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, 1998
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 executive offices) (Zip code) (Registrant's
telephone number)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to the Form 10-K.
[ X ]
The aggregate market value of the registrant's $.01 par value common stock
held by nonaffiliates of the registrant as of March 15, 1999 was
approximately $487.2 million (based upon $17.125 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 15, 1999, 47,333,409 shares of the registrant's common stock
were outstanding.
Portions of the 1998 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 11, 1999
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 1998 with a fleet of 6,150 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 include consumer
products, retail store merchandise, food products, paper products,
beverages, industrial products 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 have a low frequency of breakdowns 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 a logistics division 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 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
1998, the Company's largest 5, 10, and 25 customers comprised 21%, 30%, and
43% of the Company's revenues, respectively. No one customer accounted for
more than 7% of the Company's revenues in 1998.
2
<PAGE>
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. In June 1998, Werner Enterprises became
the first trucking company in the United States to receive authorization
from the Federal Highway Administration to use the Company's proprietary
Paperless Log System to automatically keep track of truck movement and
drivers' hours of service. The Paperless Log System replaces the paper
logbooks traditionally used by truck drivers to track their daily work
activities.
Seasonality
In the trucking industry, revenues generally show a seasonal pattern as
some customers reduce shipments during and after the winter holiday season.
The Company's operating expenses have historically been higher in the
winter months due primarily to decreased fuel efficiency, increased
maintenance costs of revenue equipment in colder weather, and increased
insurance and claims costs due to adverse winter weather conditions. The
Company attempts to minimize the impact of seasonality through its
marketing program 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, 1998, the Company employed 7,078 drivers, 543 mechanics
and maintenance personnel, 1,188 office personnel for the trucking
operation, and 62 office personnel for the non-trucking (logistics)
operation. The Company also had contracts with independent contractors
(owner-operators) for the services of 930 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 the 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 shorter
mileage trips, for example). The Company conducts a regular schedule of
driver/top management meetings to share information and concerns and seek
mutually satisfactory solutions.
At times, there are shortages of drivers in the trucking industry. The
Company's management believes the number of qualified drivers in the
industry has been reduced because of the elimination of federal funding for
driving schools, changes in the demographic composition of the work force,
individual drivers' desire to be home more often, and a declining
unemployment rate in the U.S. over the past several years. 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.
3
<PAGE>
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, 1998, the Company operated 5,220 Company-owned tractors
and had contracts for 930 tractors owned by owner-operators. The tractors
as of December 31, 1998 that operated in the Company's Truckload Division
were as follows: 3,640 medium-to-long-haul dry vans; 410 medium-to-long-
haul flatbeds; 820 regional short-haul vans; 310 temperature-controlled;
and 970 dedicated. Approximately 78% of the Company-owned tractors are
manufactured by Freightliner, a subsidiary of DaimlerChrysler. Most of the
remaining Company-owned tractors are manufactured by Peterbilt. This
standardization decreases downtime by simplifying maintenance. The Company
adheres to a comprehensive maintenance program for both tractors and
trailers. Due to continuous upgrading of the Company-owned tractor fleet,
the average age was 1.3 years at December 31, 1998. 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 16,350 trailers at December 31, 1998: 14,714 dry vans;
752 flatbeds; 819 temperature controlled; and 65 other specialized
trailers. As of December 31, 1998, 97% 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 3.1 years at
December 31, 1998.
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
some 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
FAAA Act) amended sections of the Interstate
4
<PAGE>
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 approximately 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, 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 Omaha headquarters includes a
drivers' lounge, a drivers' orientation section, a cafeteria and a Company
store. The Company is completing construction of 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
nearby the corporate headquarters that is being held for future expansion.
5
<PAGE>
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 32,000 square-foot
terminal in Phoenix. The Company leases terminal facilities in Allentown,
Pennsyvania and in Indianapolis, Indiana. All eight 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 for each occurrence involving personal injury or property damage.
The Company is also responsible for $1,500,000 annual aggregate amount of
liability for claims between $500,000 and $1,000,000, and a $1,000,000
annual aggregate amount for claims between $1,000,000 and $2,000,000. 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 1998, 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.
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.
6
<PAGE>
ITEM 7A. 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 $50 million of variable rate debt at December 31, 1998.
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 $500,000.
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 December 31, 1998, the Company
had no derivative financial instruments to reduce its exposure to fuel
price fluctuations.
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, 1998 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.
7
<PAGE>
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 11
Schedule II - Valuation and Qualifying Accounts 12
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 19, 1998, regarding a news
release on October 14, 1998, announcing the Company's operating revenues
and earnings for the third quarter ended September 30, 1998.
FORM 11-K INFORMATION INCLUDED HEREIN RELATED TO STOCK OPTION AND EMPLOYEE
STOCK PURCHASE PLANS
Stock Option Plan
The Company's Stock Option Plan (the Stock Option Plan) is a nonqualified
plan that provides for the grant of options to management employees.
Options are granted at prices equal to the market value of the common stock
on the date the option is granted. The options are exercisable over a
period (determined by the Option Committee of the Board of Directors) not
to exceed 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 3,750,000 shares.
Additionally, the maximum number of shares which may be optioned to any one
person under the Stock Option
8
<PAGE>
Plan is 937,500 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
Purchase Plan are paid by the Company. As of December 31, 1998, 642
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, 1998 was $7,631. 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.
9
<PAGE>
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
24th day of March, 1999.
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.
<TABLE>
<CAPTION>
Signature Position Date
--------- -------- ----
<S> <C> <C>
/s/ Clarence L. Werner Chairman of the Board, Chief March 24, 1999
- -------------------------- Executive Officer and Director
Clarence L. Werner
/s/ Gary L. Werner Vice Chairman and March 24, 1999
- -------------------------- Director
Gary L. Werner
/s/ Curtis G. Werner Vice Chairman - Corporate March 24, 1999
- -------------------------- Development and Director
Curtis G. Werner
/s/ Gregory L. Werner President and Director March 24, 1999
- --------------------------
Gregory L. Werner
/s/ John J. Steele Vice President, Treasurer and March 24, 1999
- -------------------------- Chief Financial Officer
John J. Steele
/s/ James L. Johnson Corporate Secretary and March 24, 1999
- -------------------------- Controller
James L. Johnson
/s/ Irving B. Epstein Director March 24, 1999
- --------------------------
Irving B. Epstein
/s/ Martin F. Thompson Director March 24, 1999
- --------------------------
Martin F. Thompson
/s/ Gerald H. Timmerman Director March 24, 1999
- --------------------------
Gerald H. Timmerman
/s/ Donald W. Rogert Director March 24, 1999
- --------------------------
Donald W. Rogert
/s/ Jeffrey G. Doll Director March 24, 1999
- --------------------------
Jeffrey G. Doll
</TABLE>
10
<PAGE>
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, 1999. 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 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, 1999
11
<PAGE>
SCHEDULE II
WERNER ENTERPRISES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Balance Charged Write- Balance
At To Off At
Beginning Costs Of End
Of And Doubtful Of
Period Expenses Accounts Period
------ -------- -------- ------
<S> <C> <C> <C> <C>
Year ended December 31, 1998:
Allowance for doubtful accounts $3,126 $206 $399 $2,933
=====================================
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
=====================================
</TABLE>
12
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page Number or Incorporated by Reference to
- ------- ----------- -------------------------------------------
<S> <C> <C>
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(i)(C) Articles of Amendment Filed herewith
to Articles of
Incorporation
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,
1998
21 Subsidiaries of the Filed herewith
Registrant
23 Consent of Arthur Filed herewith
Andersen LLP
27 Financial Data Filed herewith
Schedule
</TABLE>
13
<PAGE>
Exhibit 3(i)(C)
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
WERNER ENTERPRISES, INC.
KNOW ALL MEN BY THESE PRESENTS, that the Articles of
Incorporation of Werner Enterprises, Inc., have been amended in
accordance with the Nebraska Business Act, Section 21-20,118, in
the following respect:
I.
The name of the corporation is WERNER ENTERPRISES, INC., and
the effective date of its incorporation is September 14, 1982.
II.
Article V of the Articles of Incorporation has been amended
to read as follows:
"ARTICLE V
The aggregate number of shares of common stock which this
corporation shall have authority to issue is 200,000,000 shares,
having a par value of $0.01 each.
All transfers of the shares of this corporation shall be
made in accordance with the provisions of the By-Laws of the
corporation."
III.
The date of adoption of this amendment by the shareholders
was May 12, 1998.
IV.
The number of shares of the corporation outstanding at the
time of such adoption was Thirty-Eight Million Three Hundred
Seven Thousand Nine Hundred Sixty-Four (38,307,964) shares; and
the number of shares entitled to vote thereon was Thirty-Eight
Million Two Hundred Eighty-Two Thousand Eight Hundred Four
(38,282,804) shares.
1
<PAGE>
V.
The number of shares voting for such amendment were Twenty-
Four Million Nine Hundred Fifty-Six Thousand Eight Hundred One
(24,956,801) shares; and the number of shares voted against such
amendment were Eleven Million Three Hundred Fifty-One Thousand
Seven Hundred Thirty-One (11,351,731) shares.
VI.
The amendment does not provide for exchange,
reclassification, or cancellation of issued shares.
Dated at Omaha, Nebraska on this 12th day of May, 1998.
ATTEST:
/s/James L. Johnson /s/Richard S. Reiser
- ------------------------- --------------------------
James L. Johnson Richard S. Reiser
Secretary Executive Vice-President
STATE OF NEBRASKA )
) ss.
COUNTY OF SARPY )
On the 12th day of May, 1998, before me, the undersigned
Notary Public, personally came Richard S. Reiser, Executive Vice-
President of Werner Enterprises, Inc., and James L. Johnson,
Secretary of Werner Enterprises, Inc., to me known to be the
identical persons whose names are affixed to the foregoing
instrument and acknowledged the execution thereof to be their
voluntary act and deed.
Subscribed and sworn to before me on the day last above
written.
/s/Regina M. Diehm
---------------------------------
Notary Public
2
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
----------------------------------------------
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------
<S> <C> <C> <C>
Net income $57,246 $48,378 $40,555
==================================
Average common shares outstanding 47,667 47,756 47,342
Common stock equivalents (1) 243 203 233
----------------------------------
Diluted shares outstanding 47,910 47,959 47,575
==================================
Earnings per share $1.20 $1.01 $ .86
==================================
Diluted earnings per share $1.19 $1.01 $ .85
==================================
</TABLE>
(1) Common stock equivalents represent the dilutive effect of outstanding
stock options for all periods presented.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share amounts)
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $863,417 $772,095 $643,274 $576,022 $516,006
Net income 57,246 48,378 40,555 36,380 36,662
Earnings per share (diluted)* 1.19 1.01 .85 .77 .77
Cash dividends declared per share* .093 .080 .075 .064 .053
Return on average
stockholders' equity 13.7% 13.1% 12.4% 12.5% 14.1%
Operating ratio 88.9% 89.9% 89.7% 89.4% 88.3%
Book value per share* 9.31 8.27 7.34 6.55 5.85
Total assets 769,196 667,638 549,211 507,679 453,637
Long-term obligations 100,000 60,000 30,000 40,000 30,000
Stockholders' equity 440,588 395,118 348,371 309,052 276,414
</TABLE>
*After giving retroactive effect for the May 1998, five-for-four stock
split (all years presented).
<PAGE>
WERNER ENTERPRISES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
<TABLE>
<CAPTION>
THE FOLLOWING TABLE SETS FORTH THE PERCENTAGE RELATIONSHIP OF INCOME
AND EXPENSE ITEMS TO OPERATING REVENUES FOR THE YEARS INDICATED.
- ---------------------------------------------------------------------------------------------
1998 1997 1996
--------------------------------------------------
<S> <C> <C> <C>
Operating revenues 100.0% 100.0% 100.0%
--------------------------------------------------
Operating expenses
Salaries, wages and benefits 37.7 36.1 34.9
Fuel 6.6 8.8 9.6
Supplies and maintenance 8.4 8.2 8.3
Taxes and licenses 7.9 7.6 8.0
Insurance and claims 2.7 2.7 2.9
Depreciation 9.6 9.4 10.1
Rent and purchased transportation 16.1 17.1 15.2
Communications and utilities 1.2 1.1 1.3
Other (1.3) (1.1) (.6)
--------------------------------------------------
Total operating expenses 88.9 89.9 89.7
--------------------------------------------------
Operating income 11.1 10.1 10.3
Net interest expense and other .4 .2 .1
--------------------------------------------------
Income before income taxes 10.7 9.9 10.2
Income taxes 4.1 3.6 3.9
--------------------------------------------------
Net income 6.6% 6.3% 6.3%
==================================================
</TABLE>
<TABLE>
<CAPTION>
THE FOLLOWING TABLE SETS FORTH CERTAIN INDUSTRY DATA REGARDING THE
FREIGHT REVENUES AND OPERATIONS OF THE COMPANY.
- ---------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating ratio 88.9% 89.9% 89.7% 89.4% 88.3%
Average revenues per tractor per week (1) $2,783 $2,755 $2,710 $2,606 $2,563
Average annual miles per tractor 126,492 126,598 126,221 121,728 120,312
Average miles per trip 760 799 808 785 835
Average revenues per mile (1) $1.144 $1.132 $1.116 $1.113 $1.108
Average tractors in service 5,662 5,051 4,372 4,136 3,769
Total tractors (at year end)
Company owned 5,220 4,490 3,840 3,674 3,473
Owner-operator owned 930 860 760 676 527
--------------------------------------------------
Total tractors 6,150 5,350 4,600 4,350 4,000
==================================================
Total trailers (at year end) 16,350 14,700 12,170 11,060 10,300
==================================================
(1) Net of fuel surcharge revenues.
</TABLE>
13
<PAGE>
WERNER ENTERPRISES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
1998 Compared to 1997
Operating revenues increased by 12% over 1997,
primarily due to a 12% increase in the average number of
tractors in service and a 1% increase in the average revenue
per mile, excluding fuel surcharges. These increases were
partially offset by a 5% decrease in revenues from logistics
and other non-trucking transportation services. The
Company's operating ratio (operating expenses expressed as a
percentage of operating revenues) decreased from 89.9% to
88.9%. The decrease in logistics and other non-trucking
transportation services resulted in a shift in costs from
the rent and purchased transportation expense category to
several other expense categories as described below.
Salaries, wages and benefits increased from 36.1% to
37.7% of revenues primarily due to increased dedicated
business which required more compensation to drivers for
loadings/unloadings and stops, decreased revenues from
logistics and other non-trucking transportation services,
and increased employee healthcare costs. 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 in 1998 from 8.8% to 6.6% of revenues
due primarily to a 27% decrease in average fuel prices in
1998 compared to 1997. The Company cannot predict whether
higher fuel price levels will return or the extent to which
fuel surcharges could be collected from customers to offset
such increases. Taxes and licenses increased from 7.6% to
7.9% of revenues due to the decreased revenues from
logistics and other non-trucking transportation services and
refunds and favorable development of state tax issues during
1997.
Rent and purchased transportation decreased from 17.1%
to 16.1% of revenues primarily due to the Company's decrease
in logistics and other non-trucking transportation services.
Other operating expenses changed from (1.1%) of revenues to
(1.3%) of revenues due to an increase in gains on sales of
revenue equipment to third parties resulting primarily 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 38.0% in
1998, compared to 36.4% in 1997, as described in Note 3 of
the Notes to Consolidated Financial Statements.
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
pay and owner-operator settlement 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 increased slightly from 89.7% to 89.9%. The increase
in logistics and other non-trucking 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 and other non-trucking
transportation services.
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 and other non-trucking
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.
Taxes and licenses decreased from 8.0% to 7.6% of
revenues due to increased revenues from logistics and other
non-trucking 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 and other non-trucking transportation
services. Depreciation decreased from 10.1% to 9.4% of
revenues, due principally to increased revenues from
logistics and other non-trucking transportation services,
and a 2% increase in the average revenue per tractor per
week, excluding fuel surcharges.
14
<PAGE>
WERNER ENTERPRISES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Rent and purchased transportation increased from 15.2%
to 17.1% of revenues due primarily to the Company's increase
in logistics and other non-trucking transportation services.
Other operating expenses 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.
Liquidity and Capital Resources
The growth of the Company's business has required
significant investment in new revenue equipment. Net capital
expenditures in 1998, 1997, and 1996 were $172.4 million,
$152.6 million, and $86.2 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 $106 million of
capital expenditures (after trade-in allowances), which is a
portion of its estimated 1999 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 board of directors has authorized the repurchase
of up to 2,500,000 shares. The Company has purchased 750,725
shares pursuant to this authorization.
The Company's financial position is strong. The Company
has $100 million of long-term debt and $441 million of
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 Readiness Disclosure
In January 1997, the Company began conducting a
comprehensive review of its Year 2000 issues and has since
completed its review of information technology (IT) systems.
Most of the Company's critical software programs have been
developed internally, with the remainder having been
licensed from and maintained by software vendors. The
Company completed substantially all of its conversion of
internally developed software programs to Year 2000
compliance in September 1998. The costs of converting these
programs was not material. The Company is now working with
vendors to verify compliance of vendor-supplied software
programs, and has also begun evaluating compliance of non-IT
systems. The following is an estimate of the status of the
Company's IT systems and non-IT systems:
<TABLE>
<CAPTION>
Year 2000 Modifications being
Compliant performed
<S> <C> <C>
Internally-developed
IT systems 100% 0%
Vendor-supplied
IT systems 70% 30%
Non-IT systems 60% 40%
</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. If the Company believes
it is likely that a material vendor or customer will not
achieve Year 2000 compliance, the Company will develop a
contingency plan at that time.
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 equipment utilization and rate levels depend 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)
- ---------------------------------------------------------------------------------------------
1998 1997 1996
---------------------------------------------
<S> <C> <C> <C>
Operating revenues (Note 1) $863,417 $772,095 $643,274
---------------------------------------------
Operating expenses:
Salaries, wages and benefits 325,659 278,968 224,721
Fuel 56,786 67,600 61,611
Supplies and maintenance 72,273 63,060 53,337
Taxes and licenses 67,907 58,513 51,807
Insurance and claims 23,875 21,212 18,927
Depreciation (Note 1) 82,549 72,634 65,010
Rent and purchased transportation 139,026 132,261 97,525
Communications and utilities 10,796 8,358 8,164
Other (11,065) (8,158) (3,958)
---------------------------------------------
Total operating expenses 767,806 694,448 577,144
---------------------------------------------
Operating income 95,611 77,647 66,130
---------------------------------------------
Other expense (income):
Interest expense 4,889 3,002 2,063
Interest income (1,724) (1,580) (1,709)
Other 114 130 112
---------------------------------------------
Total other expense 3,279 1,552 466
---------------------------------------------
Income before income taxes 92,332 76,095 65,664
Income taxes (Notes 1 and 3) 35,086 27,717 25,109
---------------------------------------------
Net income $ 57,246 $ 48,378 $ 40,555
=============================================
Average common shares outstanding (Note 1) 47,667 47,756 47,342
=============================================
Earnings per share (Note 1) $1.20 $1.01 $.86
=============================================
Diluted shares outstanding (Note 1) 47,910 47,959 47,575
=============================================
Diluted earnings per share (Note 1) $1.19 $1.01 $.85
=============================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
16
<PAGE>
WERNER ENTERPRISES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands, except share amounts) December 31
- ---------------------------------------------------------------------------------------------
1998 1997
---------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 1) $ 15,913 $ 22,294
Accounts receivable, less allowance of $2,933
and $3,126, respectively 94,329 93,461
Prepaid taxes, licenses, and permits 10,792 8,405
Current deferred income taxes (Notes 1 and 3) 6,000 6,200
Other 18,231 15,432
---------------------------
Total current assets 145,265 145,792
---------------------------
Property and equipment, at cost (Note 1)
Land 15,257 17,856
Buildings and improvements 52,857 35,195
Revenue equipment 686,400 578,903
Service equipment and other 74,947 66,145
---------------------------
Total property and equipment 829,461 698,099
Less - accumulated depreciation 205,530 176,253
---------------------------
Property and equipment, net 623,931 521,846
---------------------------
$769,196 $667,638
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 48,146 $ 44,167
Insurance and claims accruals (Note 1) 23,250 22,161
Accrued payroll 10,051 9,116
Income taxes payable 471 6,983
Driver escrow 3,307 2,635
Other 6,682 6,729
---------------------------
Total current liabilities 91,907 91,791
---------------------------
Long-term debt (Note 2) 100,000 60,000
Deferred income taxes (Notes 1 and 3) 105,900 91,400
Insurance, claims and other long-term accruals (Note 1) 30,801 29,329
Commitments and contingencies (Note 5)
Stockholders' equity (Notes 1 and 4):
Common stock, $.01 par value, 200,000,000 shares
authorized; 48,320,835 and 48,320,966 shares
issued; 47,309,310 and 47,782,669 shares
outstanding, respectively 483 387
Paid-in capital 105,338 104,764
Retained earnings 349,351 296,533
Treasury stock, at cost; 1,011,525 and 538,297
shares, respectively (14,584) (6,566)
---------------------------
Total stockholders' equity 440,588 395,118
---------------------------
$769,196 $667,638
===========================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
17
<PAGE>
WERNER ENTERPRISES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands)
- -------------------------------------------------------------------------------------------------------
1998 1997 1996
---------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 57,246 $ 48,378 $ 40,555
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 82,549 72,634 65,010
Deferred income taxes 14,700 9,500 6,500
Gain on disposal of operating equipment (12,251) (8,789) (5,156)
Tax benefit from exercise of stock options 389 1,610 788
Insurance, claims and other long-term accruals 1,472 54 539
Changes in certain working capital items:
Accounts receivable, net (868) (25,533) (10,057)
Prepaid expenses and other current assets (5,186) (4,537) 1,097
Accounts payable 3,979 25,142 3,306
Accrued payroll 935 146 1,252
Other current liabilities (5,025) 7,432 122
---------------------------------------
Net cash provided by operating activities 137,940 126,037 103,956
---------------------------------------
Cash flows from investing activities:
Additions to property and equipment (258,643) (215,585) (117,599)
Retirements of property and equipment 86,260 62,941 31,382
---------------------------------------
Net cash used in investing activities (172,383) (152,644) (86,217)
---------------------------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 40,000 50,000 -
Repayments of long-term debt - (20,000) (10,000)
Proceeds from issuance of short-term debt 20,000 - -
Repayments of short-term debt (20,000) - -
Dividends on common stock (4,201) (3,815) (3,344)
Repurchases of common stock (9,072) (2,471) -
Stock options exercised 1,335 3,051 1,514
---------------------------------------
Net cash provided by (used in) financing activities 28,062 26,765 (11,830)
---------------------------------------
Net increase (decrease) in cash and cash equivalents (6,381) 158 5,909
Cash and cash equivalents, beginning of year 22,294 22,136 16,227
---------------------------------------
Cash and cash equivalents, end of year $ 15,913 $ 22,294 $ 22,136
=======================================
- -------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during year for:
Interest $ 4,800 $ 2,766 $ 3,398
Income taxes 26,100 13,328 15,904
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
18
<PAGE>
WERNER ENTERPRISES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(In thousands, except share amounts) (Note 1)
---------------------------------------------------------------------------------------------------------------------------
Total
Common Paid-In Retained Treasury Stockholders'
Stock Capital Earnings Stock Equity
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 $ 258 $100,294 $214,959 $ (6,459) $309,052
Dividends on common stock ($.07 per share) - - (3,538) - (3,538)
Exercise of stock options, 271,108 shares - 1,363 - 939 2,302
Three-for-two stock split 129 (129) - - -
Net income - - 40,555 - 40,555
-------------------------------------------------------------------------
BALANCE, December 31, 1996 387 101,528 251,976 (5,520) 348,371
Purchases of 158,125 shares of common stock - - - (2,471) (2,471)
Dividends on common stock ($.08 per share) - - (3,821) - (3,821)
Exercise of stock options, 455,695 shares - 3,236 - 1,425 4,661
Net income - - 48,378 - 48,378
-------------------------------------------------------------------------
BALANCE, December 31, 1997 387 104,764 296,533 (6,566) 395,118
Purchases of 592,600 shares of common stock - - - (9,072) (9,072)
Dividends on common stock ($.09 per share) - - (4,428) - (4,428)
Five-for-four stock split (Note 1) 96 (96) - - -
Exercise of stock options, 119,391 shares - 670 - 1,054 1,724
Net income - - 57,246 - 57,246
-------------------------------------------------------------------------
BALANCE, December 31, 1998 $ 483 $105,338 $349,351 $(14,584) $440,588
=========================================================================
</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, 1998 and 1997, and the
related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the
period ended December 31, 1998. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Omaha, Nebraska,
January 20, 1999.
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.
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, and a
$1,000,000 annual aggregate amount for claims between
$1,000,000 and $2,000,000. 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 $8,100,000 in letters of credit, as of
December 31, 1998.
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.
20
<PAGE>
WERNER ENTERPRISES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Common Stock and
Earnings Per Share
On May 13, 1998, the Company issued shares for a five-
for-four common stock split effected in the form of a 25%
stock dividend from authorized and unissued shares to
stockholders of record on April 27, 1998. 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.
The Company computes and presents earnings per share
(EPS) in accordance with SFAS No. 128 "Earnings per Share".
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):
<TABLE>
<CAPTION>
1998 1997
------------------------
<S> <C> <C>
Notes payable to banks under
committed credit facilities $ 50,000 $ 40,000
6.55% Series A Senior Notes,
due November 2002 20,000 20,000
6.02% Series B Senior Notes,
due November 2002 10,000 -
5.52% Series C Senior Notes,
due December 2003 20,000 -
------------------------
$100,000 $ 60,000
========================
</TABLE>
The notes payable to banks under committed credit
facilities bear variable interest (5.6% at December 31,
1998) based on the London Interbank Offered Rate (LIBOR) and
mature in May 2000. In addition, the Company has $30 million
of short-term credit facilities with banks which bear
variable interest based on LIBOR. No borrowings were
outstanding under the short-term credit facilities at
December 31, 1998. Each of the debt agreements require,
among other things, that the Company maintain a minimum
consolidated tangible net worth and not exceed a maximum
ratio of indebtedness to total capitalization. The Company
was in compliance with these covenants at December 31, 1998.
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
<TABLE>
<CAPTION>
Income tax expense consists of the following (in
thousands):
- -----------------------------------------------------------------
1998 1997 1996
----------------------------------------
<S> <C> <C> <C>
Current
Federal $17,186 $15,217 $17,109
State 3,200 3,000 1,500
----------------------------------------
20,386 18,217 18,609
----------------------------------------
Deferred
Federal 12,378 8,017 4,465
State 2,322 1,483 2,035
----------------------------------------
14,700 9,500 6,500
----------------------------------------
Total income
tax expense $35,086 $27,717 $25,109
========================================
</TABLE>
The effective income tax rate differs from the federal
corporate tax rate of 35% in 1998, 1997, and 1996 as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------
<S> <C> <C> <C>
Tax at statutory rate $32,316 $26,633 $22,982
State income taxes,
net of federal tax
benefits 3,589 2,914 2,298
Favorable settlement
of income tax issues - (2,000) -
Income tax credits (536) (564) (465)
Other, net (283) 734 294
----------------------------------------
$35,086 $27,717 $25,109
========================================
</TABLE>
At December 31, deferred tax assets and liabilities
consisted of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------------------------
<S> <C> <C>
Deferred tax assets:
Insurance and claims accruals $ 20,962 $ 19,904
Allowance for uncoll. accounts 693 860
Other 2,717 2,255
--------------------------
$ 24,372 $ 23,019
==========================
Deferred tax liabilities:
Property and equipment $118,337 $103,291
Prepaid expenses 5,408 4,341
Other 527 587
--------------------------
$124,272 $108,219
==========================
21
<PAGE>
WERNER ENTERPRISES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 3,750,000 shares.
At December 31, 1998, 796,833 shares were available for
granting further options. At December 31, 1998, 1997, and
1996, options for 522,295, 409,005, and 602,014 shares with
weighted average exercise prices of $11.43, $11.35, and
$7.83 were exercisable, respectively.
The following table summarizes Stock Option Plan
activity for the three years ended December 31, 1998:
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding
----------------------------
Weighted-Average
Shares Exercise Price
----------------------------
<S> <C> <C>
Balance, December 31, 1995 1,856,857 $ 9.30
Options exercised (271,108) 5.58
Options canceled (72,891) 11.77
-------------
Balance, December 31, 1996 1,512,858 9.85
Options granted 563,125 16.10
Options exercised (455,695) 6.69
Options canceled (39,169) 11.04
-------------
Balance, December 31, 1997 1,581,119 12.95
Options granted 86,250 16.66
Options exercised (119,391) 11.18
Options canceled (22,998) 13.01
-------------
Balance, December 31, 1998 1,524,980 13.30
=============
</TABLE>
The following tables summarize information about stock
options outstanding and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding
------------------------------------------------
Weighted-Average Weighted-Average
Range of Number Remaining Exercise
Exercise Prices Outstanding Contractual Life Price
- -----------------------------------------------------------------
<S> <C> <C> <C>
$4.73 16,313 1.5 years $ 4.73
$10.46 to $13.25 882,292 5.8 years 11.37
$16.10 to $17.38 626,375 9.0 years 16.24
----------
1,524,980 7.0 years 13.30
==========
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
---------------------------------------
Weighted-Average
Range of Number Exercise
Exercise Prices Exercisable Price
- --------------------------------------------------------
<S> <C> <C>
$4.73 16,313 $ 4.73
$10.46 to $13.25 505,982 11.64
---------
522,295 11.43
=========
</TABLE>
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
1998, 1997, and 1996, 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 1998 and 1997 was estimated using the
Black-Scholes option-pricing model with the following
assumptions: risk-free interest rate of 5.5 percent in 1998
and 6 percent in 1997; 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
1998 and 1997 was $6.16 and $6.11 per share, respectively.
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 $100,045, $85,062,
and $67,704 for 1998, 1997, and 1996, 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.
22
<PAGE>
WERNER ENTERPRISES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $1,191,372, $1,014,633, and $1,030,248 for 1998,
1997, and 1996, respectively.
(5) COMMITMENTS AND CONTINGENCIES
The Company has committed to approximately
$106,000,000 of net capital expenditures, which is a portion
of its estimated 1999 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) SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board
issued SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information", which requires public
companies to disclose certain information about reportable
operating segments. The Company operates in one reportable
segment - Truckload transportation services. The reportable
Truckload segment consists of five operating fleets which
have been aggregated since they have similar economic
characteristics and meet the other aggregation criteria of
SFAS No. 131. The Medium- to Long-Haul Van fleet transports
a variety of consumer, non-durable products and other
commodities in truckload quantities over irregular routes
using dry van trailers. The Regional Short-Haul fleet
provides comparable truckload van service within five
geographic regions. The Flatbed and Temperature-Controlled
fleets provide truckload services for products with
specialized trailers. The Dedicated Services fleet provides
truckload services required by a specific company, plant or
distribution center. The Company's Logistics division, which
provides customers with transportation management, mode
selection, routing, and brokerage, is not reportable under
the quantitative thresholds of SFAS No. 131.
Operating revenues from external customers for the
Company's major service categories were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------
<S> <C> <C> <C>
Truckload $821,596 $728,140 $623,610
Logistics and
other 41,821 43,955 19,664
-----------------------------------
Total operating
revenues $863,417 $772,095 $643,274
===================================
</TABLE>
Substantially all of the Company's revenues are
generated within the United States or from North American
shipments with origins or destinations in the United States.
No one customer accounts for more than 10% of the Company's
revenues.
(7) 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>
1998:
- ----------------------------------------
Operating revenues $199,707 $211,678 $219,715 $232,317
Operating income 18,143 25,042 26,499 25,927
Net income 10,873 15,012 15,915 15,446
Diluted earnings per share .23 .31 .33 .33
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
Diluted earnings per share .16 .26 .30 .29
- ------------------------------------------------------------------------------------------------------------
</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, 1997, through December 31, 1998.
<TABLE>
<CAPTION>
- -----------------------------------------------------------
High Low
-------------------------
<S> <C> <C>
1998
Quarter ended:
March 31 21.40 15.60
June 30 22.40 17.00
September 30 19.75 14.31
December 31 19.25 11.25
1997
Quarter ended:
March 31 15.40 12.70
June 30 16.60 14.60
September 30 19.80 14.00
December 31 21.30 15.20
- -----------------------------------------------------------
</TABLE>
As of February 18, 1999, the Company's common stock was
held by 288 stockholders of record and approximately 7,200
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 11,
1999 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 22, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 15,913
<SECURITIES> 0
<RECEIVABLES> 94,329
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 145,265
<PP&E> 829,461
<DEPRECIATION> 205,530
<TOTAL-ASSETS> 769,196
<CURRENT-LIABILITIES> 91,907
<BONDS> 0
0
0
<COMMON> 483
<OTHER-SE> 440,105
<TOTAL-LIABILITY-AND-EQUITY> 769,196
<SALES> 863,417
<TOTAL-REVENUES> 863,417
<CGS> 0
<TOTAL-COSTS> 767,806
<OTHER-EXPENSES> (1,610)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,889
<INCOME-PRETAX> 92,332
<INCOME-TAX> 35,086
<INCOME-CONTINUING> 57,246
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,246
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.19
</TABLE>
