SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended Commission file number
September 30, 1998 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 Identification No.)
incorporation or organization)
14507 FRONTIER ROAD
POST OFFICE BOX 45308
OMAHA, NEBRASKA 68145-0308 (402)895-6640
(Address of principal (Zip Code) (Registrant's telephone number)
executive offices)
__________________________________________
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 [ ]
As of October 31, 1998, 47,434,351 shares of the registrant's common
stock, par value $.01 per share, were outstanding.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
The interim consolidated financial statements contained herein reflect
all adjustments which, in the opinion of management, are necessary for a
fair statement of the financial condition and results of operations for the
periods presented. They have been prepared in accordance with the
instructions to Form 10-Q and do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
Operating results for the three-month and nine-month periods ended
September 30, 1998 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1998. In the opinion of
management, the information set forth in the accompanying consolidated
condensed balance sheets is fairly stated in all material respects in
relation to the consolidated balance sheets from which it has been derived.
These interim consolidated financial statements should be read in
conjunction with the Company's latest annual report (which is incorporated
by reference in the Form 10-K for the year ended December 31, 1997).
Consolidated Statements of Income for the Three Months Ended
September 30, 1998 and 1997 Page 3
Consolidated Statements of Income for the Nine Months Ended
September 30, 1998 and 1997 Page 4
Consolidated Condensed Balance Sheets as of September 30, 1998
and December 31, 1997 Page 5
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1998 and 1997 Page 6
Notes to Consolidated Financial Statements as of
September 30, 1998 Page 7
2
<PAGE>
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
(Amounts in thousands, except per share data) September 30
- -------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Operating revenues $219,715 $200,237
---------------------
Operating expenses:
Salaries, wages and benefits 83,421 71,326
Fuel 13,766 16,060
Supplies and maintenance 18,436 16,588
Taxes and licenses 17,075 14,511
Insurance and claims 5,523 4,994
Depreciation 20,604 18,338
Rent and purchased transportation 34,278 35,399
Communications and utilities 2,814 2,123
Other (2,701) (2,129)
---------------------
Total operating expenses 193,216 177,210
---------------------
Operating income 26,499 23,027
---------------------
Other expense (income):
Interest expense 1,242 926
Interest income (446) (385)
Other 33 24
---------------------
Total other expense 829 565
---------------------
Income before income taxes 25,670 22,462
Income taxes 9,755 8,263
---------------------
Net income $ 15,915 $ 14,199
=====================
Average common shares outstanding (Note 1) 47,658 47,876
=====================
Earnings per share (Note 1) $ .33 $ .30
=====================
Diluted shares outstanding (Note 1) 47,846 48,125
=====================
Diluted earnings per share (Note 1) $ .33 $ .30
=====================
Dividends declared per share (Note 1) $ .024 $ .020
=====================
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended
(Amounts in thousands, except per share data) September 30
- -------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Operating revenues $631,100 $565,921
---------------------
Operating expenses:
Salaries, wages and benefits 237,403 205,234
Fuel 42,662 50,044
Supplies and maintenance 53,159 47,081
Taxes and licenses 49,606 42,438
Insurance and claims 18,146 16,245
Depreciation 60,435 53,562
Rent and purchased transportation 100,470 96,051
Communications and utilities 7,922 6,244
Other (8,387) (5,507)
---------------------
Total operating expenses 561,416 511,392
---------------------
Operating income 69,684 54,529
---------------------
Other expense (income):
Interest expense 3,486 1,961
Interest income (1,296) (1,099)
Other 74 89
---------------------
Total other expense 2,264 951
---------------------
Income before income taxes 67,420 53,578
Income taxes 25,620 19,398
---------------------
Net income $ 41,800 $ 34,180
=====================
Average common shares outstanding (Note 1) 47,786 47,698
=====================
Earnings per share (Note 1) $ .87 $ .72
=====================
Diluted shares outstanding (Note 1) 48,055 47,895
=====================
Diluted earnings per share (Note 1) $ .87 $ .71
=====================
Dividends declared per share (Note 1) $ .068 $ .060
=====================
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
WERNER ENTERPRISES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands) September 30 December 31
- ---------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 21,083 $ 22,294
Accounts receivable, net 87,473 93,461
Prepaid taxes, licenses and permits 2,945 8,405
Other current assets 26,824 21,632
----------------------
Total current assets 138,325 145,792
----------------------
Property and equipment 779,429 698,099
Less - accumulated depreciation 195,661 176,253
----------------------
Property and equipment, net 583,768 521,846
----------------------
$722,093 $667,638
======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 35,955 $ 44,167
Insurance and claims accruals 22,600 22,161
Accrued payroll 11,859 9,116
Income taxes payable 2,369 6,983
Other current liabilities 10,011 9,364
----------------------
Total current liabilities 82,794 91,791
----------------------
Long-term debt 80,000 60,000
Insurance, claims and other long-term accruals 30,301 29,329
Deferred income taxes 100,827 91,400
Stockholders' equity 428,171 395,118
----------------------
$722,093 $667,638
======================
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
(In thousands) September 30
- ---------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 41,800 $ 34,180
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 60,435 53,562
Deferred income taxes 9,427 7,934
Gain on disposal of operating equipment (9,624) (6,006)
Insurance, claims and other long-term accruals 972 58
Tax benefit from exercise of stock options 372 1,540
Changes in certain working capital items:
Accounts receivable, net 5,988 (24,511)
Prepaid expenses and other current assets 268 1,828
Accounts payable (8,212) 7,934
Other current liabilities (967) 9,298
----------------------
Net cash provided by operating activities 100,459 85,817
----------------------
Cash flows from investing activities:
Additions to property and equipment (180,325) (151,993)
Proceeds from sales of property and equipment 67,592 35,689
----------------------
Net cash used in investing activities (112,733) (116,304)
----------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 20,000 30,000
Dividends on common stock (3,063) (2,856)
Repurchases of common stock (7,161) -
Stock options exercised 1,287 2,784
----------------------
Net cash provided by financing activities 11,063 29,928
----------------------
Net decrease in cash and cash equivalents (1,211) (559)
Cash and cash equivalents, beginning of period 22,294 22,136
----------------------
Cash and cash equivalents, end of period $ 21,083 $ 21,577
======================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,627 $ 1,872
Income taxes 20,029 8,043
</TABLE>
6
<PAGE>
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Common Stock Split
On May 13, 1998, the Company issued shares for a five-for-four common
stock split effected in the form of a twenty-five percent (25%) stock
dividend to stockholders of record at the close of business on April 27,
1998. All references in the 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.
(2) Committed Credit Facilities
In September 1998, the Company established 364-day committed credit
facilities with two financial institutions totaling $30 million.
Borrowings under these credit facilities bear variable interest based on
the London Interbank Offered Rate (LIBOR) or, at the Company's option, the
financial institution's base lending rate. No borrowings were outstanding
under these credit facilities as of September 30, 1998. The Company
borrowed $10 million under one of these facilities on November 5, 1998.
(3) Commitments
As of September 30, 1998, the Company has commitments for capital
expenditures of approximately $52,000,000.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This report contains forward-looking statements which are based on
information currently available to the Company's management. Actual
results could differ materially from those anticipated in forward-looking
statements 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", of the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
Year 2000 Issue:
In January 1997, the Company began conducting a comprehensive review
of its Year 2000 issues and has since completed its review of information
technology (IT) systems. Most of the Company's critical software programs
have been developed internally, with the remainder having been purchased
from and maintained by software vendors. The Company completed
substantially all of its conversion of internally developed software
programs to Year 2000 compliance in September 1998. The costs of
converting these programs was not material. The Company is now working
with vendors to verify compliance of vendor-supplied software programs, and
has also begun evaluating compliance of non-IT systems. The following is
an estimate of the status of the Company's IT systems and non-IT systems:
<TABLE>
<CAPTION>
Year 2000 Modifications being
Compliant performed
<S> <C> <C>
Internally-developed IT systems 95% 5%
Vendor-supplied IT systems 70% 30%
Non-IT systems 30% 70%
</TABLE>
Based on information currently available, the Company believes that
with the appropriate modifications to vendor-supplied software programs,
the Year 2000 issue will not pose significant operational or
administrative problems for the Company. The cost of such modifications is
not expected to be material. The Company will continue to evaluate the
Year 2000 readiness of third parties (primarily vendors and customers) with
whom the Company has material relationships. The Company can not presently
estimate the effect on its results of operations, liquidity, and financial
condition should material vendors and customers fail to become Year 2000
compliant. If the Company believes it is likely that a material vendor or
customer will not achieve Year 2000 compliance, the Company will develop a
contingency plan at that time.
Financial Condition:
During the nine months ended September 30, 1998, the Company generated
cash flow from operations of $100.5 million. The Company made long-term
borrowings of $20.0 million, which, along with the cash flow from
operations, enabled the Company to make net property additions, primarily
revenue equipment, of $112.7 million, repurchase common stock of $7.2
million and pay common stock dividends of $3.1 million. The Company also
established $30 million of committed credit facilities during the third
quarter of 1998. See Note 2 of the Notes to Consolidated Financial
Statements. If the Company continues to grow at its current rate (as
8
<PAGE>
described below), additional financing activities may occur. 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.
The Company's long-term debt to equity ratio at September 30, 1998 was
18.7%, compared with 15.2% at December 31, 1997.
Results of Operations:
Three Months Ended September 30, 1998 and 1997
- ----------------------------------------------
Operating revenues increased 10% for the three months ended
September 30, 1998, compared to the same period of the prior year,
primarily due to a 10% increase in the average number of tractors in
service. Revenue per mile, excluding fuel surcharges, increased 1%
compared to third quarter of 1997 due to rate increases. These increases
were partially offset by lower revenues from logistics transportation
services.
Operating expenses, expressed as a percentage of operating revenues,
were 87.9% for the three months ended September 30, 1998, compared to 88.5%
for the three months ended September 30, 1997. The Company's decrease in
logistics transportation services contributed to a shift in costs from the
rent and purchased transportation expense category to several other expense
categories, as described below.
Salaries, wages and benefits increased from 35.6% to 37.9% of revenues
due primarily to a decrease in logistics revenues, higher employee health
care costs in 1998 and favorable workers' compensation claims experience in
the third quarter of 1997. At times, there have been shortages of drivers
in the trucking industry, particularly the medium-to-long haul segment.
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. 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.
Fuel decreased from 8.0% to 6.2% of revenues, due mainly to
significantly lower average fuel prices during the quarter compared to the
same quarter of the prior year. Taxes and licenses increased from 7.2% to
7.8% of revenues due to refunds and state sales tax incentives in the prior
year period, and lower logistics revenues in the current year.
Depreciation increased from 9.2% to 9.4% of revenues due primarily to the
decrease in logistics revenues. Rent and purchased transportation
decreased from 17.7% to 15.6% of revenues due primarily to the Company's
decrease in logistics transportation services.
The Company's effective income tax rate (income taxes as a percentage
of income before income taxes) was 38% and 36.8% for the three month
periods ended September 30, 1998 and 1997, respectively. The effective
income tax rate for the 1997 period was lower than normal due to favorable
settlement of income tax issues.
Nine Months Ended September 30, 1998 and 1997
- ---------------------------------------------
Operating revenues increased by 12% for the nine months ended
September 30, 1998, compared to the same period of the previous year,
primarily due to an 11% increase in the average number of tractors.
Revenue per mile, excluding fuel surcharges, increased 1% compared to the
first nine months of 1997 due to rate increases. These increases were
partially offset by lower revenues from logistics transportation services.
9
<PAGE>
Operating expenses, expressed as a percentage of operating revenues,
decreased to 89.0% for the nine months ended September 30, 1998, compared
to 90.4% for the same period of 1997. Salaries, wages and benefits
increased from 36.3% to 37.6% of revenues due primarily to a decrease in
logistics revenues and higher employee health care costs in 1998. Fuel
costs decreased from 8.8% to 6.8% of revenues due mainly to lower average
fuel prices during the first nine months of 1998. Taxes and licenses
increased from 7.5% to 7.9% of revenues due primarily to the decreased
revenues from logistics services and refunds and favorable development of
state tax issues during the prior period. Rent and purchased transportation
decreased from 17.0% to 15.9% of revenues due primarily to the Company's
decrease in logistics transportation services. Other operating expenses
changed from (1.0%) to (1.3%) of revenues mainly due to an increase in
gains on sales of revenue equipment to third parties resulting primarily
from an increase in the number of units sold.
The Company's effective income tax rate was 38.0% and 36.2% for the
nine month periods ended September 30, 1998 and 1997, respectively. The
effective income tax rate for the 1997 period was lower than normal due to
favorable settlement of income tax issues.
10
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Incorporated
Number Description by Reference to
11 Statement Re: Computation of Per Share Earnings Filed herewith
27 September 30, 1998 Financial Data Schedule Filed herewith
(b) Reports on Form 8-K.
A report on Form 8-K, filed July 22, 1998, regarding a news
release on July 16, 1998, announcing the Company's operating
revenues and earnings for the second quarter ended June 30, 1998.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
WERNER ENTERPRISES, INC.
Date: November 13, 1998 By: /s/John J. Steele
John J. Steele
Vice President, Treasurer and
Chief Financial Officer
Date: November 13, 1998 By: /s/James L. Johnson
James L. Johnson
Corporate Secretary and Controller
12
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
-----------------------------------------------
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
-------------------- ------------------
1998 1997 1998 1997
-------------------- ------------------
<S> <C> <C> <C> <C>
Net income $15,915 $14,199 $41,800 $34,180
==================== ==================
Average common shares
outstanding 47,658 47,876 47,786 47,698
Common stock equivalents (1) 188 249 269 197
-------------------- ------------------
Diluted shares outstanding 47,846 48,125 48,055 47,895
==================== ==================
Earnings per share $ .33 $ .30 $ .87 $ .72
==================== ==================
Diluted earnings per share $ .33 $ .30 $ .87 $ .71
==================== ==================
</TABLE>
(1) Common stock equivalents represent the dilutive effect of outstanding
stock options for all periods presented.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 21,083
<SECURITIES> 0
<RECEIVABLES> 87,473
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 138,325
<PP&E> 779,429
<DEPRECIATION> 195,661
<TOTAL-ASSETS> 722,093
<CURRENT-LIABILITIES> 82,794
<BONDS> 0
0
0
<COMMON> 483
<OTHER-SE> 427,688
<TOTAL-LIABILITY-AND-EQUITY> 722,093
<SALES> 631,100
<TOTAL-REVENUES> 631,100
<CGS> 0
<TOTAL-COSTS> 561,416
<OTHER-EXPENSES> (1,222)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,486
<INCOME-PRETAX> 67,420
<INCOME-TAX> 25,620
<INCOME-CONTINUING> 41,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,800
<EPS-PRIMARY> .87
<EPS-DILUTED> .87
</TABLE>
