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
June 30, 1999 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 July 31, 1999, 47,433,249 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 the six-month periods ended
June 30, 1999, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. 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, 1998).
Consolidated Statements of Income for the
Three Months Ended June 30, 1999 and 1998 Page 3
Consolidated Statements of Income for the
Six Months Ended June 30, 1999 and 1998 Page 4
Consolidated Condensed Balance Sheets as of
June 30, 1999 and December 31, 1998 Page 5
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1999 and 1998 Page 6
Notes to Consolidated Financial Statements as of June 30, 1999 Page 7
2
<PAGE>
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
(In thousands) June 30
- ------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Operating revenues $ 260,646 $ 211,678
------------------------
Operating expenses:
Salaries, wages and benefits 95,246 79,679
Fuel 18,211 14,198
Supplies and maintenance 21,025 17,214
Taxes and licenses 19,838 16,679
Insurance and claims 7,881 5,978
Depreciation 24,656 20,372
Rent and purchased transportation 43,856 32,815
Communications and utilities 3,411 2,549
Other (3,169) (2,848)
------------------------
Total operating expenses 230,955 186,636
------------------------
Operating income 29,691 25,042
------------------------
Other expense (income):
Interest expense 1,645 1,238
Interest income (343) (430)
Other 40 21
------------------------
Total other expense 1,342 829
------------------------
Income before income taxes 28,349 24,213
Income taxes 10,773 9,201
------------------------
Net income $ 17,576 $ 15,012
========================
Average common shares outstanding 47,374 47,883
========================
Earnings per share $ .37 $ .31
========================
Diluted shares outstanding 47,627 48,185
========================
Diluted earnings per share $ .37 $ .31
========================
Dividends declared per share $ .025 $ .024
========================
</TABLE>
3
<PAGE>
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Six Months Ended
(In thousands) June 30
- ------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Operating revenues $ 501,626 $ 411,385
------------------------
Operating expenses:
Salaries, wages and benefits 184,567 153,982
Fuel 32,219 28,896
Supplies and maintenance 41,163 34,723
Taxes and licenses 39,604 32,531
Insurance and claims 17,271 12,623
Depreciation 48,191 39,831
Rent and purchased transportation 86,183 66,192
Communications and utilities 6,510 5,108
Other (5,016) (5,686)
------------------------
Total operating expenses 450,692 368,200
------------------------
Operating income 50,934 43,185
------------------------
Other expense (income):
Interest expense 2,843 2,244
Interest income (673) (850)
Other 57 41
------------------------
Total other expense 2,227 1,435
------------------------
Income before income taxes 48,707 41,750
Income taxes 18,509 15,865
------------------------
Net income $ 30,198 $ 25,885
========================
Average common shares outstanding 47,351 47,852
========================
Earnings per share $ .64 $ .54
========================
Diluted shares outstanding 47,599 48,156
========================
Diluted earnings per share $ .63 $ .54
========================
Dividends declared per share $ .050 $ .044
========================
</TABLE>
4
<PAGE>
WERNER ENTERPRISES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands) June 30 December 31
- ------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,531 $ 15,913
Accounts receivable, net 120,837 94,329
Prepaid taxes, licenses and permits 6,618 10,792
Other current assets 25,291 24,231
-----------------------
Total current assets 163,277 145,265
-----------------------
Property and equipment 913,186 829,461
Less - accumulated depreciation 234,392 205,530
-----------------------
Property and equipment, net 678,794 623,931
-----------------------
$842,071 $769,196
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 37,070 $ 48,146
Short-term debt (Note 1) 30,000 -
Insurance and claims accruals 28,405 23,250
Accrued payroll 12,595 10,051
Income taxes payable 6,980 471
Other current liabilities 12,176 9,989
-----------------------
Total current liabilities 127,226 91,907
-----------------------
Long-term debt 100,000 100,000
Insurance, claims and other long-term accruals 31,301 30,801
Deferred income taxes 113,450 105,900
Stockholders' equity 470,094 440,588
-----------------------
$842,071 $769,196
=======================
</TABLE>
5
<PAGE>
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
(In thousands) June 30
- ------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 30,198 $ 25,885
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 48,191 39,831
Deferred income taxes 7,550 5,833
Gain on disposal of operating equipment (5,625) (6,411)
Insurance, claims and other long-term accruals 500 972
Tax benefit from exercise of stock options 399 364
Changes in certain working capital items:
Accounts receivable, net (26,508) 4,334
Prepaid expenses and other current assets 3,114 (506)
Accounts payable (11,076) (17,902)
Other current liabilities 16,392 4,593
-----------------------
Net cash provided by operating activities 63,135 56,993
-----------------------
Cash flows from investing activities:
Additions to property and equipment (133,382) (122,038)
Proceeds from sales of property and equipment 35,953 43,543
-----------------------
Net cash used in investing activities (97,429) (78,495)
-----------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt - 20,000
Proceeds from issuance of short-term debt 30,000 -
Dividends on common stock (2,366) (1,916)
Stock options exercised 1,278 1,235
-----------------------
Net cash provided by financing activities 28,912 19,319
-----------------------
Net decrease in cash and cash equivalents (5,382) (2,183)
Cash and cash equivalents, beginning of period 15,913 22,294
-----------------------
Cash and cash equivalents, end of period $ 10,531 $ 20,111
=======================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,979 $ 2,156
Income taxes $ 3,947 $ 12,323
</TABLE>
6
<PAGE>
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Committed Credit Facilities
The Company has 364-day committed credit facilities with two financial
institutions totaling $30 million. Borrowings under these credit
facilities, which mature in September 1999, bear variable interest based on
the London Interbank Offered Rate (LIBOR) or, at the Company's option, the
financial institutions' base lending rates. The Company expects to extend
these credit facilities for another 364-day period or refinance this debt
prior to the maturity date. The Company had borrowings of $30 million
outstanding under these credit facilities as of June 30, 1999.
(2) Commitments
As of June 30, 1999, the Company has commitments for capital
expenditures of approximately $55 million.
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, 1998.
Year 2000 Readiness Disclosure:
In January 1997, the Company began conducting a comprehensive review
of its Year 2000 issue 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 licensed
from and maintained by software vendors. The Company completed
substantially all its conversion of internally developed software programs
to Year 2000 compliance in September 1998. The costs of converting these
programs were not material. The Company is continuing to work with vendors
to verify compliance of vendor-supplied software programs, and to evaluate
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 100% 0%
Vendor-supplied IT systems 90% 10%
Non-IT systems 90% 10%
</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 remaining 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 cannot presently
estimate the effect on its results of operations, liquidity, and financial
condition should material vendors and customers fail to become Year 2000
compliant. The Company is not currently aware of any material vendors or
customers which have represented to the Company that they are unlikely to
achieve Year 2000 compliance. If the Company obtains information
indicating 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 six months ended June 30, 1999, the Company generated cash
flow from operations of $63.1 million. The Company received proceeds from
the issuance of short-term borrowings of $30.0 million, which, along with
the cash flow from operations, enabled the Company to make net property
additions, primarily revenue equipment, of $97.4 million and pay common
stock dividends of $2.4 million. If the Company continues to grow at its
current rate (as 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.
8
<PAGE>
The Company's debt to equity ratio at June 30, 1999 was 27.7%,
compared with 22.7% at December 31, 1998. The Company's debt to total
capitalization ratio (total capitalization equals total debt plus total
stockholders' equity) was 21.7% at June 30, 1999 compared to 18.5% at
December 31, 1998.
Results of Operations:
Three Months Ended June 30, 1999 and 1998
- -----------------------------------------
Operating revenues increased 23.1% for the three months ended June 30,
1999, compared to the same period of the prior year, primarily due to a
20.5% increase in the average number of tractors in service. Average
tractors in service increased from 5,559 in second quarter 1998 to 6,701 in
second quarter 1999. Revenue per mile, excluding fuel surcharges,
increased 1.1% compared to second quarter of 1998 due to rate increases and
a shift in the mix of freight between fleets in the truckload division
which decreased the average trip length by 3%. A $4.8 million increase in
revenues from logistics and other non-trucking transportation services also
contributed to the overall increase in operating revenues.
Operating expenses, expressed as a percentage of operating revenues,
were 88.6% for the three months ended June 30, 1999, compared to 88.2% for
the three months ended June 30, 1998. The Company's increase in logistics
and other non-trucking transportation services, and an increase in owner-
operator miles as a percentage of total miles (17.9% in second quarter 1999
compared to 16.8% in second quarter 1998), contributed to a shift in costs
to the rent and purchased transportation expense category from several
other expense categories. Owner-operators are independent contractors who
supply their own tractor and driver, and are responsible for their
operating expenses including fuel, supplies and maintenance, and fuel
taxes.
Salaries, wages and benefits decreased from 37.6% to 36.5% of revenues
due primarily to the increase in logistics and other non-trucking revenues,
more owner-operator miles as a percentage of total miles and a higher ratio
of tractors to non-driver employees. Driver pay per mile decreased
slightly due to more entry-level drivers earning a lower pay rate per mile.
These decreases were partially offset by an increase in driver pay for
drivers in training due to a 65% increase in the number of drivers in the
training program, and more extra driver pay for multiple stops and driver
assist loading/unloading. 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 was 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 increased from 6.7% to 7.0% of revenues, due mainly to slightly
higher average fuel prices during the quarter compared to the same quarter
of the prior year. Fuel prices began rising in March 1999 and remained at
slightly higher levels throughout second quarter 1999 compared to the same
period of 1998. See further discussion of fuel prices under the caption
"Commodity Price Risk" in Item 3 of this Form 10-Q. Taxes and licenses
decreased from 7.9% to 7.6% of revenues due primarily to the increases in
logistics and other non-trucking revenues and owner-operator miles as a
percentage of total miles. Insurance and claims increased from 2.8% to
3.0% of revenues due to an increased frequency of property damage and other
claims during the current quarter. Rent and purchased transportation
increased from 15.5% to 16.8% of revenues due primarily to the Company's
increases in logistics and other non-trucking transportation services and
owner-operator miles as a percentage of total miles.
9
<PAGE>
Six Months Ended June 30, 1999 and 1998
- ---------------------------------------
Operating revenues increased by 21.9% for the six months ended June
30, 1999, compared to the same period of the previous year, primarily due
to a 19.6% increase in the average number of tractors. Revenue per mile,
excluding fuel surcharges, increased 1.3% due primarily to rate increases
and changes in the mix of freight resulting in a decrease in the average
trip length. A $10.0 million increase in revenues from logistics and other
non-trucking transportation services also contributed to the overall
increase in operating revenues.
Operating expenses, expressed as a percentage of operating revenues,
were 89.8% for the six months ended June 30, 1999, compared to 89.5% for
the same period of the previous year. The increase in logistics and other
non-trucking transportation services, and an increase in owner-operator
miles as a percentage of total miles (17.4% in 1999 compared to 16.7% in
1998), resulted in a shift in costs to the rent and purchased
transportation expense category from several other expense categories.
Salaries, wages and benefits decreased from 37.4% to 36.8% of
revenues, primarily due to the increase in logistics and other non-trucking
transportation services, more owner-operator miles as a percentage of total
miles, and a higher ratio of tractors to non-driver employees. Driver pay
per mile decreased slightly due to more entry-level drivers earning a lower
pay rate per mile. These factors were partially offset by an increase in
driver pay for drivers in training due to an increase in the number of
drivers in the training program, and more extra driver pay for multiple
stops and driver assist loading/unloading. Fuel decreased from 7.0% to
6.4% of revenues due mainly to lower fuel prices, on average, during the
six months ended June 30, 1999, compared to the same period of 1998.
Supplies and maintenance decreased from 8.4% to 8.2% of revenues due
primarily to the increased logistics and other non-trucking revenues and
increased percentage of owner-operator miles. Insurance and claims
increased from 3.1% to 3.4% of revenues due to unfavorable claims
experience partly due to more severe winter driving conditions during the
first quarter of 1999 and an increased frequency of property damage and
other claims during the six months ended June 30, 1999. Rent and purchased
transportation increased from 16.1% to 17.2% of revenues due to the
increase in logistics and other non-trucking transportation services and
increase in owner-operator miles as a percentage of total miles. Other
operating expenses changed from (1.4%) to (1.0%) of revenues due in part to
higher expense for repairs on equipment sales to third parties during 1999,
which reduced the amount of gains recognized on these sales.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates
and commodity prices.
Interest Rate Risk
The Company had $80 million of variable rate debt at June 30, 1999.
The interest rates on the variable rate debt are based on the London
Interbank Offered Rate (LIBOR). Assuming this level of borrowings, a
hypothetical one percentage point increase in the LIBOR interest rate would
increase the Company's annual interest expense by $800,000.
Commodity Price Risk
The price and availability of diesel fuel are subject to fluctuations
due to changes in the level of global oil production, seasonality, weather,
and other market factors. Historically, the Company has been able to
recover a portion of short-term fuel price increases from customers in the
form 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. As of June 30,
1999, the Company had no derivative financial instruments to reduce its
exposure to fuel price fluctuations.
10
<PAGE>
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of Werner Enterprises, Inc. was
held on May 11, 1999 for the purpose of electing three directors for three-
year terms. Proxies for the meeting were solicited pursuant to Section
14(a) of the Securities Exchange Act of 1934, and there was no solicitation
in opposition to management's nominees. Each of management's nominees for
director as listed in the Proxy Statement was elected. Of the 47,333,409
shares entitled to vote, stockholders representing 45,145,738 shares
(95.4%) were present in person or by proxy. The voting tabulation was as
follows:
<TABLE>
<CAPTION>
Shares Voted Shares Voted
"FOR" "ABSTAIN"
<S> <C> <C>
Gary L. Werner 44,215,513 930,225
Gregory L. Werner 44,600,350 545,388
Martin F. Thompson 44,625,462 520,276
</TABLE>
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 June 30, 1999 Financial Data Schedule Filed herewith
(b) Reports on Form 8-K.
(i) A report on Form 8-K, filed April 16, 1999, regarding a news
release on April 15, 1999, announcing the Company's operating
revenues and earnings for the first quarter ended March 31, 1999.
(ii) A report on Form 8-K, filed June 16, 1999, regarding a
change in the Company's certifying accountants effective June 10,
1999.
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: August 13, 1999 By: /s/ John J. Steele
------------------- --------------------------------
John J. Steele
Vice President, Treasurer and
Chief Financial Officer
Date: August 13, 1999 By: /s/ James L. Johnson
------------------- --------------------------------
James L. Johnson
Corporate Secretary and Controller
12
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
------------------------------------------------
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------ ------------------
1999 1998 1999 1998
------------------ ------------------
<S> <C> <C> <C> <C>
Net income $17,576 $15,012 $30,198 $25,885
================== ==================
Average common shares outstanding 47,374 47,883 47,351 47,852
Common stock equivalents (1) 253 302 248 304
------------------ ------------------
Diluted shares outstanding 47,627 48,185 47,599 48,156
================== ==================
Earnings per share $ .37 $ .31 $ .64 $ .54
================== ==================
Diluted earnings per share $ .37 $ .31 $ .63 $ .54
================== ==================
</TABLE>
(1) Common stock equivalents represent the dilutive effect of
outstanding stock options for all periods presented.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-01-1999
<CASH> 10,531
<SECURITIES> 0
<RECEIVABLES> 120,837
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 163,277
<PP&E> 913,186
<DEPRECIATION> 234,392
<TOTAL-ASSETS> 842,071
<CURRENT-LIABILITIES> 127,226
<BONDS> 0
0
0
<COMMON> 483
<OTHER-SE> 469,611
<TOTAL-LIABILITY-AND-EQUITY> 842,071
<SALES> 501,626
<TOTAL-REVENUES> 501,626
<CGS> 0
<TOTAL-COSTS> 450,692
<OTHER-EXPENSES> (616)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,843
<INCOME-PRETAX> 48,707
<INCOME-TAX> 18,509
<INCOME-CONTINUING> 30,198
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,198
<EPS-BASIC> .64
<EPS-DILUTED> .63
</TABLE>
