UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1996
Commission file number 0-14690
WERNER ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
NEBRASKA 47-0648386
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
INTERSTATE 80 & HIGHWAY 50
POST OFFICE BOX 37308
OMAHA, NEBRASKA 68137 (402) 895-6640
(Address of principal (Zip code) (Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No ___
Indicate by check mark 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 the Form 10-K.
[ X ]
The aggregate market value of the registrant's $.01 par value common stock
held by nonaffiliates of the registrant as of March 14, 1997 was
approximately $363,969,551 (based upon $16.875 per share closing price on
that date, as reported by Nasdaq). (Aggregate market value estimated
solely for the purposes of this report. This shall not be construed as an
admission for purposes of determining affiliate status.)
As of March 14, 1997, 37,993,929 shares of the registrant's common stock
were outstanding.
Portions of the 1996 Annual Report to Stockholders are incorporated in
Parts I, II and IV of this report. Portions of the Proxy Statement of
Registrant for the Annual Meeting of Stockholders to be held May 13, 1997
are incorporated in Part III of this report.
<PAGE>
PART I
ITEM 1. BUSINESS
General
Werner Enterprises, Inc. is a transportation company primarily engaged in
hauling truckload shipments of general commodities in both interstate and
intrastate commerce, with its headquarters in Omaha, Nebraska. References
to "Werner" or the "Company" are to Werner Enterprises, Inc. and its
majority-owned subsidiaries. Werner was founded by Clarence L. Werner in
1956 and completed its Initial Public Offering in 1986. The Company
operates throughout the 48 contiguous states pursuant to operating
authority, both common and contract, granted by the Department of
Transportation and pursuant to intrastate authority granted by various
states. The Company also has authority to operate in the ten provinces of
Canada and has through trailer service in and out of Mexico. The principal
types of freight transported include manufactured goods, retail store
merchandise, food products, paper products, beverages, and building
materials.
Marketing and Operations
Werner's business philosophy is to provide "high service, low cost"
transportation services. The Company has achieved this by (1) meeting the
special needs of its customers; (2) careful attention to its work force;
and (3) operating premium, modern equipment. Until 1992, the Company
operated in the high-service end of the dry van and flatbed medium-to-long-
haul segments of the truckload market which continues to be the Company's
major revenue source, accounting for 73% of its total revenue in 1996. In
these markets, the Company focuses on shippers who value the broad
geographic coverage, customized services and flexibility available from a
larger, 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.
In order to strengthen these customer relationships and to provide
opportunities for profitable growth, the Company began expanding into new
markets in 1992. The Company's management analyzed possible new markets
based on the following criteria: market size, cost of entry, potential
long-term profitability and synergy with the Company's existing business.
It was decided to enter into three new markets: regional short-haul,
temperature-controlled and dedicated fleet services. Regional short-haul
consists of dry-van freight with a shorter length of haul, generally around
a major metropolitan area or areas. Temperature-controlled freight requires
specialized van trailers for products which are sensitive to temperature
conditions. Dedicated fleet services involves assuming total responsibility
for the trucking needs of a specific customer and generally
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replacing their private fleet. In 1993, the Company began offering rail
intermodal transportation services, and in 1995 started its Werner
Logistics Services division. These service offerings build on the
Company's existing strengths in its traditional markets and strategically
position the Company to provide a broad range of transportation services
for its customers. See "Revenue Equipment" for the number of tractors
operated in each of the Company's service divisions.
Automation plays an important role in the effectiveness and efficiency of
the Company's operations. The information set forth under the caption
"Technology" on pages 5 through 7 of the Annual Report is incorporated
herein by reference.
The Company has a diversified customer base and is not dependent on a small
group of customers or a specific industry for its freight. During 1996,
the Company's largest 5, 10 and 25 customers comprised approximately 19%,
26%, and 39% of the Company's revenues, respectively.
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 and increased
maintenance costs of revenue equipment in colder weather. However, the
Company attempts to minimize the impact of seasonality through its
marketing program which 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, 1996, the Company employed 5,110 drivers, 470 mechanics
and maintenance personnel, and 920 management, administrative and support
personnel. The Company also had contracts with independent contractors
(owner-operators) for the services of 760 tractors that provide both a
tractor and a qualified driver or drivers. None of the Company's employees
is represented by a collective bargaining unit, and the Company considers
relations with its employees to be good.
The Company recognizes that its professional driver work force is one of
its most valuable assets. Most of Werner's drivers are compensated based
upon miles driven. The rate they are paid increases with a drivers' length
of service. Additional compensation may be earned through a fuel efficiency
bonus, a mileage bonus, an annual achievement bonus and for extra work
associated with their job (loading and unloading, extra stops, and
layovers, for example). Effective January 1, 1997, the Company increased
the mileage pay for virtually all of its Company drivers and owner-
operators by two cents per mile, a 7% increase. This increase should help
the Company to attract and retain qualified drivers to meet its growth
plans. Also, a
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regular schedule of driver/top management meetings was
initiated approximately five years ago to share information and concerns
and seek mutually satisfactory solutions. As a result of management's
attention to driver retention, the Company's driver turnover level is
believed to be below the industry average.
At times, there are shortages of drivers in the trucking industry,
particularly the medium-to-long-haul segment. The Company's management
believes that the number of qualified drivers in the industry has been
reduced because of the Federal License Program implemented during 1992,
elimination of federal funding for driving schools, changes in the
demographic composition of the work force, as well as drivers' desires to
be home more often. The Company anticipates that the competition for
qualified drivers will continue to be high, and cannot predict whether it
will experience shortages in the future.
The Company also recognizes that carefully selected owner-operators
complement its Company-employed drivers. Owner-operators supply their own
tractor and driver, and are responsible for their operating expenses.
Because owner-operators provide their own tractors, less capital is
required from the Company for growth. Also, owner-operators provide the
Company with another source of drivers to support its growth. The Company
intends to continue its emphasis on recruiting owner-operators, as well as
Company drivers.
Revenue Equipment
As of December 31, 1996, the Company operated 3,840 Company-owned tractors
and had contracts for 760 tractors owned by owner-operators. The tractors
as of December 31, 1996 were operated in the Company's service divisions as
follows: 3,085 medium-to-long-haul dry vans; 335 medium-to-long-haul
flatbeds; 465 regional short-haul vans; 300 temperature-controlled; and
415 dedicated. Approximately 70% of the Company's tractors are
manufactured by Freightliner. This standardization decreases downtime by
simplifying maintenance. The Company adheres to a comprehensive
maintenance program for both tractors and trailers. Due to continuous
upgrading of the Company-owned tractor fleet, the average age was 1.5 years
at December 31, 1996. Owner-operator tractors are inspected prior to
acceptance by the Company for compliance with operational and safety
requirements of the Company and the Department of Transportation. These
tractors are then periodically inspected, similar to Company-owned
tractors, to monitor continued compliance.
The Company operated 12,170 trailers at December 31, 1996 in the Company's
service divisions as follows: 10,752 dry vans; 722 flatbeds; 627
temperature controlled; and 69 other specialized trailers. As of December
31, 1996, 96% of the Company's fleet of dry van trailers consisted of 53-
foot trailers of which 10,040 are the "plate" trailer design which provides
more capacity. Other trailer lengths such as 27-foot and 57-foot are also
provided by the
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Company to meet the specialized needs of customers. The average age of the
trailer fleet was 2.3 years at December 31, 1996.
Fuel
Shortages of fuel, increases in fuel prices or rationing of petroleum
products could have a materially adverse effect on the operations and
profitability of the Company. During 1996, the Company experienced
significant increases in the cost of fuel. In April 1996, the Company
began efforts to recover a portion of the increased cost of fuel from
customers via the use of fuel surcharges. The Company cannot predict
whether the higher fuel prices will continue or the extent to which fuel
surcharges will be collected to offset such increases.
The Company maintains above-ground and underground fuel storage tanks at
certain 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 formerly regulated by the Interstate
Commerce Commission (ICC). The ICC Termination Act of 1995 transferred
regulation of motor carriers to the Surface Transportation Board of the
United States Department of Transportation (DOT), which assumed some of the
former functions of the ICC effective January 1, 1996, generally governing
matters such as registration to engage in motor carrier operations,
accounting systems, certain mergers, consolidations, acquisitions, and
periodic financial reporting. Motor carrier operations are also subject to
safety requirements prescribed by the DOT governing interstate operation.
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.
The federal Motor Carrier Act of 1980 was enacted to increase competition
among motor carriers and limit the level of regulation in the industry
(commonly referred to as deregulation). The Motor Carrier Act of 1980
enabled applicants to obtain ICC operating authority more easily and
allowed interstate motor carriers to change rates without ICC approval.
This law also removed many route and commodity restrictions on the
transportation of freight. As a result, the Company has unlimited
authority to carry general commodities in interstate commerce throughout
the 48 contiguous states.
The Company currently 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
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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 a state where it did not
previously have intrastate authority, it must, in most cases, still apply
for authority.
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
believes that its operations are in material compliance with current laws
and regulations.
Competition
The trucking industry is highly competitive and includes thousands of
trucking companies. The Company has a small but growing share (estimated
at 1%) of the markets targeted by the Company. The Company competes
primarily with other truckload carriers. Railroads, less-than-truckload
carriers and private carriers also provide competition, but to a lesser
degree. Deregulation of the trucking industry in 1980 created an influx of
truckload carriers which, with other factors, created downward pressure on
the industry's price structure.
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 truckload carriers in the trucking
industry.
Forward Looking Information
The forward-looking statements in this report, which reflect management's
best judgment based on factors currently known, involve risks and
uncertainties. Actual results could differ materially from those
anticipated in the forward-looking statements included herein as a result
of a number of factors, including, but not limited to, those discussed in
Item 7, "Management's Discussion and Analysis of Results of Operations and
Financial Condition", incorporated herein by reference to pages 13 through
15 of the Annual Report.
ITEM 2. PROPERTIES
Werner's headquarters is located along Interstate 80 just west of Omaha,
Nebraska, on approximately 210 acres, 171 of which are held for future
expansion. The headquarters consist of the Company's 108,000 square-foot
office building, a 5,000 square-foot computer center, and 73,000 square
feet of maintenance and repair facilities containing a central parts
warehouse, frame straightening and alignment machine, truck and trailer
wash areas,
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equipment safety lanes, body shops for tractors and trailers and a paint
booth. Additionally, the maintenance area includes a drivers' lounge, a
drivers' orientation section and a Company store.
The Company and its subsidiaries own a 22,000 square-foot terminal in
Springfield, Ohio, a 32,000 square-foot facility near Denver, a 18,000
square-foot facility near Los Angeles, a 31,000 square-foot terminal near
Atlanta, a 27,000 square-foot terminal in Dallas, and a 25,000 square-foot
terminal in Phoenix. All six locations include office and maintenance
space.
Additionally, the Company leases several small sales offices and trailer
parking yards in various locations throughout the country.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its business,
primarily involving claims for personal injury and property damage incurred
in the transportation of freight. The Company has assumed liability up to
$500,000 per claim and a $1,000,000 annual aggregate amount of liability
between $500,000 and $1,000,000 for personal injury and property damage
claims. The Company maintains insurance which covers liability in excess
of this amount to coverage levels that management considers adequate. The
Company believes that adverse results in one or more of these claims would
not have a material adverse effect on its results of operations or
financial position. The information set forth in Note (1) "Insurance and
Claims Accruals" on page 20, Note (4) "Insurance and Claims" on page 21 and
Note (7) "Commitments and Contingencies" on page 23 of the Annual Report is
incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1996, no matters were submitted to a vote of
security holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information set forth under the captions "Price Range of Common Stock"
and "Dividend Policy" on page 24 of the Annual Report, "Consolidated
Statements of Stockholders' Equity" on page 19 of the Annual Report, and
Note (1) "Common Stock and Earnings Per Share" on page 21 of the Annual
Report is incorporated herein by reference.
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ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Financial Highlights" on page
1 of the Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The information set forth under the caption "Management's Discussion and
Analysis of Results of Operations and Financial Condition" on pages 13
through 15 of the Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information set forth under the captions "Consolidated Statements of
Income", "Consolidated Balance Sheets", "Consolidated Statements of Cash
Flows", "Consolidated Statements of Stockholders' Equity", "Report of
Independent Public Accountants", and "Notes to Consolidated Financial
Statements", on pages 16 through 23 of the Annual Report is incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
No reports on Form 8-K have been filed within the twenty-four months prior
to December 31, 1996, involving a change of accountants or disagreements on
accounting and financial disclosure.
PART III
Certain information required by Part III is omitted from this report on
Form 10-K in that the Company will file a definitive proxy statement
pursuant to Regulation 14A (Proxy Statement) not later than 120 days after
the end of the fiscal year covered by this report on Form 10-K, and certain
information included therein is incorporated herein by reference. Only
those sections of the Proxy Statement which specifically address the items
set forth herein are incorporated by reference. Such incorporation does
not include the Compensation Committee Report or the Performance Graph
included in the Proxy Statement.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by reference
to the Company's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference
to the Company's Proxy Statement.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference
to the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference
to the Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules.
(1) Financial Statements: See Part II, Item 8 hereof.
(2) Financial Statement Schedules: The consolidated financial
statement schedule set forth under the following caption is included
herein. The page reference is to the consecutively numbered pages of this
report on Form 10-K.
Page
Report of Independent Public Accountants on Schedule 13
Schedule II - Valuation and Qualifying Accounts 14
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the Consolidated Financial Statements or Notes
thereto.
(3) Exhibits: The response to this portion of Item 14 is submitted
as a separate section of this report on Form 10-K (see Exhibit Index).
(b) Reports on Form 8-K: There were no reports on Form 8-K filed by the
Company during the fourth quarter of 1996.
FORM 11-K INFORMATION INCLUDED HEREIN RELATED TO STOCK OPTION AND EMPLOYEE
STOCK PURCHASE PLANS
Stock Option Plan
The Company's Stock Option Plan (the Stock Option Plan) is a nonqualified
plan that provides for the grant of options to management employees.
Options are granted at prices equal to the market value of the common stock
on the date the option is granted. The options are exercisable over a
period (determined by the Option Committee of the Board of Directors) not
to exceed
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ten years and one day from the date of grant. Stock appreciation
rights may also be granted at the same time as participants are awarded
stock options.
Stock appreciation rights are exercisable at a time when the related
options may be exercised. The maximum number of shares of common stock
that may be optioned under the Stock Option Plan is 3,000,000 shares.
Additionally, the maximum number of shares which may be optioned to any one
person under the Stock Option Plan is 750,000 shares. Members of the
Option Committee are not eligible to participate in the Stock Option Plan
while members of the Option Committee.
Current members of the Option Committee are:
Clarence L. Werner Irving B. Epstein
Werner Enterprises, Inc. Epstein & Epstein
P.O. Box 37308 Suite 123
Omaha, NE 68137 10050 Regency Circle
Omaha, NE 68114
Curtis G. Werner Martin F. Thompson
Werner Enterprises, Inc. 5145 S. 184th Plaza
P.O. Box 37308 Omaha, NE 68135
Omaha, NE 68137
These persons do not receive compensation for their services as members of
the Option Committee, except outside directors, who receive a fee of $2,000
for each meeting of the Option Committee they attend if not held on a day
on which a meeting of the Board of Directors is held.
The information set forth in Note (6) "Stock Option and Employee Benefit
Plans" on pages 22 and 23 of the Annual Report is incorporated herein by
reference. No stock appreciation rights are outstanding. All employees to
whom options were granted were provided with a copy of the Stock Option
Plan, as well as the Company's most recent Annual Report.
Employee Stock Purchase Plan
Any person employed by the Company or any subsidiary at least 90 days and
who is employed at least 20 hours per week on a regular basis may
participate in the Company's Employee Stock Purchase Plan (the Purchase
Plan). Eligible participants designate the amount of regular payroll
deductions and/or a single annual payment, subject to a $1,950 yearly
maximum amount, that will be used to purchase shares of the Company's
common stock on the Over-The-Counter Market subject to the terms of the
Purchase Plan. The Company contributes an amount equal to 15% of each
participant's contributions under the Purchase Plan. Interest accrues on
Purchase Plan contributions at a rate of 5.25%. The broker's commissions
and administrative charges related to purchases of common stock under the
Purchase Plan are paid by the Company. As of December 31, 1996, 510
employees were participating in the Purchase Plan.
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The administrator of the Purchase Plan is John J. Steele, Vice President,
Treasurer and Chief Financial Officer of the Company, Post Office Box
37308, Omaha, Nebraska 68137. Mr. Steele has received no compensation for
his services as administrator.
The broker utilized by the Company to make purchases under the Purchase
Plan is Smith Barney, Inc., 388 Greenwich Street, New York, New York 10013.
The total amount of compensation received by Smith Barney, Inc. from the
Purchase Plan for services in all capacities during the year ended
December 31, 1996 was $5,066. Participants are provided with a copy of the
Purchase Plan's Prospectus, as well as the Company's most recent Annual
Report and any quarterly reports prepared since the Annual Report.
Following each purchase under the Purchase Plan, each participant receives
a statement from the broker detailing the number of shares purchased, the
purchase price, and the accumulated number of shares owned by the
participant.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on the
26th day of March, 1997.
WERNER ENTERPRISES, INC.
By: /s/ John J. Steele
John J. Steele
Vice President, Treasurer and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
Signature Position Date
/s/ Clarence L. Werner Chairman of the Board, Chief March 26, 1997
Clarence L. Werner Executive Officer and Director
/s/ Gary L. Werner Vice Chairman, President and March 26, 1997
Gary L. Werner Director
/s/ Curtis G. Werner Vice Chairman - Corporate March 26, 1997
Curtis G. Werner Development and Director
/s/ Gregory L. Werner Executive Vice President and March 26, 1997
Gregory L. Werner Director
/s/ John J. Steele Vice President, Treasurer and March 26, 1997
John J. Steele Chief Financial Officer
/s/ James L. Johnson Corporate Secretary and March 26, 1997
James L. Johnson Controller
/s/ Irving B. Epstein Director March 26, 1997
Irving B. Epstein
/s/ Martin F. Thompson Director March 26, 1997
Martin F. Thompson
/s/ Gerald H. Timmerman Director March 26, 1997
Gerald H. Timmerman
/s/ Donald W. Rogert Director March 26, 1997
Donald W. Rogert
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Stockholders and Board of Directors of Werner Enterprises,
Inc.:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements included in
Werner Enterprises, Inc.'s annual report to stockholders
incorporated by reference in this Form 10-K, and have issued our
report thereon dated January 23, 1997. Our audit was made for
the purpose of forming an opinion on those statements taken as a
whole. The schedule listed in Item 14(a)(2) of this Form 10-K is
the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange
Commission's rules and is not a part of the basic consolidated
financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly
states in all material respects the financial data required to be
set forth therein in relation to the basic consolidated financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Omaha, Nebraska,
January 23, 1997
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SCHEDULE II
WERNER ENTERPRISES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Balance Charged Write- Balance
At To Off At
Beginning Costs Of End
Of And Doubtful Of
Period Expenses Accounts Period
------ -------- -------- ------
Year ended December 31, 1996:
Allowance for doubtful accounts $3,240 $606 $487 $3,359
=====================================
Year ended December 31, 1995:
Allowance for doubtful accounts $2,791 $606 $157 $3,240
=====================================
Year ended December 31, 1994:
Allowance for doubtful accounts $2,552 $455 $216 $2,791
=====================================
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EXHIBIT INDEX
Exhibit
Number Description Page Number or Incorporated by Reference to
- ------- ----------- -------------------------------------------
3(i)(A) Revised and Amended Exhibit 3 to Registration Statement on Form
Articles of S-1, Registration No. 33-5245
Incorporation
3(i)(B) Articles of Amendment Exhibit 3(i) to the Company's report on
to Articles of Form 10-Q for the quarter ended May 31,
Incorporation 1994
3(ii) Revised and Amended Exhibit 3(ii) to the Company's report on
By-Laws Form 10-K for the year ended December 31,
1994
10 Amended and Restated Exhibit 10 to the Company's report on Form
Stock Option Plan 10-Q for the quarter ended May 31, 1994
13 Incorporated by Page 16 of sequentially numbered pages
reference sections
of Annual Report to
Stockholders for the
year ended December 31,
1996
21 Subsidiaries of the Page 32 of sequentially numbered pages
Registrant
23 Consent of Arthur Page 33 of sequentially numbered pages
Andersen LLP
27 Financial Data Page 34 of sequentially numbered pages
Schedule
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<TABLE>
<CAPTION>
Financial Highlights
(Dollars in thousands, except per share amounts)
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Operating revenues $643,274 $576,022 $516,006 $418,308 $361,791
Income before cumulative
effect of change
in accounting principle 40,555 36,380 36,662 29,964 24,138
Net income 40,555 36,380 36,662 29,964 23,084
Earnings per share* 1.07 .96 .97 .85 .71
Cash dividends declared
per share .09 .08 .07 .06 .05
Return on average
stockholders' equity* 12.4% 12.5% 14.1% 15.9% 15.9%
Operating ratio 89.7% 89.4% 88.3% 87.8% 88.7%
Book value per share* 9.17 8.18 7.31 6.45 4.75
Total assets 549,211 507,679 453,637 373,375 288,664
Long-term obligations 30,000 40,000 30,000 - 7,009
Stockholders' equity 348,371 309,052 276,414 245,004 162,872
* After giving retroactive effect for the August 1996, three-for-two stock split (all years presented)
and before the cumulative effect of a change in accounting principle in 1992.
</TABLE>
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TECHNOLOGY
Thanks in part to our innovative use of technology, Werner is a leader in
the transportation industry. We have earned the reputation of being a proactive
carrier because rather than waiting for problems to occur, we prevent them
from happening. We have implemented numerous automated processes that help
move a customer's shipment from its origin to its final destination. Satellite
communication, load optimization, driver hours-of-service, and EDI (Electronic
Data Interchange) are just a few of the many advanced technologies that Werner
has capitalized on over the past year.
SATELLITE COMMUNICATION
Werner Enterprises installed satellite communications devices in its
entire truck fleet over four years ago. The primary function of this
technology is to serve as an instantaneous, accurate communication link between
our driver and the company; provide automatic load tracking; and monitor the
driver and tractor's operating performance.
Shipment information is available to the driver via a computer terminal
within the cab. Comprehensive messages sent by satellite, including the
shipper's profile, special delivery instructions, recommended travel routes,
and even weather reports, can be received by the driver without having to leave
the cab. Since this information is communicated in writing, misunderstandings
are greatly reduced.
Automatic load tracking allows Werner to pinpoint the location of each
tractor within a city block throughout the continental United States and
southern Canada. Positions are received from each truck at least every hour
that show its location by latitude and longitude.
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Since our computer keeps a history of these reports, it calculates the truck
speed by deducting the distance from one reading to the next within the time
frame that has lapsed. This information not only serves as a tool to pre-
determine arrival and departure times accurately, it also serves as a safeguard
for our drivers in emergency situations.
Our satellite communication also plays a vital role in helping us prevent
expensive mechanical problems by automatically monitoring each tractor for
more than a dozen mechanical faults, including low oil pressure or low engine
coolant. This "fail-safe" system automatically sends a message to headquarters
if a tractor's engine is not performing within acceptable parameters. The
driver is simultaneously alerted by satellite to shut down and contact
headquarters immediately.
Each year, Werner, and ultimately its customers, reap tremendous benefits
from satellite communication as advanced applications are developed and further
improved to fit Werner's specific needs. Examples of some applications that
are used on a daily basis include: load optimization, drop and swap, and our
driver hours-of-service program.
LOAD OPTIMIZATION
Matching an optimum load to the best truck can be a difficult task,
particularly when there are thousands of trucks and loads to consider. But
with the assistance of a computerized "decision support system," it can be
accomplished effectively within a matter of moments. Our load optimization
software analyzes raw data and makes truck-to-load recommendations. Using
"real time data," this software considers over 150 different factors before
making the best truck/load recommendation. Load origin and destination, rate,
empty mile factor, driver's home needs, transit time, maintenance, and equip-
ment availability are examples of the types of factors that are considered
before assigning a load. Our marketing managers then view and evaluate which
recommendation is the most beneficial to the customer, the driver, and the
company.
DROP AND SWAP
Customer satisfaction and driver home-time satisfaction are two end
results of our drop-and-swap computer program. This program allows Werner to
preplan which loads can be "swapped" while en route to meet our driver's home-
time needs without compromising our customer's delivery needs. The program
offers a number of recommendations, as well as the benefits and disadvantages
of each swap. Drop-and-swap coordinators, adding the human factor, make the
final decision. In addition, the drop-and-swap program continually monitors
delivery activity and works to eliminate inefficiencies of empty miles whenever
possible.
6
<PAGE>
DRIVER HOURS-OF-SERVICE
Werner has gained national attention within the trucking industry for its
proprietary driver hours-of-service system. This program automatically
projects the time required to pick up and deliver a load, and it alerts the
company of any potential hours-of-service concerns before a driver is assigned.
This program gives us more accurate assignment projections while keeping our
drivers safe, productive, and in compliance with federal Department of
Transportation regulations.
EDI
EDI (Electronic Data Interchange) is the computer-to-computer exchange of
information between Werner and our customers. This form of communication moves
information faster and more accurately while reducing paper work, phone calls,
manual data entry, faxes, postage, and handling costs. Improved customer
service, improved shipment tracking and carrier performance reporting, and
improved billing cycles are just a few of the benefits derived by EDI. Approx-
imately 30 percent of all incoming orders are currently transmitted by EDI,
and it is a requirement to conduct business with a growing number of our larger
customers.
DOCUMENT IMAGING
In an effort to move towards a paperless work environment while improving
customer billing procedures, Werner has implemented an "optical image process"
or document imaging system. This computer-enhanced process benefits the
company by resulting in: better billing accuracy because of more efficient
processing and improved cash flow, greater customer satisfaction due to a
retrieval process that takes only a matter of seconds, and it helps the company
be proactive in meeting staffing needs since peak workloads can be more
accurately predicted.
With document imaging, trip documents are scanned, stored, and processed
by the Werner computer system as images that are merged into a billing state-
ment. Since the images are saved to laser optical disk, which is the same
size as a compact laser disk, they can be electronically routed within the
company and retrieved within a matter of seconds. Each optical laser disk can
hold 30,000 pages--equivalent to a stack of paper that is 15 feet high.
In addition to our customer billing department, our safety department also
utilizes document imaging to store, track, and internally route driver applica-
tions, including Department of Motor Vehicle records and work histories. The
company will be expanding document imaging to other areas within the organiza-
tion that will benefit from this technology.
7
<PAGE>
WERNER ENTERPRISES
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THE FOLLOWING TABLE SETS FORTH THE PERCENTAGE RELATIONSHIP
OF INCOME AND EXPENSE ITEMS TO OPERATING REVENUES FOR THE
YEARS INDICATED.
1996 1995 1994
<S> <C> <C> <C>
Operating revenues 100.0% 100.0% 100.0%
-------------------------------------
Operating expenses
Salaries, wages and benefits 34.9 36.2 35.6
Fuel 9.6 8.2 8.2
Supplies and maintenance 8.3 8.8 8.8
Taxes and licenses 8.0 8.6 8.7
Insurance and claims 2.9 3.5 3.3
Depreciation 10.1 10.6 10.4
Rent and purchased transportation 15.2 13.1 12.1
Communications and utilities 1.3 1.4 1.8
Other (.6) (1.0) (.6)
-------------------------------------
Total operating expenses 89.7 89.4 88.3
-------------------------------------
Operating income 10.3 10.6 11.7
Net interest expense and other .1 .2 .1
-------------------------------------
Income before income taxes 10.2 10.4 11.6
Income taxes 3.9 4.1 4.5
-------------------------------------
Net income 6.3% 6.3% 7.1%
=====================================
</TABLE>
<TABLE>
THE FOLLOWING TABLE SETS FORTH CERTAIN INDUSTRY DATA
REGARDING THE FREIGHT REVENUES AND OPERATIONS OF THE
COMPANY.
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Operating ratio 89.7% 89.4% 88.3% 87.8% 88.7%
Average revenues per tractor per week (1) $2,710 $2,606 $2,563 $2,507 $2,533
Average annual miles per tractor 126,221 121,728 120,312 122,304 124,992
Average miles per trip 808 785 835 881 959
Average revenues per mile (1) $1.116 $1.113 $1.108 $1.066 $1.054
Total tractors operated (at year end)
Company owned 3,840 3,674 3,473 3,085 2,678
Owner-operator owned 760 676 527 442 222
-----------------------------------------------
Total tractors 4,600 4,350 4,000 3,527 2,900
===============================================
Total trailers operated (at year end) 12,170 11,060 10,300 8,420 6,573
===============================================
</TABLE>
(1) Net of fuel surcharge revenues.
13
<PAGE>
WERNER ENTERPRISES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
1996 Compared to 1995
Operating revenues increased by 12%, due primarily to a 6%
increase in the average number of tractors in service and a
4% increase in the average miles per tractor. The increase
in average miles per tractor is attributable to an increase
in freight serviced by team drivers, management focus on
maximizing equipment utilization, and improved freight
demand. The growth in team driver freight largely
contributed to a 3% increase in the average miles per trip.
Increased revenues from logistics transportation services
and the implementation of a fuel surcharge to recover the
higher cost of fuel beginning in April 1996 also
contributed, to a lesser extent, to the increase in
operating revenues. The Company's operating ratio (operating
expenses expressed as a percentage of operating revenues)
increased slightly from 89.4% to 89.7%, as described below.
Owner-operator tractors represented a larger percentage of
total tractors in service during 1996 (17%), compared to
1995 (15%), which caused a shift in expenses from the
salaries, wages and benefits; fuel; supplies and
maintenance; taxes and licenses; and depreciation categories
(owner-operators are independent contractors and are
responsible for these costs under their contracts with the
Company) to the rent and purchased transportation category.
The increase in logistics transportation services also
contributed to the shift in costs to rent and purchased
transportation.
Salaries, wages and benefits decreased as a percentage of
revenues primarily due to an increase in the percentage of
owner-operator tractors and increased revenues from
logistics services, partially offset by reductions in the
estimated liability for accrued driver payroll of
approximately $2.9 million during 1995. On November 8,
1996, the Company announced that it increased the pay for
virtually all of its Company drivers and owner-operators by
two cents per mile, effective January 1, 1997. The Company
has been contacting customers to explain the reasons for the
pay increase in an effort to obtain rate increases. The
Company cannot predict the extent to which rate increases
will be obtained to offset the additional cost associated
with the pay increase.
Fuel costs increased from 8.2% to 9.6% of revenues due
mainly to a 24% increase in average fuel prices, partially
offset by the increased percentage of owner-operator
tractors. In April 1996, the Company began efforts to
recover a portion of the increased cost of fuel from
customers via the use of fuel surcharges. The higher
average fuel prices, net of fuel surcharges collected from
customers, resulted in a $.12 per share decrease in earnings
for 1996 compared to 1995. The Company cannot predict
whether the higher fuel prices will continue, or the extent
to which fuel surcharges will be collected to offset such
increases.
Supplies and maintenance decreased from 8.8% to 8.3% of
revenues, due primarily to the increased percentage of owner-
operator tractors and the increase in logistics
transportation revenues. Taxes and licenses decreased from
8.6% to 8.0% of revenues, principally due to the increased
percentage of owner-operators, increase in logistics
revenues, and refunds of state sales taxes.
Insurance and claims decreased from 3.5% to 2.9% of
revenues primarily due to improved accident claims
experience during 1996. Depreciation decreased from 10.6% to
10.1% of revenues due primarily to the increased percentage
of owner-operator tractors, increased tractor utilization,
and the effect of a change in the estimated salvage value of
certain trailers effective April 1995. Other operating
expenses changed from (1.0%) to (.6%) of revenues due to a
decrease in gains realized on the sale of revenue equipment
to third parties.
The Company's effective income tax rate (income taxes as a
percentage of income before income taxes) was 38.2% for
1996, compared with 39.0% for 1995, as described in Note 5
of the Notes to Consolidated Financial Statements.
1995 Compared to 1994
Operating revenues increased 12% due primarily to a 10%
increase in the average number of tractors in service and
increased revenue from intermodal and logistics
transportation services. Average miles per tractor increased
1%, mostly due to increased empty miles resulting from
softer freight demand. Year over year growth in the
Company's regional short-haul and dedicated fleet divisions
contributed to a 6% decrease in the average miles per trip,
and a 17% increase in the total number of shipments,
although growth in the regional division was scaled back
later in 1995 as freight demand softened. The Company's
operating ratio increased from 88.3% to 89.4%, as described
below.
14
<PAGE>
WERNER ENTERPRISES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Salaries, wages and benefits increased as a percentage of
operating revenues primarily due to a 2 cent per mile (or
about 9%) driver pay increase effective May 1, 1994; the
retention of more experienced, higher paid drivers; and
increased employee health benefit costs. These increases
were partially offset by reductions in the estimated
liability for accrued driver payroll of approximately $2.9
million during 1995.
Fuel costs were comparable to 1994, as slightly higher
average fuel prices were offset by improved fuel efficiency.
Supplies and maintenance costs were also comparable as a
percentage of operating revenues, as reduced driver
advertising and tire expenses were offset by increased third-
party loading and unloading costs. Taxes and licenses were
slightly lower as a percentage of operating revenues, due
primarily to the effect of increased revenues from
intermodal and logistics transportation services.
Insurance and claims expense increased slightly from 3.3%
to 3.5% of revenues due principally to accident claims
experience in 1995. Depreciation increased from 10.4% to
10.6% of revenues due primarily to the November 1994
purchase of satellite tracking equipment which had
previously been leased, and a higher average trailer to
tractor ratio during 1995, partially offset by the effect of
a change in the estimated salvage value for certain trailers
(See "Property, Equipment and Depreciation" in Note 1 of the
Notes to Consolidated Financial Statements).
Rent and purchased transportation increased by 1.0% of
revenues due mainly to an increase in the use of intermodal
and logistics services. The average percentage of owner-
operator tractors to total tractors was comparable to the
prior year, and therefore did not cause significant
fluctuations between years in this expense category.
Communications and utilities decreased from 1.8% to 1.4%
of revenues, essentially due to the purchase of previously
leased satellite tracking equipment. Other operating
expenses decreased to (1.0%) of revenues due to increased
gains recognized on the sale of revenue equipment to third
parties.
Interest expense increased from .2% to .4% of revenues,
due to an increase in the average outstanding amount of long-
term borrowings. The Company's effective income tax rate was
39.0% for 1995, compared with 38.9% for 1994, as described
in Note 5 of the Notes to Consolidated Financial Statements.
Liquidity and Capital Resources
Historically, the Company has relied primarily on cash
generated from operations to fund working capital
requirements.
The growth of the Company's business has required
significant investment in new revenue equipment. Net capital
expenditures in 1996, 1995 and 1994 were $86.2 million,
$95.5 million and $117.4 million, respectively. The 1996
capital expenditures were financed primarily with cash
generated from operations. The 1995 and 1994 capital
expenditures were financed primarily with cash generated
from operations and, to a lesser extent, borrowings. The
Company has committed to approximately $34 million of
capital expenditures (after trade-in allowances) which is a
portion of its estimated 1997 capital expenditures. The
Company expects to fund these expenditures primarily with
cash generated from operations.
From time to time, the Company has and may continue to
repurchase shares of its common stock. The timing and amount
of such purchases depends on market and other factors.
The Company's financial position is strong. The current
ratio is 1.97. The Company has $30 million of long-term debt
and $348 million in stockholders' equity. Based on the
Company's strong financial position, management foresees no
significant barriers to obtaining sufficient financing, if
necessary, to continue with its growth plans.
Forward-Looking Statements
This report contains forward-looking statements which are
based on information currently available to the Company's
management. Although the Company believes the expectations
reflected in such forward-looking statements to be
reasonable, no assurance can be given that the expectations
will be realized. Factors currently known to management that
could cause actual results to differ materially from the
expectations reflected in forward-looking statements include
the following: price and availability of diesel fuel;
availability of an adequate number of qualified drivers;
competitive factors including rate competition;
unanticipated changes in laws, regulations, and taxation;
and the amount and severity of accident claims. General
economic conditions and weather conditions may also
significantly affect the Company's results, as its equipment
utilization depends on the level of business activity of
shippers in a variety of industries.
15
<PAGE>
WERNER ENTERPRISES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
1996 1995 1994
<S> <C> <C> <C>
Operating revenues (Note 1) $643,274 $576,022 $516,006
------------------------------------
Operating expenses:
Salaries, wages and benefits 224,721 208,669 183,851
Fuel 61,611 47,431 42,017
Supplies and maintenance 53,337 50,646 45,593
Taxes and licenses 51,807 49,636 44,729
Insurance and claims 18,927 19,776 17,208
Depreciation (Note 1) 65,010 61,195 53,722
Rent and purchased transportation 97,525 75,229 62,522
Communications and utilities 8,164 8,086 9,338
Other (3,958) (5,662) (3,211)
------------------------------------
Total operating expenses 577,144 515,006 455,769
------------------------------------
Operating income 66,130 61,016 60,237
------------------------------------
Other expense (income):
Interest expense 2,063 2,317 743
Interest income (1,709) (1,072) (649)
Other 112 132 161
------------------------------------
Total other expense 466 1,377 255
------------------------------------
Income before income taxes 65,664 59,639 59,982
Income taxes (Notes 1 and 5) 25,109 23,259 23,320
------------------------------------
Net income $ 40,555 $ 36,380 $ 36,662
====================================
Average common shares outstanding (Note 1) 37,873 37,757 37,954
====================================
Earnings per share (Note 1) $1.07 $.96 $.97
====================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
16
<PAGE>
WERNER ENTERPRISES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands, except share amounts) December 31
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 1) $ 22,136 $ 16,227
Accounts receivable, less allowance of $3,359
and $3,240, respectively 67,928 57,871
Prepaid taxes, licenses, and permits 7,753 7,752
Current deferred income taxes (Notes 1 and 5) 6,800 6,500
Other 11,547 12,645
-----------------------
Total current assets 116,164 100,995
-----------------------
Property and equipment, at cost (Note 1)
Land 16,598 16,499
Buildings and improvements 30,127 26,471
Revenue equipment 480,008 435,159
Service equipment and other 52,342 48,079
-----------------------
Total property and equipment 579,075 526,208
Less - accumulated depreciation 146,028 119,524
-----------------------
Property and equipment, net 433,047 406,684
-----------------------
$549,211 $507,679
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,025 $ 15,719
Insurance and claims accruals (Notes 1 and 4) 19,758 19,073
Accrued payroll 8,970 7,718
Income taxes payable 3,752 3,226
Driver escrow 3,064 3,368
Other 4,496 5,087
-----------------------
Total current liabilities 59,065 54,191
-----------------------
Long-term debt (Note 3) 30,000 40,000
Deferred income taxes (Notes 1 and 5) 82,500 75,700
Insurance and claims accruals (Notes 1 and 4) 27,000 26,000
Other long-term liabilities 2,275 2,736
Commitments and contingencies (Note 7)
Stockholders' equity (Notes 1 and 6):
Common stock, $.01 par value, 60,000,000 shares
authorized; 38,656,773 and 38,656,800 shares issued;
37,988,079 and 37,771,224 shares outstanding,
respectively 387 258
Paid-in capital 101,528 100,294
Retained earnings 251,976 214,959
Less - treasury stock, at cost (5,520) (6,459)
-----------------------
Total stockholders' equity 348,371 309,052
-----------------------
$549,211 $507,679
=======================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
17
<PAGE>
WERNER ENTERPRISES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands)
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 40,555 $ 36,380 $ 36,662
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 65,010 61,195 53,722
Deferred income taxes 6,500 8,700 11,800
Gain on disposal of operating equipment (5,156) (6,921) (4,042)
Tax benefit from exercise of stock options 788 123 107
Long-term liabilities 539 4,300 1,046
Changes in certain working capital items:
Accounts receivable, net (10,057) (5,349) (7,219)
Prepaid expenses and other current assets 1,097 (1,403) (3,659)
Accounts payable 3,306 (2,845) 5,816
Accrued payroll 1,252 (2,170) 2,098
Other current liabilities 122 1,794 2,974
-----------------------------------
Net cash provided by operating activities 103,956 93,804 99,305
-----------------------------------
Cash flows from investing activities:
Additions to property and equipment (117,599) (131,585) (145,369)
Retirements of property and equipment 31,382 36,088 27,950
-----------------------------------
Net cash used in investing activities (86,217) (95,497) (117,419)
-----------------------------------
Cash flows from financing activities:
Proceeds from issuance of debt - 10,000 30,000
Repayments of long-term debt and capitalized lease
obligations (10,000) - (4,552)
Dividends on common stock (3,344) (2,895) (2,659)
Repurchases of common stock - (1,013) (2,939)
Stock options exercised 1,514 168 109
-----------------------------------
Net cash provided by (used in) financing activities (11,830) 6,260 19,959
-----------------------------------
Net increase in cash and cash equivalents 5,909 4,567 1,845
Cash and cash equivalents, beginning of year 16,227 11,660 9,815
-----------------------------------
Cash and cash equivalents, end of year $ 22,136 $ 16,227 $ 11,660
===================================
Supplemental disclosures of cash flow information:
Cash paid during year for:
Interest $ 3,398 $ 3,294 $ 640
Income taxes 15,904 15,822 10,508
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
18
<PAGE>
WERNER ENTERPRISES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(In thousands, except share amounts) (Note 1)
Total
Common Paid-In Retained Treasury Stockholders'
Stock Capital Earnings Stock Equity
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 $ 258 $100,044 $147,466 $ (2,764) $245,004
Purchases of 192,900 shares of common stock - - - (2,939) (2,939)
Dividends on common stock ($.07 per share) - - (2,529) - (2,529)
Exercise of stock options, 19,050 shares - 127 - 89 216
Net income - - 36,662 - 36,662
-------------------------------------------------------
BALANCE, December 31, 1994 258 100,171 181,599 (5,614) 276,414
Purchases of 75,000 shares of common stock - - - (1,013) (1,013)
Dividends on common stock ($.08 per share) - - (3,020) - (3,020)
Exercise of stock options, 36,000 shares - 123 - 168 291
Net income - - 36,380 - 36,380
-------------------------------------------------------
BALANCE, December 31, 1995 258 100,294 214,959 (6,459) 309,052
Dividends on common stock ($.09 per share) - - (3,538) - (3,538)
Exercise of stock options, 216,886 shares - 1,363 - 939 2,302
Net income - - 40,555 - 40,555
Three-for-two stock split (Note 1) 129 (129) - - -
-------------------------------------------------------
BALANCE, December 31, 1996 $ 387 $101,528 $251,976 $ (5,520) $348,371
=======================================================
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Werner
Enterprises, Inc.:
We have audited the accompanying consolidated balance
sheets of Werner Enterprises, Inc. (a Nebraska corporation)
and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Werner Enterprises, Inc. and subsidiaries as of
December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Omaha, Nebraska,
January 23, 1997.
19
<PAGE>
WERNER ENTERPRISES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Werner Enterprises, Inc. (the Company) is a transportation
company operating under the jurisdiction of the Department
of Transportation and various state regulatory commissions.
The Company maintains a diversified freight base with no one
customer or industry making up a significant percentage of
the Company's receivables or revenues.
Principles of Consolidation
The accompanying consolidated financial statements include
the accounts of Werner Enterprises, Inc. and its majority-
owned subsidiaries. All significant intercompany accounts
and transactions relating to these entities have been
eliminated.
Use of Management Estimates
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the consolidated financial statements, and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments,
purchased with a maturity of three months or less, to be
cash equivalents.
Property, Equipment
and Depreciation
Additions and improvements to property and equipment are
capitalized at cost, while maintenance and repair
expenditures are charged to operations as incurred. At the
time of trade-in, the cost of new equipment is recorded at
an amount equal to the lower of the monetary consideration
paid plus the net book value of the traded property or the
fair value of the new equipment.
Depreciation is calculated based on the cost of the asset,
reduced by its estimated salvage value, using the straight
line method. Accelerated depreciation methods are used for
income tax purposes. The lives and salvage values assigned
to certain assets for financial reporting purposes are
different than for income tax purposes. For financial
reporting purposes, assets are depreciated over the
estimated useful lives of 30 years for buildings and
improvements, 5 to 7 years for revenue equipment and 3 to 8
years for service equipment and other.
The Company periodically reviews its estimates related to
the useful lives and salvage values of its revenue
equipment. Effective April 1, 1995, the Company changed, on
a prospective basis, the estimated salvage value for certain
trailers. This change was to better reflect the value of
used equipment and lower trailer utilization due to a higher
trailer to tractor ratio and a decrease in the average miles
per trip. The change resulted in a decrease in depreciation
expense of approximately $2,600,000 and an increase in net
income of approximately $1,600,000 ($.04 per share) for the
year ended December 31, 1995.
Tires
Tires placed on new revenue equipment are capitalized as a
part of the equipment cost. Replacement tires are expensed
when placed in service.
Insurance and Claims Accruals
Insurance and claims accruals, both current and
noncurrent, reflect the estimated cost for cargo loss and
damage, bodily injury and property damage (BI/PD), group
health and workers' compensation claims, including estimated
loss development and loss adjustment expenses, not covered
by insurance. The costs for cargo and BI/PD are included in
insurance and claims, while the costs of group health and
workers' compensation claims are included in salaries, wages
and benefits in the Consolidated Statements of Income.
Revenue Recognition
The Consolidated Statements of Income reflect recognition
of operating revenues and related direct costs when the
shipment is delivered.
Income Taxes
The Company uses the asset and liability method of
Statement of Financial Accounting Standards (SFAS) No. 109
in accounting for income taxes. Under
20
<PAGE>
WERNER ENTERPRISES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
this method, deferred
tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between
the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using the enacted tax
rates expected to apply to taxable income in the years in
which those temporary differences are expected to be
recovered or settled.
Common Stock and
Earnings Per Share
On August 9, 1996, the Company issued shares for a three-
for-two common stock split effected in the form of a 50%
stock dividend from authorized and unissued shares to
stockholders of record on July 26, 1996. All references in
the Consolidated Financial Statements and Notes to
Consolidated Financial Statements with regard to the number
of shares of common stock and the per share amounts have
been adjusted to reflect the effect of the stock split. The
stated par value of common stock of $.01 per share did not
change.
Earnings per share have been computed based on the
weighted average number of common shares outstanding.
(2) LEASE OBLIGATIONS
In September 1992, the Company entered into a three-year
operating lease for communications equipment. In November
1994, the Company purchased this equipment and terminated
the lease agreement. Communications and utilities expense in
the accompanying Consolidated Statements of Income includes
$4,247,000 for lease of communications equipment during
1994.
(3) LONG-TERM DEBT
The Company had borrowings of $30,000,000 at December 31,
1996 and 1995 under a long-term credit facility. The credit
facility bears variable interest (6.0% at December 31, 1996)
based on the London Interbank Offered Rate (LIBOR) or the
overnight federal funds rate, at the Company's option, and
matures in June 1998. The facility requires, among other
things, that the Company not exceed a maximum ratio of
indebtedness to total capitalization of .6 to 1.
In June 1995, the Company borrowed $10,000,000 under a
separate long-term credit facility. This was repaid during
1996.
The carrying amount of the Company's long-term debt
approximates fair value due to its variable interest rates.
(4) INSURANCE AND CLAIMS
The Company annually reviews its public liability and
property damage insurance coverage in August. Effective
August 1992, the Company assumed responsibility for
liability up to $500,000, plus administrative expenses, for
each occurrence involving personal injury or property
damage. Effective August 1993, the Company also assumed
responsibility for a $1,000,000 annual aggregate amount of
liability for claims between $500,000 and $1,000,000.
Liability in excess of these amounts is assumed by the
insurance carriers in amounts which management considers
adequate.
The Company's public liability and property damage
premiums for coverage between $50,000 and $1,000,000 per
claim prior to August 1992 are subject to retrospective
adjustments based on actual incurred losses until all claims
are settled. Management does not expect any significant
adjustment will be made to the premiums paid or accrued for
these policy years.
The Company has assumed responsibility for workers'
compensation, maintains a $6,000,000 bond, has statutory
coverage and has obtained insurance for individual claims
above $500,000.
Under these insurance arrangements, the Company maintains
$10,500,000 in letters of credit, as of December 31, 1996.
(5) INCOME TAXES
Income tax expense consists of the following (in
thousands):
1996 1995 1994
Current -------------------------
Federal $17,109 $12,472 $ 9,364
State 1,500 2,087 2,156
-------------------------
18,609 14,559 11,520
-------------------------
Deferred
Federal 4,465 6,887 9,804
State 2,035 1,813 1,996
-------------------------
6,500 8,700 11,800
-------------------------
Total income
tax expense $25,109 $23,259 $23,320
=========================
21
<PAGE>
WERNER ENTERPRISES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) INCOME TAXES, CONTINUED
The effective income tax rate differs from the federal
corporate tax rate of 35% in 1996, 1995 and 1994 as follows
(in thousands):
1996 1995 1994
------------------------------
Tax at statutory rate $22,982 $20,874 $20,994
State income taxes,
net of federal tax
benefits 2,298 2,535 2,699
Other, net (171) (150) (373)
------------------------------
$25,109 $23,259 $23,320
==============================
At December 31, deferred tax assets and liabilities
consisted of the following (in thousands):
1996 1995
Deferred tax assets: ------------------
Insurance and claims accruals $18,713 $17,981
Allowance for uncollectible accounts 1,341 1,300
Other 2,971 3,230
------------------
$23,025 $22,511
==================
Deferred tax liabilities:
Property and equipment $94,384 $87,314
Prepaid taxes, licenses and insurance 3,869 3,944
Other 472 453
------------------
$98,725 $91,711
==================
(6) STOCK OPTION AND EMPLOYEE BENEFIT PLANS
Stock Option Plan
The Company's Stock Option Plan (the Stock Option Plan) is
a nonqualified plan that provides for the grant of options
to management employees. Options are granted at prices equal
to the market value of the common stock on the date the
option is granted. Options granted become exercisable in
installments from six to sixty-six months after the date of
grant. The options are exercisable over a period not to
exceed ten years and one day from the date of grant. The
maximum number of shares of common stock that may be
optioned under the Stock Option Plan is 3,000,000 shares.
At December 31, 1996, 1,107,227 shares were available for
granting further options. At December 31, 1996, 1995 and
1994, options for 481,611, 586,856 and 454,200 shares with
weighted average exercise prices of $9.79, $7.73 and $5.01
were exercisable, respectively.
The following table summarizes Stock Option Plan activity
for the three years ended December 31, 1996:
Options Outstanding
-----------------------------
Weighted-Average
Shares Exercise Price
-----------------------------
Balance, December 31, 1993 1,140,150 $10.85
Options exercised (19,050) 5.74
Options canceled (21,000) 14.60
----------
Balance, December 31, 1994 1,100,100 10.87
Options granted 437,136 13.08
Options exercised (36,000) 4.67
Options canceled (15,750) 15.00
----------
Balance, December 31, 1995 1,485,486 11.62
Options exercised (216,886) 6.98
Options canceled (58,313) 14.72
----------
Balance, December 31, 1996 1,210,287 12.31
==========
The following table summarizes information about stock
options outstanding at December 31, 1996:
Options Outstanding
---------------------------------------------------
Weighted-Average Weighted-Average
Range of Number Remaining Exercise
Exercise Prices Outstanding Contractual Life Price
- ----------------------------------------------------------------------
$5.00 to $5.92 257,850 1.0 years $ 5.12
$13.08 to $16.00 952,437 7.5 years 14.25
---------
1,210,287 6.2 years 12.31
=========
Options Exercisable
--------------------------------
Weighted-Average
Range of Number Exercise
Exercise Prices Exercisable Price
--------------------------------
$5.00 to $5.92 257,850 $ 5.12
$13.08 to $16.00 223,761 15.18
--------
481,611 9.79
========
The Company applies Accounting Principles Board (APB)
Opinion No. 25 and related interpretations in accounting for
its Stock Option Plan. SFAS No. 123 "Accounting for Stock-
Based Compensation" requires pro forma disclosure of net
income and earnings per share had the estimated fair value
of option grants on their grant date been charged to
salaries, wages and benefits. The fair value of the options
granted during 1995 was estimated using the Black-Scholes
option-pricing model with the following assumptions: risk-
free interest rate of 6 percent; dividend yield of 0.5
percent; expected life of 5.5 years; and volatility of 30
percent. The weighted-average fair value of options granted
during 1995 was $4.97 per share.
22
<PAGE>
WERNER ENTERPRISES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's pro forma net income and earnings per share
would have been as indicated below had the fair value of
option grants been charged to salaries, wages and benefits
(in thousands):
1996 1995 1994
Net income: -----------------------------
As reported $40,555 $36,380 $36,662
Pro forma $40,125 $36,282 $36,662
Earnings per share:
As reported $1.07 $.96 $.97
Pro forma $1.06 $.96 $.97
Employee Stock Purchase Plan
Employees meeting certain eligibility requirements may
participate in the Company's Employee Stock Purchase Plan
(the Purchase Plan). Eligible participants designate the
amount of regular payroll deductions and/or single annual
payment, subject to a yearly maximum amount, that is used to
purchase shares of the Company's common stock on the Over-
The-Counter Market subject to the terms of the Purchase
Plan. The Company contributes an amount equal to 15% of each
participant's contributions under the Purchase Plan. Company
contributions for the Purchase Plan were $67,704, $79,977
and $58,072 for 1996, 1995 and 1994, respectively. Interest
accrues on Purchase Plan contributions at a rate of 5.25%.
The broker's commissions and administrative charges related
to purchases of common stock under the Purchase Plan are
paid by the Company.
401(k) Retirement Savings Plan
The Company has an Employees' 401(k) Retirement Savings
Plan (the 401(k) Plan). Employees are eligible to
participate in the 401(k) Plan if they have been
continuously employed with the Company or its subsidiaries
for six months or more. The Company matches a portion of the
amount each employee contributes to the 401(k) Plan. It is
the Company's intention, but not its obligation, that the
Company's total annual contribution for employees will equal
2 1/2 percent of net income (exclusive of extraordinary
items). Salaries, wages and benefits expense in the
accompanying Consolidated Statements of Income includes
Company 401(k) Plan contributions and administrative
expenses of $1,030,248, $952,129 and $950,740 for 1996, 1995
and 1994, respectively.
(7) COMMITMENTS AND CONTINGENCIES
The Company has committed to approximately $34,000,000 of
capital expenditures (net cost, after revenue equipment
trade-in allowances of approximately $17,000,000) which is a
portion of its estimated 1997 capital expenditures.
The Company is involved in certain claims and pending
litigation arising in the normal course of business.
Management believes the ultimate resolution of these matters
will not have a material effect on the financial condition
of the Company.
(8) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except per share amounts) First Quarter Second Quarter Third Quarter Fourth Quarter
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996:
- -----------------------------
Operating revenues $147,903 $159,640 $167,155 $168,576
Operating income 12,235 16,645 19,238 18,012
Net income 7,288 10,023 11,732 11,512
Earnings per share .19 .27 .31 .30
1995:
- -----------------------------
Operating revenues $132,434 $143,325 $150,303 $149,960
Operating income 12,598 14,380 17,009 17,029
Net income 7,512 8,578 10,125 10,165
Earnings per share .20 .23 .27 .27
</TABLE>
23
<PAGE>
WERNER ENTERPRISES
CORPORATE INFORMATION
Price Range of Common Stock
The Company's common stock trades on the Nasdaq National
Market tier of The Nasdaq Stock Market under the symbol
WERN. The following table sets forth for the quarters
indicated the high and low sale prices per share of the
Company's common stock in the Nasdaq National Market from
January 1, 1995, through December 31, 1996.
- ------------------------------
High Low
1996 -------------
Quarter ended:
March 31* 16.50 12.83
June 30* 17.58 14.50
September 30* 18.75 15.42
December 31 18.25 15.63
1995
Quarter ended:
March 31* 17.17 12.49
June 30* 14.17 11.67
September 30* 15.33 12.67
December 31* 14.67 12.33
- ------------------------------
*After giving retroactive effect for the three-for-two stock
split in August 1996.
As of February 21, 1997, the Company's common stock was
held by 248 stockholders of record and approximately 5,900
stockholders through nominee or street name accounts with
brokers.
Dividend Policy
The Company has been paying cash dividends on its common
stock following each of its quarters since the fiscal
quarter ended May 31, 1987. The Company intends to continue
payment of dividends on a quarterly basis and does not
currently anticipate any restrictions on its future ability
to pay such dividends. However, no assurance can be given
that dividends will be paid in the future since they are
dependent on earnings, the financial condition of the
Company and other factors.
Corporate Offices
Werner Enterprises, Inc.
Interstate 80 & Highway 50
P.O. Box 37308
Omaha, Nebraska 68137
Telephone: (402) 895-6640
http://www.werner.com
e-mail: [email protected]
Annual Meeting
The Annual Meeting will be held on Tuesday, May 13, 1997
at 10:00 a.m. in the Peter Kiewit Conference Center, 1313
Farnam Street, Omaha, Nebraska.
Stock Listing
The Company's common stock trades on the Nasdaq National
Market tier of The Nasdaq Stock Market under the symbol
WERN.
Independent Public Accountants
Arthur Andersen LLP
1700 Farnam Street
Omaha, Nebraska 68102
Stock Transfer Agent and Registrar
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
Telephone: (800)288-9541
http://www.cmssonline.com
Form 10-K
A copy of the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission may be obtained
by calling or writing the Investor Relations Department,
P.O. Box 37308, Omaha, Nebraska 68137, (402) 895-6640.
24
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF WERNER ENTERPRISES, INC.
STATE OF
SUBSIDIARY INCORPORATION
1. Werner Leasing, Inc. Nebraska
2. Werner Aire, Inc. Nebraska
3. Gra-Gar, Inc. Nebraska
4. Drivers Management, Inc. Nebraska
5. Frontier Clinic, Inc. Nebraska
6. Fleet Truck Sales, Inc. Nebraska
7. Professional Truck Drivers School, Inc. Nebraska
8. Werner Transportation, Inc. Nebraska
9. Worley Enterprises, Inc. Nebraska
32
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included and incorporated by reference in this Form 10-K,
into the Company's previously filed Registration Statement File Nos. 33-
15894 and 33-15895.
ARTHUR ANDERSEN LLP
Omaha, Nebraska,
March 26, 1997
33
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 22,136
<SECURITIES> 0
<RECEIVABLES> 67,928
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 116,164
<PP&E> 579,075
<DEPRECIATION> 146,028
<TOTAL-ASSETS> 549,211
<CURRENT-LIABILITIES> 59,065
<BONDS> 0
0
0
<COMMON> 387
<OTHER-SE> 347,984
<TOTAL-LIABILITY-AND-EQUITY> 549,211
<SALES> 643,274
<TOTAL-REVENUES> 643,274
<CGS> 0
<TOTAL-COSTS> 577,144
<OTHER-EXPENSES> (1,597)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,063
<INCOME-PRETAX> 65,664
<INCOME-TAX> 25,109
<INCOME-CONTINUING> 40,555
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,555
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.07
</TABLE>
