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, 1997
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.)
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)
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 16, 1998 was
approximately $557,650,608 (based upon $25.563 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 16, 1998, 38,282,204 shares of the registrant's common stock
were outstanding.
Portions of the 1997 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 12, 1998
are incorporated in Part III of this report.
<PAGE>
PART I
ITEM 1. BUSINESS
General
Werner Enterprises, Inc. ("Werner" or the "Company") is a transportation
company engaged primarily in hauling truckload shipments of general
commodities in both interstate and intrastate commerce. Werner is among
the five largest truckload carriers in the United States and maintains its
headquarters in Omaha, Nebraska, near the geographic center of its service
area. Werner was founded by Chairman and Chief Executive Officer
Clarence L. Werner in 1956 who started the business with one truck at the
age of 19. Werner completed its initial public offering in April 1986 with
a fleet of 630 trucks. Werner ended 1997 with a fleet of 5,350 trucks.
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 provides through trailer service in and out of Mexico. The
principal types of freight transported by the Company includes manufactured
goods, retail store merchandise, food products, paper products, beverages,
and building materials.
Marketing and Operations
Werner's business philosophy is to provide superior on-time service to its
customers at a low cost. To accomplish this, Werner operates premium,
modern tractors and trailers which breakdown less frequently and help
attract and retain qualified drivers. Werner has continually invested in
technology to improve service to customers and improve retention of
drivers. Werner focuses on shippers that value the broad geographic
coverage, equipment capacity, technology, customized services, and
flexibility available from a large, financially stable carrier. These
shippers are generally less sensitive to rate levels, preferring to have
their freight handled by a few core carriers with whom they can establish
service-based, long-term relationships.
Werner operates in the truckload segment of the trucking industry. Within
the truckload segment, Werner provides specialized services to customers
based on their trailer needs (van, flatbed, temperature controlled),
geographic area (medium to long haul throughout the 48 contiguous states,
regional), or conversion of their private fleet to Werner (dedicated).
Werner also has been growing its logistics business in which the Company
manages the transportation requirements for individual customers. This can
include transportation routing, transportation mode selection, truck
brokerage, transloading and other services. Logistics is a non-asset based
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business that is highly dependent on information systems and qualified
employees. As compared to trucking operations which requires a significant
capital investment in equipment, logistics operating margins are generally
lower than trucking operating margins.
Werner has a diversified freight base and is not dependent on a small group
of customers or a specific industry for a majority of its freight. During
1997, the Company's largest 5, 10, and 25 customers comprised 18%, 26%, and
40% of the Company's revenues, respectively. No one customer accounted for
more than 7% of the Company's revenues in 1997.
Virtually all of Werner's company-owned and owner operator tractors are
equipped with satellite communications devices that enable the Company and
drivers to conduct two-way communication using standardized and freeform
messages. The satellite technology also enables the Company to monitor the
progress of shipments. The Company obtains specific data on the location
of all trucks in the fleet at least every hour of every day. Using the real-
time data obtained from the satellite devices, Werner has developed
advanced applications systems to improve customer service and driver
service. Examples of such application systems include (1) an automated
driver hours of service system which enables the Company to preplan and
control driver hours of service, (2) automated engine diagnostics to
continually monitor more than a dozen mechanical fault tolerances, (3)
software which enables the Company to preplan shipments which can be
swapped by drivers and trucks enroute to meet driver home time needs,
without compromising on-time delivery requirements, and (4) automated
"possible late load" tracking which informs the operations department of
shipments that may be operating behind schedule, thereby allowing the
Company to take preventive measures to avoid a late delivery, or to provide
the customer with advance notice.
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, 1997, the Company employed 5,912 drivers, 488 mechanics
and maintenance personnel, and 1,121 management, administrative and support
personnel. The Company also had contracts with independent contractors
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(owner-operators) for the services of 860 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 per mile 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 shag
trips, 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. The Company conducts a regular schedule
of driver/top management meetings to share information and concerns and
seek mutually satisfactory solutions. As a result of management's
attention to driver retention, the Company's annual driver turnover level
in 1997 was approximately 70%, which is believed to be below the industry
average.
At times, there are shortages of drivers in the trucking industry. 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 individual drivers' desire 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, 1997, the Company operated 4,490 Company-owned tractors
and had contracts for 860 tractors owned by owner-operators. The tractors
as of December 31, 1997 were operated in the Company's service divisions as
follows: 3,455 medium-to-long-haul dry vans; 360 medium-to-long-haul
flatbeds; 550 regional short-haul vans; 260 temperature-controlled; and 725
dedicated. Approximately 72% 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-
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owned tractor fleet, the average age was 1.4 years at December 31, 1997.
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 14,700 trailers at December 31, 1997: 13,304 dry vans;
732 flatbeds; 591 temperature controlled; and 73 other specialized
trailers. As of December 31, 1997, 96% of the Company's fleet of dry van
trailers consisted of 53-foot trailers. Other trailer lengths such as 27-
foot and 57-foot are also provided by the Company to meet the specialized
needs of customers. The average age of the trailer fleet was 2.8 years at
December 31, 1997.
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. At times, the Company has experienced
significant increases in the cost of fuel. During past periods of high
fuel costs, the Company has recovered a portion of the increased cost from
customers via the use of fuel surcharges. The Company cannot predict
whether high fuel price levels will occur in the future or the extent to
which fuel surcharges could 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 regulated by the Surface Transportation
Board of the United States Department of Transportation (DOT). The DOT
generally governs matters such as safety requirements, registration to
engage in motor carrier operations, accounting systems, certain mergers,
consolidations, acquisitions, and periodic financial reporting. The
Company currently has a satisfactory DOT safety rating, which is the
highest available rating. A conditional or unsatisfactory DOT safety
rating could have an adverse effect on the Company, as some of the
Company's contracts with customers require a satisfactory rating. Such
matters as weight and dimensions of equipment are also subject to federal,
state, and international regulations.
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
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FAAA Act) amended sections of the Interstate Commerce Act to prevent states
from regulating rates, routes or service of motor carriers after January 1,
1995. The FAAA Act did not address state oversight of motor carrier safety
and financial responsibility, or state taxation of transportation. If a
carrier wishes to operate in 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.
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 believed to be 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,
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frame straightening and alignment machine, truck and trailer wash areas,
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 is currently
constructing a 144,000 square-foot addition to the Company's headquarters
office building. Most of the Omaha maintenance and repair facilities will
eventually be relocated to the land in Omaha that is being held for future
expansion.
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 $1,500,000 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 and Note (5) "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 1997, 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, 1997, 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:
A report on Form 8-K, filed October 20, 1997, regarding a news
release on October 15, 1997, announcing the Company's operating revenues
and earnings for the third quarter ended September 30, 1997.
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
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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 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
PO Box 45308 Suite 123
Omaha, NE 68145 10050 Regency Circle
Omaha, NE 68114
Curtis G. Werner Martin F. Thompson
Werner Enterprises, Inc. c/o Werner Enterprises, Inc.
PO Box 45308 PO Box 45308
Omaha, NE 68145 Omaha, NE 68145
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 (4) "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's Prospectus, 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
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Purchase Plan are paid by the Company. As of December 31, 1997, 552
employees were participating in the Purchase Plan.
The administrator of the Purchase Plan is John J. Steele, Vice President,
Treasurer and Chief Financial Officer of the Company, Post Office Box
45308, Omaha, Nebraska 68145. 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 Salomon Smith Barney, Inc., 388 Greenwich Street, New York, New
York 10013. The total amount of compensation received by Salomon Smith
Barney, Inc. from the Purchase Plan for services in all capacities during
the year ended December 31, 1997 was $8,252. 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
27 day of March, 1998.
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 27, 1998
Clarence L. Werner Executive Officer and Director
/s/ Gary L. Werner Vice Chairman and March 27, 1998
Gary L. Werner Director
/s/ Curtis G. Werner Vice Chairman - Corporate March 27, 1998
Curtis G. Werner Development and Director
/s/ Gregory L. Werner President and Director March 27, 1998
Gregory L. Werner
/s/ John J. Steele Vice President, Treasurer and March 27, 1998
John J. Steele Chief Financial Officer
/s/ James L. Johnson Corporate Secretary and March 27, 1998
James L. Johnson Controller
/s/ Irving B. Epstein Director March 27, 1998
Irving B. Epstein
/s/ Martin F. Thompson Director March 27, 1998
Martin F. Thompson
/s/ Gerald H. Timmerman Director March 27, 1998
Gerald H. Timmerman
/s/ Donald W. Rogert Director March 27, 1998
Donald W. Rogert
/s/ Jeffrey G. Doll Director March 27, 1998
Jeffrey G. Doll
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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 20, 1998. 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 20, 1998
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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, 1997:
Allowance for doubtful accounts $3,359 $206 $439 $3,126
=====================================
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
=====================================
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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
11 Statement Re: Filed herewith
Computation of Per
Share Earnings
13 Incorporated by Filed herewith
reference sections
of Annual Report to
Stockholders for the
year ended December 31,
1997
21 Subsidiaries of the Filed herewith
Registrant
23 Consent of Arthur Filed herewith
Andersen LLP
27 Financial Data Filed herewith
Schedule
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EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per share amounts)
1997 1996 1995
--------------------------------
Net income $48,378 $40,555 $36,380
================================
Average common shares outstanding 38,205 37,873 37,757
Common stock equivalents (1) 162 187 186
--------------------------------
Diluted shares outstanding 38,367 38,060 37,943
================================
Earnings per share $1.27 $1.07 $0.96
================================
Diluted earnings per share $1.26 $1.07 $0.96
================================
(1) Common stock equivalents represent the dilutive effect of outstanding
stock options for all periods presented.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
(Dollars in thousands, except per share amounts)
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Operating revenues $772,095 $643,274 $576,022 $516,006 $418,308
Net income 48,378 40,555 36,380 36,662 29,964
Earnings per share 1.27 1.07 .96 .97 .85
Diluted earnings per share 1.26 1.07 .96 .96 .85
Cash dividends declared per share .10 .09 .08 .07 .06
Return on average
stockholders' equity 13.1% 12.4% 12.5% 14.1% 15.9%
Operating ratio 89.9% 89.7% 89.4% 88.3% 87.8%
Book value per share 10.34 9.17 8.18 7.31 6.45
Total assets 667,638 549,211 507,679 453,637 373,375
Long-term obligations 60,000 30,000 40,000 30,000 -
Stockholders' equity 395,118 348,371 309,052 276,414 245,004
</TABLE>
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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.
1997 1996 1995
<S> <C> <C> <C>
Operating revenues 100.0% 100.0% 100.0%
--------------------------------------------------
Operating expenses
Salaries, wages and benefits 36.1 34.9 36.2
Fuel 8.8 9.6 8.2
Supplies and maintenance 8.2 8.3 8.8
Taxes and licenses 7.6 8.0 8.6
Insurance and claims 2.7 2.9 3.5
Depreciation 9.4 10.1 10.6
Rent and purchased transportation 17.1 15.2 13.1
Communications and utilities 1.1 1.3 1.4
Other (1.1) (.6) (1.0)
--------------------------------------------------
Total operating expenses 89.9 89.7 89.4
--------------------------------------------------
Operating income 10.1 10.3 10.6
Net interest expense and other .2 .1 .2
--------------------------------------------------
Income before income taxes 9.9 10.2 10.4
Income taxes 3.6 3.9 4.1
--------------------------------------------------
Net income 6.3% 6.3% 6.3%
==================================================
</TABLE>
<TABLE>
<CAPTION>
THE FOLLOWING TABLE SETS FORTH CERTAIN INDUSTRY DATA REGARDING THE FREIGHT
REVENUES AND OPERATIONS OF THE COMPANY.
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Operating ratio 89.9% 89.7% 89.4% 88.3% 87.8%
Average revenues per tractor per week (1) $2,755 $2,710 $2,606 $2,563 $2,507
Average annual miles per tractor 126,598 126,221 121,728 120,312 122,304
Average miles per trip 799 808 785 835 881
Average revenues per mile (1) $1.132 $1.116 $1.113 $1.108 $1.066
Total tractors (at year end)
Company owned 4,490 3,840 3,674 3,473 3,085
Owner-operator owned 860 760 676 527 442
----------------------------------------------------
Total tractors 5,350 4,600 4,350 4,000 3,527
====================================================
Total trailers (at year end) 14,700 12,170 11,060 10,300 8,420
====================================================
</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
1997 Compared to 1996
Operating revenues increased by 20% over 1996, primarily due to
a 15% increase in the average number of tractors in service and a
1% increase in the average revenue per mile, excluding fuel
surcharges. The increased revenue per mile resulted from the
Company obtaining rate increases from customers to partially
offset a 2 cent per mile driver and owner-operator pay
increase which became effective January 1, 1997. A $24.3
million increase in revenues from logistics and other non-
trucking transportation services also contributed to the
overall increase in operating revenues. The Company's
operating ratio (operating expenses expressed as a
percentage of operating revenues) increased slightly from
89.7% to 89.9%. The increase in logistics transportation
services resulted in a shift in costs to the rent and
purchased transportation expense category from several other
categories, as described below.
Salaries, wages and benefits increased from 34.9% to 36.1% of
revenues due primarily to the impact of the 2 cent per mile driver
pay increase. The increase was partially offset by the 1%
increase in average revenue per mile, favorable workers'
compensation claim experience and increased revenues from
logistics transportation services. At times, there have been
shortages of drivers in the trucking industry. 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 9.6% to 8.8% of revenues due mainly to
lower average fuel prices in 1997, compared to the unusually
high prices during most of 1996. Increased revenues from
logistics transportation services also contributed to the
decrease. Fuel prices began rising at the end of the first
quarter of 1996 and, for the most part, remained at elevated
price levels during the remainder of 1996 and the beginning
of the first quarter of 1997. The Company cannot predict
whether higher price levels will return or the extent to
which fuel surcharges could be collected from customers to
offset such increases.
Taxes and licenses decreased from 8.0% to 7.6% of revenues due
to increased revenues from logistics transportation services, and
refunds and favorable development of state tax issues. Insurance and
claims decreased from 2.9% to 2.7% of revenues, due primarily to
fewer severe accident claims and continued favorable claims
experience in 1997, and increased revenues from logistics
transportation services. Depreciation decreased from 10.1%
to 9.4% of revenues, due principally to increased revenues
from logistics transportation services, and a 2% increase in
the average revenue per tractor per week, excluding fuel
surcharges.
Rent and purchased transportation increased
from 15.2% to 17.1% of revenues due primarily to the
Company's increase in logistics transportation services.
The shift in costs to the rent and purchased transportation
category from several other expense categories can be
expected to continue if the Company's logistics
transportation revenues continue to grow at a faster rate
than trucking revenues.
Other operating revenues changed from (.6%) to (1.1%) of revenues
due to an increase in gains on sales of revenue equipment to third parties
resulting from an increase in the number of tractors and trailers
sold.
The Company's effective income tax rate (income
taxes as a percentage of income before income taxes) was
36.4% in 1997, compared to 38.2% in 1996, as described in
Note 3 of the Notes to Consolidated Financial Statements.
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 was 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 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
14
<PAGE>
WERNER ENTERPRISES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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.
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.
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 was 38.2% for 1996, compared
with 39.0% for 1995, as described in Note 3 of the Notes to
Consolidated Financial Statements.
Liquidity and Capital Resources
The growth of the Company's business has required
significant investment in new revenue equipment. Net capital
expenditures in 1997, 1996, and 1995 were $152.6 million,
$86.2 million, and $95.5 million, respectively. The capital
expenditures were financed primarily with cash generated
from operations and, to a lesser extent, borrowings. The
Company has committed to approximately $75 million of
capital expenditures (after trade-in allowances) which is a
portion of its estimated 1998 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 Company has $60 million of
long-term debt and $395 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.
Year 2000 Issue
Many computer programs were developed without considering the impact
of the upcoming change from the year 1999 to the year 2000. If not
corrected, these computer programs could fail or create
erroneous results by or at the Year 2000. The Year 2000
issue affects virtually all companies and organizations. The
Company has been working on a plan to convert its computer programs for
the last two years, with the goal of being Year 2000 compliant for all
systems by the Fall of 1998. The costs of addressing the Year 2000 issue
are being expensed in the Consolidated Statement of Income as they are
incurred and are not significant. If such modifications are not completed
timely, the Year 2000 issue could have a significant impact
on the operations of the Company.
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)
1997 1996 1995
<S> <C> <C> <C>
Operating revenues (Note 1) $ 772,095 $ 643,274 $ 576,022
------------------------------------------------------
Operating expenses:
Salaries, wages and benefits 278,968 224,721 208,669
Fuel 67,600 61,611 47,431
Supplies and maintenance 63,060 53,337 50,646
Taxes and licenses 58,513 51,807 49,636
Insurance and claims 21,212 18,927 19,776
Depreciation (Note 1) 72,634 65,010 61,195
Rent and purchased transportation 132,261 97,525 75,229
Communications and utilities 8,358 8,164 8,086
Other (8,158) (3,958) (5,662)
------------------------------------------------------
Total operating expenses 694,448 577,144 515,006
------------------------------------------------------
Operating income 77,647 66,130 61,016
------------------------------------------------------
Other expense (income):
Interest expense 3,002 2,063 2,317
Interest income (1,580) (1,709) (1,072)
Other 130 112 132
------------------------------------------------------
Total other expense 1,552 466 1,377
------------------------------------------------------
Income before income taxes 76,095 65,664 59,639
Income taxes (Notes 1 and 3) 27,717 25,109 23,259
------------------------------------------------------
Net income $ 48,378 $ 40,555 $ 36,380
======================================================
Average common shares outstanding (Note 1) 38,205 37,873 37,757
======================================================
Earnings per share (Note 1) $1.27 $1.07 $.96
======================================================
Diluted shares outstanding (Note 1) 38,367 38,060 37,943
======================================================
Diluted earnings per share (Note 1) $1.26 $1.07 $.96
======================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
16
<PAGE>
WERNER ENTERPRISES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands, except share amounts) December 31
1997 1996
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 1) $ 22,294 $ 22,136
Accounts receivable, less allowance of $3,126
and $3,359, respectively 93,461 67,928
Prepaid taxes, licenses, and permits 8,405 7,753
Current deferred income taxes (Notes 1 and 3) 6,200 6,800
Other 15,432 11,547
--------------------------------
Total current assets 145,792 116,164
--------------------------------
Property and equipment, at cost (Note 1)
Land 17,856 16,598
Buildings and improvements 35,195 30,127
Revenue equipment 578,903 480,008
Service equipment and other 66,145 52,342
--------------------------------
Total property and equipment 698,099 579,075
Less - accumulated depreciation 176,253 146,028
--------------------------------
Property and equipment, net 521,846 433,047
--------------------------------
$ 667,638 $ 549,211
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 44,167 $ 19,025
Insurance and claims accruals (Note 1) 22,161 19,758
Accrued payroll 9,116 8,970
Income taxes payable 6,983 3,752
Driver escrow 2,635 3,064
Other 6,729 4,496
--------------------------------
Total current liabilities 91,791 59,065
--------------------------------
Long-term debt (Note 2) 60,000 30,000
Deferred income taxes (Notes 1 and 3) 91,400 82,500
Insurance, claims and other long-term accruals (Note 1) 29,329 29,275
Commitments and contingencies (Note 5)
Stockholders' equity (Notes 1 and 4):
Common stock, $.01 par value, 60,000,000 shares
authorized; 38,656,773 shares issued; 38,226,135 and
37,988,079 shares outstanding, respectively 387 387
Paid-in capital 104,764 101,528
Retained earnings 296,533 251,976
Treasury stock, at cost; 430,638 and 668,694 shares, respectively (6,566) (5,520)
--------------------------------
Total stockholders' equity 395,118 348,371
--------------------------------
$ 667,638 $ 549,211
================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
17
<PAGE>
WERNER ENTERPRISES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands)
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 48,378 $ 40,555 $ 36,380
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 72,634 65,010 61,195
Deferred income taxes 9,500 6,500 8,700
Gain on disposal of operating equipment (8,789) (5,156) (6,921)
Tax benefit from exercise of stock options 1,610 788 123
Insurance, claims and other long-term accruals 54 539 4,300
Changes in certain working capital items:
Accounts receivable, net (25,533) (10,057) (5,349)
Prepaid expenses and other current assets (4,537) 1,097 (1,403)
Accounts payable 25,142 3,306 (2,845)
Accrued payroll 146 1,252 (2,170)
Other current liabilities 7,432 122 1,794
----------------------------------------------------
Net cash provided by operating activities 126,037 103,956 93,804
----------------------------------------------------
Cash flows from investing activities:
Additions to property and equipment (215,585) (117,599) (131,585)
Retirements of property and equipment 62,941 31,382 36,088
----------------------------------------------------
Net cash used in investing activities (152,644) (86,217) (95,497)
----------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of debt 50,000 - 10,000
Repayments of debt (20,000) (10,000) -
Dividends on common stock (3,815) (3,344) (2,895)
Repurchases of common stock (2,471) - (1,013)
Stock options exercised 3,051 1,514 168
----------------------------------------------------
Net cash provided by (used in) financing activities 26,765 (11,830) 6,260
----------------------------------------------------
Net increase in cash and cash equivalents 158 5,909 4,567
Cash and cash equivalents, beginning of year 22,136 16,227 11,660
----------------------------------------------------
Cash and cash equivalents, end of year $ 22,294 $ 22,136 $ 16,227
====================================================
Supplemental disclosures of cash flow information:
Cash paid during year for:
Interest $ 2,766 $ 3,398 $ 3,294
Income taxes 13,328 15,904 15,822
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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, 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
Three-for-two stock split (Note 1) 129 (129) - - -
Net income - - 40,555 - 40,555
------------------------------------------------------------
BALANCE, December 31, 1996 387 101,528 251,976 (5,520) 348,371
Purchases of 126,500 shares of common stock - - - (2,471) (2,471)
Dividends on common stock ($.10 per share) - - (3,821) - (3,821)
Exercise of stock options, 364,556 shares - 3,236 - 1,425 4,661
Net income - - 48,378 - 48,378
------------------------------------------------------------
BALANCE, December 31, 1997 $ 387 $ 104,764 $ 296,533 $ (6,566) $ 395,118
============================================================
</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, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and
cash flows for each of the three years in the period ended
December 31, 1997. 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, 1997 and 1996, and the
results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Omaha, Nebraska,
January 20, 1998.
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. The Company is
responsible for liability up to $500,000, plus
administrative expenses, for each occurrence involving
personal injury or property damage. The Company is also
responsible for a $1,500,000 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 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 $6,400,000 in letters of credit, as of
December 31, 1997.
20
<PAGE>
WERNER ENTERPRISES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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.
SFAS No. 128 "Earnings per Share" established standards for
computing and presenting earnings per share (EPS) and became
effective for the Company's 1997 financial statements. It requires
dual presentation of basic and diluted EPS on the face of
the income statement and a reconciliation of the basic EPS
computation to the diluted EPS computation. Basic EPS is
computed based on the weighted average number of common
shares outstanding. The computation of diluted EPS is
similar to basic EPS, except that it reflects the number of
additional common shares that would have been outstanding if
potentially dilutive common shares had been issued. The
difference between the Company's weighted average shares
outstanding and diluted shares outstanding is due to the
dilutive effect of stock options for all periods presented.
There are no differences in the numerator of the Company's
computations of basic and diluted EPS for any period
presented.
(2) LONG-TERM DEBT
Long-term debt consists of the following at December 31
(in thousands):
1997 1996
----------------------
Notes payable to banks under
committed credit facilities $40,000 $30,000
Series A Senior Notes 20,000 -
----------------------
$60,000 $30,000
======================
The notes payable to banks under committed credit facilities bear
variable interest (6.2% at December 31, 1997) based on the London
Interbank Offered rate and mature in June 1999. The Series A Senior
Notes bear fixed interest at 6.55% and mature in November 2002. Each
of the debt agreements require, among other things, that the
Company not exceed a maximum ratio of indebtedness to total
capitalization of .6 to 1.
The carrying amount of the Company's long-term debt approximates fair
value due to the duration of the notes and their interest rates.
(3) INCOME TAXES
Income tax expense consists of the following (in thousands):
1997 1996 1995
---------------------------------
Current
Federal $15,217 $17,109 $12,472
State 3,000 1,500 2,087
---------------------------------
18,217 18,609 14,559
---------------------------------
Deferred
Federal 8,017 4,465 6,887
State 1,483 2,035 1,813
---------------------------------
9,500 6,500 8,700
---------------------------------
Total income
tax expense $27,717 $25,109 $23,259
=================================
21
<PAGE>
WERNER ENTERPRISES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) INCOME TAXES, CONTINUED
The effective income tax rate differs from the federal corporate
tax rate of 35% in 1997, 1996 and 1995 as follows (in thousands):
1997 1996 1995
----------------------------------
Tax at statutory rate $26,633 $22,982 $20,874
State income taxes,
net of federal tax
benefits 2,914 2,298 2,535
Favorable settlement of
income tax issues (2,000) - -
Other, net 170 (171) (150)
----------------------------------
$27,717 $25,109 $23,259
==================================
At December 31, deferred tax assets and liabilities consisted
of the following (in thousands):
1997 1996
---------------------
Deferred tax assets:
Insurance and claims accruals $ 19,904 $ 18,713
Allowance for uncollectible accounts 860 1,341
Other 2,255 2,971
---------------------
$ 23,019 $ 23,025
=====================
Deferred tax liabilities:
Property and equipment $103,291 $ 94,384
Prepaid taxes, licenses and insurance 4,341 3,869
Other 587 472
---------------------
$108,219 $ 98,725
=====================
(4) 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, 1997, 688,062 shares were available for granting
further options. At December 31, 1997, 1996 and 1995, options for
327,204, 481,611 and 586,856 shares with weighted average exercise
prices of $14.19, $9.79, and $7.73 were exercisable,
respectively.
The following table summarizes Stock Option Plan activity for the
three years ended December 31, 1997:
Options Outstanding
---------------------------
Weighted-Average
Shares Exercise Price
---------------------------
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
Options granted 450,500 20.13
Options exercised (364,556) 8.37
Options canceled (31,335) 13.80
----------
Balance, December 31, 1997 1,264,896 16.19
==========
The following tables summarize information about stock options
outstanding and exercisable at December 31, 1997:
Options Outstanding
-----------------------------------------------
Weighted-Average Weighted-Average
Range of Number Remaining Exercise
Exercise Prices Outstanding Contractual Life Price
- ------------------------------------------------------------------
$5.92 19,300 2.5 years $ 5.92
$13.08 to $16.00 795,096 6.6 years 14.21
$20.13 450,500 9.9 years 20.13
---------
1,264,896 7.7 years 16.19
=========
Options Exercisable
-------------------------------
Weighted-Average
Range of Number Exercise
Exercise Prices Exercisable Price
- -------------------------------------------------
$5.92 19,300 $ 5.92
$13.08 to $16.00 307,904 14.71
$20.13 - 20.13
-------
327,204 14.19
=======
The Company applies the intrinsic value based method of 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. If the fair value based method of SFAS
123 had been applied for 1997, 1996 and 1995, compensation
expense related to stock options and the effect on net
income and earnings per share would not have been
significant. The fair value of the options granted during
1997 and 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
1997 and 1995 was $7.64 and $4.97 per share, respectively.
22
<PAGE>
WERNER ENTERPRISES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $85,062, $67,704 and $79,977 for
1997, 1996 and 1995, 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 $1,014,633, $1,030,248 and
$952,129 for 1997, 1996 and 1995, respectively.
(5) COMMITMENTS AND CONTINGENCIES
The Company has committed to approximately $75,000,000 of net capital
expenditures, which is a portion of its estimated 1998 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.
(6) 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>
1997:
- ----------------------------------------
Operating revenues $172,049 $193,635 $200,237 $206,174
Operating income 11,453 20,049 23,027 23,118
Net income 7,449 12,532 14,199 14,198
Earnings per share .20 .33 .37 .37
Diluted earnings per share .19 .33 .37 .37
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
Diluted earnings per share .19 .26 .31 .30
</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, 1996, through December 31,
1997.
- --------------------------------------
High Low
----------------
1997
Quarter ended:
March 31 19.25 15.88
June 30 20.75 18.25
September 30 24.75 17.50
December 31 26.63 19.00
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
- --------------------------------------
As of February 24, 1998, the Company's common stock was held
by 244 stockholders of record and approximately 6,200 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.
14507 Frontier Road
P.O. Box 45308
Omaha, Nebraska 68145-0308
Telephone: (402) 895-6640
http://www.werner.com
e-mail: [email protected]
Annual Meeting
The Annual Meeting will be held on Tuesday, May 12, 1998 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.chasemellon.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 45308, Omaha, Nebraska 68145-0308, (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
<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 27, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 22,294
<SECURITIES> 0
<RECEIVABLES> 93,461
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 145,792
<PP&E> 698,099
<DEPRECIATION> 176,253
<TOTAL-ASSETS> 667,638
<CURRENT-LIABILITIES> 91,791
<BONDS> 0
0
0
<COMMON> 387
<OTHER-SE> 394,731
<TOTAL-LIABILITY-AND-EQUITY> 667,638
<SALES> 772,095
<TOTAL-REVENUES> 772,095
<CGS> 0
<TOTAL-COSTS> 694,448
<OTHER-EXPENSES> (1,450)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,002
<INCOME-PRETAX> 76,095
<INCOME-TAX> 27,717
<INCOME-CONTINUING> 48,378
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,378
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.26
</TABLE>
