner operated 8,180 company tractors and had contracts for 820 tractors owned by owner- operators. The company tractors were manufactured by Freightliner, a subsidiary of DaimlerChrysler, and Peterbilt and Kenworth, divisions of PACCAR. This standardization of the company tractor fleet decreases downtime by simplifying maintenance. The Company adheres to a comprehensive maintenance program for both tractors and trailers. Owner-operator tractors are inspected prior to acceptance by the Company for compliance with operational and safety requirements of the Company and the DOT. These tractors are then periodically inspected, similar to company tractors, to monitor continued compliance. The vehicle speed of company-owned trucks is regulated to a maximum of 65 miles per hour to improve safety and fuel efficiency.

The Company operated 25,200 trailers at December 31, 2006: 23,340 dry vans; 599 flatbeds; and 1,261 temperature-controlled. Most of the Company's trailers were manufactured by Wabash National Corporation. As of December 31, 2006, 98% of the

Company's fleet of dry van trailers consisted of 53-foot trailers, and 99% consisted of aluminum plate or composite (DuraPlate) trailers. Other trailer lengths such as 48-foot and 57-foot are also provided by the Company to meet the specialized needs of certain customers.

Beginning in January 2007, all newly manufactured truck engines must comply with a new set of more stringent engine emission standards mandated by the Environmental Protection Agency ("EPA"). Trucks manufactured with these new engines are expected to cost $5,000-$10,000 more per truck, have slightly lower mpg, and higher maintenance costs. To delay the cost impact of these new emission standards, the Company kept its truck fleet new relative to historical company and industry standards. The average age of the Company's truck fleet at December 31, 2006 is 1.34 years. A new set of more stringent emissions standards mandated by the EPA will become effective for newly manufactured trucks beginning in January 2010. The Company's capital expenditures for new trucks are expected to be much lower in 2007.

Fuel

The Company purchases approximately 95% of its fuel through a network of fuel stops throughout the United States. The Company has negotiated discounted pricing based on certain volume commitments with these fuel stops. Bulk fueling facilities are maintained at seven of the Company's terminals and four dedicated fleet locations.

Shortages of fuel, increases in fuel prices, or rationing of petroleum products can have a materially adverse effect on the operations and profitability of the Company. The Company's customer fuel surcharge reimbursement programs have historically enabled the Company to recover from its customers a significant portion of the higher fuel prices compared to normalized average fuel prices. These fuel surcharges, which automatically adjust depending on the Department of Energy ("DOE") weekly retail on- highway diesel fuel prices, enable the Company to recoup much of the higher cost of fuel when prices increase except for miles not billable to customers, out-of-route miles, and truck engine idling. During 2006, the Company's fuel expense and reimbursements to owner-operator drivers for the higher cost of fuel resulted in an additional cost of $54.2 million, while the Company collected an additional $51.2 million in fuel surcharge revenues to offset most of the fuel cost increase. The Company cannot predict whether fuel prices will increase or will decrease in the future or the extent to which fuel surcharges will be collected to offset such increases. As of December 31, 2006, the Company had no derivative financial instruments to reduce its exposure to fuel price fluctuations.

During third quarter 2006, truckload carriers transitioned a substantial portion of their diesel fuel consumption from low sulfur diesel fuel to ultra-low sulfur diesel fuel ("ULSD") fuel, as fuel refiners were required to meet the EPA-mandated 80% ULSD threshold by the transition date of October 15, 2006. Preliminary estimates were that ULSD would result in a 1-3% degradation in miles per gallon ("mpg") for all trucks, due to the lower energy content (btu) of ULSD. Based on the Company's fuel mpg experience to date, these preliminary mpg degradation estimates appear to be accurate.

The Company maintains aboveground and underground fuel storage tanks at many of its terminals. Leakage or damage to these facilities could expose the Company to environmental clean- up costs. The tanks are routinely inspected to help prevent and detect such problems.

Regulation

The Company is a motor carrier regulated by the DOT, the Federal and Provincial Transportation Departments in Canada, and the Secretary of Communication and Transportation ("SCT") in Mexico. The DOT generally governs matters such as safety requirements, registration to engage in motor carrier operations, accounting systems, certain mergers, consolidations, acquisitions, and periodic financial reporting. The Company currently has a satisfactory DOT safety rating, which is the highest available rating. A conditional or unsatisfactory DOT safety rating could have an adverse effect on the Company, as

some of the Company's contracts with customers require a satisfactory rating. Such matters as weight and dimensions of equipment are also subject to federal, state, and international regulations.

Effective October 1, 2005, all truckload carriers became subject to revised hours of service ("HOS") regulations. The most significant change for the Company from the previous regulations is that drivers using the sleeper berth provision must take at least eight consecutive hours in the sleeper berth during their ten hours off-duty. Previously, drivers were allowed to split their ten hour off-duty time in the sleeper berth into two periods, provided neither period was less than two hours. This more restrictive sleeper berth provision is requiring some drivers to plan their time better and had a negative impact on mileage productivity. The greatest impact of these HOS changes was lower mileage productivity for those customers with multiple-stop shipments or those shipments with pickup or delivery delays. The Owner-Operator Independent Drivers Association ("OOIDA") filed a petition for review of the current HOS regulations with the U.S. Court of Appeals on January 23, 2006. On December 4, 2006, a three-judge panel heard arguments from the OOIDA. The appeals court is expected to issue its ruling in February or March of 2007.

On January 18, 2007, the FMCSA published a Notice of Proposed Rulemaking ("NPRM") in the Federal Register on the use of Electronic On-Board Recorders ("EOBRs") by the trucking industry for compliance with HOS rules. The intent of this proposed rule is to improve highway safety by fostering development of new EOBR technology for HOS compliance, encouraging its use by motor carriers through incentives, and requiring its use by operators with serious and continuing HOS compliance problems. Comments on the NPRM must be received by April 18, 2007. Over eight years ago, the Company became the first, and only, trucking company in the United States to receive authorization from the DOT to use a global positioning system based paperless log system in place of the paper logbooks traditionally used by truck drivers to track their daily work activities. While the Company does not believe the rule, as proposed, would have a significant effect on its operations and profitability, it will continue to monitor future developments.

The Company has unlimited authority to carry general commodities in interstate commerce throughout the 48 contiguous states. The Company has authority to carry freight on an intrastate basis in 43 states. The Federal Aviation Administration Authorization Act of 1994 (the "FAAA Act") amended sections of the Interstate Commerce Act to prevent states from regulating rates, routes, or service of motor carriers after January 1, 1995. The FAAA Act did not address state oversight of motor carrier safety and financial responsibility or state taxation of transportation. If a carrier wishes to operate in intrastate commerce in a state where it did not previously have intrastate authority, it must, in most cases, still apply for authority.

Over the course of 2006, WGL and its subsidiaries obtained business licenses to operate as an Ocean Transport Intermediary (NVOCC and Ocean Freight Forwarder), U.S. Customs Broker, and Class A Freight Forwarder in China. In addition, WGL recently entered into the air freight forwarding business as a Transportation Safety Administration ("TSA") approved Indirect Air Carrier.

With respect to the Company's planned activities in the air transportation industry in the United States, it is subject to regulation by the TSA of the Department of Homeland Security as an indirect air carrier. WGL has made application for a license as an air freight forwarder by the International Air Transport Association ("IATA") and each office in a foreign location will be applying for an IATA license in their respective countries. IATA is a voluntary association of airlines which prescribes certain operating procedures for air freight forwarders acting as agents for its members. The majority of the Company's air freight forwarding business is expected to be conducted with airlines which are IATA members.

The Company is licensed as a customs broker by Customs and Border Protection ("CBP") of the Department of Homeland Security in each U.S. customs district in which it does business. All United States customs brokers are required to maintain prescribed records and are subject to periodic audits by CBP. In other jurisdictions in which the Company performs clearance services, the Company is licensed by the appropriate governmental authority.

The Company is registered as an Ocean Transportation Intermediary by the Federal Maritime Commission ("FMC"). The FMC has established certain qualifications for shipping agents, including certain surety bonding requirements. The FMC also is responsible for the economic regulation of Non-vessel Operating Common Carrier ("NVOCC") activity originating or terminating in the United States. To comply with these economic regulations, vessel operators and NVOCCs are required to file tariffs electronically which establish the rates to be charged for the movement of specified commodities into and out of the United States. The FMC has the power to enforce these regulations by assessing penalties.

The Company's operations are subject to various federal, state, and local environmental laws and regulations, implemented principally by the EPA and similar state regulatory agencies, governing the management of hazardous wastes, other discharge of pollutants into the air and surface and underground waters, and the disposal of certain substances. The Company does not believe that compliance with these regulations has a material effect on its capital expenditures, earnings, and competitive position.

The implementation of various provisions of the North American Free Trade Agreement ("NAFTA") may alter the competitive environment for shipping into and out of Mexico. It is not possible at this time to predict when and to what extent that impact could be felt by companies transporting goods into and out of Mexico. The Company does a substantial amount of business in international freight shipments to and from the United States and Mexico (see Note 8 "Segment Information" in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K) and is continuing to prepare for the various scenarios that may finally result. The Company believes it is one of the five largest truckload carriers in terms of the volume of freight shipments to and from the United States and Mexico.

Competition

The trucking industry is highly competitive and includes thousands of trucking companies. It is estimated that the annual revenue of domestic trucking amounts to approximately $600 billion per year. The Company has a small but growing share (estimated at approximately 1%) of the markets targeted by the Company. The Company competes primarily with other truckload carriers. Logistics companies, railroads, less-than-truckload carriers, and private carriers also provide competition, but to a lesser degree.

Competition for the freight transported by the Company is based primarily on service and efficiency and, to some degree, on freight rates alone. Few other truckload carriers have greater financial resources, own more equipment, or carry a larger volume of freight than the Company. The Company is one of the five largest carriers in the truckload transportation industry based on total operating revenues.

The significant industry-wide accelerated purchase of new trucks in advance of the new 2007 emissions standards contributed to excess truck capacity that partially disrupted the supply and demand balance in the second half of 2006. The recent softness in the housing and automotive sectors not principally served by the Company caused carriers that depend on these freight markets to more aggressively compete in other freight markets served by the Company. Other demand-related factors that may have contributed to lower freight demand in 2006 were inventory tightening by some large retailers, some shippers shifting to more intermodal intact container shipments for lower value freight, and moderating economic growth. The softer freight market and the softer truck sales market are making it more difficult for marginal carriers to remain in business. As these marginal carriers are facing significant funding requirements for truck licensing in first quarter 2007, some trucks may not be licensed which would tighten capacity. As a result of these factors, the Company currently anticipates that the recent excess truck capacity in the market will gradually reverse, and capacity may begin to tighten as we move toward the fall peak season of 2007.

Internet Website

The Company maintains a website where additional information concerning its business can be found. The address of that website is www.werner.com. The Company makes available free of charge on its Internet website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after it electronically files or furnishes such materials to the SEC. Information on the Company's website is not incorporated by reference into this annual report on Form 10-K.

ITEM 1A. RISK FACTORS

The following risks and uncertainties may cause actual results to differ materially from those anticipated in the forward-looking statements included in this Form 10-K:

The Company's business is subject to overall economic conditions that could have a material adverse effect on the results of operations of the Company. The Company is sensitive to changes in overall economic conditions that impact customer shipping volumes. Beginning in 2003 and continuing throughout 2005, general economic improvements led to improved freight demand. Factors that may have contributed to lower freight demand in the second half of 2006 were inventory tightening by some large retailers, some shippers shifting to more intermodal intact container shipments for lower value freight, and moderating economic growth. Future economic conditions that may affect the Company include employment levels, business conditions, fuel and energy costs, interest rates, and tax rates.

Increases in fuel prices and shortages of fuel can have a material adverse effect on the results of operations and profitability of the Company. Fuel prices climbed steadily through the first eight months of 2006, averaging 51 cents a gallon higher than the same period of 2005. However, in the last four months of 2006, fuel costs averaged 17 cents a gallon lower than the same period of 2005, principally due to the temporary spike in fuel prices that occurred in October 2005 after Hurricanes Katrina and Rita. Fuel prices subsequently declined from these record levels in November 2005. Shortages of fuel, increases in fuel prices, or rationing of petroleum products can have a materially adverse impact on the operations and profitability of the Company. To the extent that the Company cannot recover the higher cost of fuel through customer fuel surcharges, the Company's financial results would be negatively impacted.

Difficulty in recruiting and retaining drivers and owner- operators could impact the Company's results of operations and limit growth opportunities. At times, there have been shortages of drivers in the trucking industry. The market for recruiting and retaining drivers has become more difficult over the last several years due to changing workforce demographics and alternative job opportunities in an improving economy. However, during fourth quarter 2006, the driver recruiting and retention market was less difficult than the extremely challenging market experienced earlier in the year. During the last several years, it was more difficult to recruit and retain owner-operator drivers due to challenging operating conditions, including high fuel prices. The Company anticipates that the competition for company drivers and owner-operator drivers will continue to be high and cannot predict whether it will experience shortages in the future. If a shortage of company drivers and owner-operators were to occur and increases in driver pay rates and owner-operator settlement rates became necessary to attract drivers and owner-operators, the Company's results of operations would be negatively impacted to the extent that corresponding freight rate increases were not obtained. Additionally, the Company expects the tight driver market will make it very difficult to add truck capacity in the near future.

The Company operates in a highly competitive industry, which may limit growth opportunities and reduce profitability. The trucking industry is highly competitive and includes thousands of trucking companies. The Company estimates the ten largest truckload carriers have about 11% of the approximate $180 billion market targeted by the Company. This competition could limit the Company's growth opportunities and reduce its profitability. The Company competes primarily with other

truckload carriers. Logistics companies, railroads, less-than- truckload carriers, and private carriers also provide competition, but to a lesser degree. Competition for the freight transported by the Company is based primarily on service and efficiency and, to some degree, on freight rates alone.

The Company operates in a highly regulated industry. Changes in existing regulations or violations of existing or future regulations could have an adverse effect on the operations and profitability of the Company. The Company is regulated by the DOT, the Federal and Provincial Transportation Departments in Canada, and the SCT in Mexico and may become subject to new or more comprehensive regulations mandated by these agencies. These regulatory authorities establish broad powers, generally governing activities such as authorization to engage in motor carrier operations, safety, financial reporting, and other matters. In July 2006, the Company formed WGL, a separate company that operates within the VAS segment, and through its subsidiaries established its WOFE headquartered in Shanghai, China. WGL and its subsidiaries obtained business licenses to operate as an Ocean Transport Intermediary (NVOCC and Ocean Freight Forwarder), U.S. Customs Broker, Class A Freight Forwarder in China, and an Indirect Air Carrier. WGL has applied for status as an endorsed IATA member and other offices in foreign locations will be applying for status in their respective countries.

On January 18, 2007, the FMCSA published an NPRM in the Federal Register on the use of EOBRs by the trucking industry for compliance with HOS rules. Comments on the NPRM must be received by April 18, 2007. While the Company does not believe the rule, as proposed, would have a significant effect on operations and profitability, it will continue to monitor future developments.

Beginning in January 2007, all newly manufactured truck engines must comply with a new set of more stringent engine emission standards mandated by the EPA. The Company expects that the engines produced under the 2007 standards will be less fuel- efficient and have a higher cost than the current engines. A third and final set of more stringent emissions standards mandated by the EPA will become effective for newly manufactured trucks beginning in January 2010.

The seasonal pattern generally experienced in the trucking industry may affect the Company's periodic results during traditionally slower shipping periods and during the winter months. The Company's business is modestly seasonal with peak freight demand occurring generally in the months of September, October, and November. After the Christmas holiday season, during the remaining winter months, the Company's freight volumes are typically lower as some customers have lower shipment levels. The Company's operating expenses have historically been higher in winter months primarily due to decreased fuel efficiency, increased maintenance costs of revenue equipment in colder weather, and increased insurance and claims costs due to adverse winter weather conditions. The Company attempts to minimize the impact of seasonality through its marketing program by seeking additional freight from certain customers during traditionally slower shipping periods. Bad weather, holidays, and the number of business days during the period can also affect revenue, since revenue is directly related to available working days of shippers.

We depend on key customers, the loss of which or the financial failure of which may have a material adverse effect on our operations and profitability. A significant portion of the Company's revenue is generated from several key customers. During 2006, the Company's top 25, 10 and 5 customers accounted for 58%, 37% and 26% of revenues, respectively. The Company's largest customer, Dollar General, accounted for 11% of the Company's revenues in 2006. The Company does not have long-term contractual relationships with many of its key non-dedicated customers. The Company's contractual relationships with its dedicated customers are typically one to three years in length which are cancelable on 90 days notice following the expiration of the initial term of the contract. There can be no assurance that relationships with any key customers will continue at the same levels. A reduction in or termination of the Company's services by a key customer could have a material adverse effect on the Company's business and results of operations. The Company reviews the financial condition of its customers prior to granting credit, monitors changes in financial condition on an on-going basis, and reviews individual past due balances and collection concerns. However the financial failure of a customer may still have a negative effect on the Company's results of operations.

The Company depends on the services of third-party capacity providers, the availability of which could affect the Company's profitability and limit growth in its VAS division. The Company's VAS division is highly dependent on the services of third-party capacity providers, including other truckload carriers, less-than-truckload carriers, railroads, ocean carriers, and airlines. Many of those providers face the same economic challenges as the Company. The softer freight market in the second half of 2006 made it somewhat easier to find qualified truckload capacity to meet customer freight needs for our truck brokerage operation. The Company currently anticipates that the recent excess truck capacity in the market will gradually reverse, and capacity may tighten as we move toward the fall peak season of 2007. If the Company were unable to secure the services of these third-party capacity providers, its results of operations could be adversely affected.

Increases in the number of insurance claims, the cost per claim, the costs of insurance premiums, or the availability of insurance coverage could reduce the Company's earnings. The Company self-insures for a significant portion of liability resulting from personal injury, property damage, and cargo loss as well as workers' compensation. This is supplemented by premium insurance with licensed and highly-rated insurance companies above the Company's self-insurance level for each type of coverage. To the extent the Company were to experience a significant increase in the number of claims, the cost per claim, or the costs of insurance premiums for coverage in excess of its retention amounts, the Company's operating results would be negatively affected.

Decreased demand for the Company's used revenue equipment could result in lower unit sales, lower resale values, and lower gains on sales of assets. The Company is sensitive to changes in used equipment prices, especially tractors. The Company has been in the business of selling its Company-owned trucks since 1992, when it formed its wholly-owned subsidiary Fleet Truck Sales. The Company has 18 Fleet Truck Sales locations throughout the United States. During 2006, the Company began selling its oldest van trailers that had reached the end of their depreciable life. Gains on sales of assets are reflected as a reduction of other operating expenses in the Company's income statement and amounted to gains of $28.4 million in 2006, $11.0 million in 2005, and $9.3 million in 2004.

The Company relies on the services of key personnel, the loss of which could impact the future success of the Company. The Company is highly dependent on the services of key personnel including Clarence L. Werner, Gary L. Werner, and Gregory L. Werner, and other executive officers. Although the Company believes it has an experienced and highly qualified management group, the loss of the services of these executive officers could have a material adverse impact on the Company and its future profitability.

Difficulty in obtaining goods and services from the Company's vendors and suppliers could adversely affect the Company's business. The Company is dependent on its vendors and suppliers. The Company believes it has good relationships with its vendors and that it is generally able to obtain attractive pricing and other terms from vendors and suppliers. If the Company fails to maintain good relationships with its vendors and suppliers or if its vendors and suppliers experience significant financial problems, the Company could face difficulty in obtaining needed goods and services because of interruptions of production or for other reasons, which could adversely affect the Company's business.

The Company uses its information systems extensively for day-to- day operations, and service disruptions could have an adverse impact on the Company's operations. The efficient operation of the Company's business is highly dependent on its information systems. Much of the Company's software has been developed internally or by adapting purchased software applications to the Company's needs. The Company has purchased redundant computer hardware systems and has its own off-site disaster recovery facility approximately ten miles from the Company's offices to use in the event of a disaster. The Company has taken these steps to reduce the risk of disruption to its business operation if a disaster were to occur.

Caution should be taken not to place undue reliance on forward-looking statements made herein, since the statements speak only as of the date they are made. The Company undertakes no obligation to publicly release any revisions to any forward-

looking statements contained herein to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

ITEM 1B. UNRESOLVED STAFF COMMENTS

The Company has received no written comments regarding its periodic or current reports from the staff of the Securities and Exchange Commission that were issued 180 days or more preceding the end of its 2006 fiscal year and that remain unresolved.