SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended Commission file number
September 30, 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 October 31, 1999, 47,505,836 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 nine-month periods ended
September 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 September 30, 1999 and 1998 Page 3
Consolidated Statements of Income for the
Nine Months Ended September 30, 1999 and 1998 Page 4
Consolidated Condensed Balance Sheets as of
September 30, 1999 and December 31, 1998 Page 5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998 Page 6
Notes to Consolidated Financial Statements as of September 30, 1999 Page 7
2
<PAGE>
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
(In thousands) September 30
- ------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Operating revenues $ 270,144 $ 219,715
-----------------------
Operating expenses:
Salaries, wages and benefits 97,830 83,421
Fuel 21,600 13,766
Supplies and maintenance 23,027 18,436
Taxes and licenses 20,467 17,075
Insurance and claims 7,040 5,523
Depreciation 25,415 20,604
Rent and purchased transportation 45,382 34,278
Communications and utilities 3,394 2,814
Other (2,852) (2,701)
-----------------------
Total operating expenses 241,303 193,216
-----------------------
Operating income 28,841 26,499
-----------------------
Other expense (income):
Interest expense 1,731 1,242
Interest income (355) (446)
Other 83 33
-----------------------
Total other expense 1,459 829
-----------------------
Income before income taxes 27,382 25,670
Income taxes 10,405 9,755
-----------------------
Net income $ 16,977 $ 15,915
=======================
Average common shares outstanding 47,464 47,658
=======================
Earnings per share $ .36 $ .33
=======================
Diluted shares outstanding 47,741 47,846
=======================
Diluted earnings per share $ .36 $ .33
=======================
Dividends declared per share $ .025 $ .024
=======================
</TABLE>
3
<PAGE>
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Nine Months Ended
(In thousands) September 30
- ------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Operating revenues $ 771,770 $ 631,100
-----------------------
Operating expenses:
Salaries, wages and benefits 282,397 237,403
Fuel 53,819 42,662
Supplies and maintenance 64,190 53,159
Taxes and licenses 60,071 49,606
Insurance and claims 24,311 18,146
Depreciation 73,606 60,435
Rent and purchased transportation 131,565 100,470
Communications and utilities 9,904 7,922
Other (7,868) (8,387)
-----------------------
Total operating expenses 691,995 561,416
-----------------------
Operating income 79,775 69,684
-----------------------
Other expense (income):
Interest expense 4,574 3,486
Interest income (1,028) (1,296)
Other 140 74
-----------------------
Total other expense 3,686 2,264
-----------------------
Income before income taxes 76,089 67,420
Income taxes 28,914 25,620
-----------------------
Net income $ 47,175 $ 41,800
=======================
Average common shares outstanding 47,389 47,786
=======================
Earnings per share $ 1.00 $ .87
=======================
Diluted shares outstanding 47,648 48,055
=======================
Diluted earnings per share $ .99 $ .87
=======================
Dividends declared per share $ .075 $ .068
=======================
</TABLE>
4
<PAGE>
WERNER ENTERPRISES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands) September 30 December 31
- ------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18,367 $ 15,913
Accounts receivable, net 135,056 94,329
Prepaid taxes, licenses and permits 3,605 10,792
Other current assets 28,374 24,231
-----------------------
Total current assets 185,402 145,265
-----------------------
Property and equipment 939,329 829,461
Less - accumulated depreciation 249,085 205,530
-----------------------
Property and equipment, net 690,244 623,931
-----------------------
$ 875,646 $ 769,196
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 42,274 $ 48,146
Short-term debt (Note 1) 15,000 -
Insurance and claims accruals 30,305 23,250
Accrued payroll 13,474 10,051
Income taxes payable 5,597 471
Other current liabilities 12,985 9,989
-----------------------
Total current liabilities 119,635 91,907
-----------------------
Long-term debt 120,000 100,000
Insurance, claims and other long-term accruals 31,301 30,801
Deferred income taxes 117,694 105,900
Stockholders' equity 487,016 440,588
-----------------------
$ 875,646 $ 769,196
=======================
</TABLE>
5
<PAGE>
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
(In thousands) September 30
- ------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 47,175 $ 41,800
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 73,606 60,435
Deferred income taxes 11,794 9,427
Gain on disposal of operating equipment (8,842) (9,624)
Insurance, claims and other long-term accruals 500 972
Tax benefit from exercise of stock options 659 372
Changes in certain working capital items:
Accounts receivable, net (40,727) 5,988
Prepaid expenses and other current assets 3,044 268
Accounts payable (5,872) (8,212)
Other current liabilities 18,595 (967)
-----------------------
Net cash provided by operating activities 99,932 100,459
-----------------------
Cash flows from investing activities:
Additions to property and equipment (188,157) (180,325)
Proceeds from sales of property and equipment 57,080 67,592
-----------------------
Net cash used in investing activities (131,077) (112,733)
-----------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 20,000 20,000
Proceeds from issuance of short-term debt 30,000 -
Repayments of short-term debt (15,000) -
Dividends on common stock (3,552) (3,063)
Repurchases of common stock - (7,161)
Stock options exercised 2,151 1,287
-----------------------
Net cash provided by financing activities 33,599 11,063
-----------------------
Net increase (decrease) in cash and
cash equivalents 2,454 (1,211)
Cash and cash equivalents, beginning of period 15,913 22,294
-----------------------
Cash and cash equivalents, end of period $ 18,367 $ 21,083
=======================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 5,098 $ 2,627
Income taxes $ 11,158 $ 20,029
</TABLE>
6
<PAGE>
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Committed Credit Facilities
In addition to $50 million of fixed-rate debt described in footnote
(2) of the Company's financial statements for the year ended December 31,
1998, the Company had $70 million of long-term and $45 million of short-
term variable-rate committed credit facilities with financial institutions
available at September 30, 1999. These credit facilities bear variable
interest (5.7% at September 30, 1999) based on the London Interbank Offered
Rate (LIBOR) or, at the Company's option, the financial institution's base
lending rate. Borrowings of $70 million under long-term variable-rate
facilities and $15 million under short-term variable-rate facilities were
outstanding at September 30, 1999.
(2) Commitments
As of September 30, 1999, the Company has commitments for capital
expenditures of approximately $40 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) and non-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 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 100% 0%
Non-IT systems 100% 0%
</TABLE>
Based on information currently available, the Company believes that
the Year 2000 issue will not pose significant operational or administrative
problems for the Company. However, there can be no assurance that the Year
2000 issue will not have a material adverse effect on the Company's
business, operations or financial condition. 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
specific contingency plan at that time. As a general precaution, the
Company has documented manual procedures to be implemented if the IT
systems of its material vendors or customers fail and has made arrangements
for its key employees to be available should the Company experience
disruptions.
Financial Condition:
During the nine months ended September 30, 1999, the Company generated
cash flow from operations of $99.9 million. The Company received net
proceeds from the issuance of long-term and short-term borrowings of $35
million, which, along with the cash flow from operations, enabled the
Company to make net property additions, primarily revenue equipment, of
$131.1 million and pay common stock dividends of $3.6 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 September 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 September 30, 1999 compared to 18.5% at
December 31, 1998.
Results of Operations:
Three Months Ended September 30, 1999 and 1998
- ----------------------------------------------
Operating revenues increased 23.0% for the three months ended
September 30, 1999, compared to the same period of the prior year,
primarily due to a 21.4% increase in the average number of tractors in
service. Average tractors in service increased from 5,726 in third quarter
1998 to 6,949 in third quarter 1999. Revenue per mile, excluding fuel
surcharges, increased 1.3% compared to third 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 $4.3 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 89.3% for the three months ended September 30, 1999, compared to 87.9%
for the three months ended September 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 (18.9% in third
quarter 1999 compared to 16.8% in third 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 37.9% to 36.2% 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. 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 6.2% to 8.0% of revenues, due mainly to higher
average fuel prices during the quarter compared to the same quarter of the
prior year. The average cost of fuel, excluding fuel taxes, was 41% higher
in third quarter 1999 compared to third quarter 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 7.8% 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. Rent and
purchased transportation increased from 15.6% 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>
Nine Months Ended September 30, 1999 and 1998
- ---------------------------------------------
Operating revenues increased by 22.3% for the nine months ended
September 30, 1999, compared to the same period of the previous year,
primarily due to a 20.2% 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 $14.3 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 89.7% for the nine months ended September 30, 1999, compared to 89.0%
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 (17.9% 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 37.6% to 36.6% 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. Fuel
increased from 6.8% to 7.0% of revenues due mainly to higher fuel prices,
on average, during the nine months ended September 30, 1999, compared to
the same period of 1998, partly offset by the increases in logistics
revenues and owner-operator miles. Insurance and claims increased from
2.9% to 3.2% 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 nine
months ended September 30, 1999. Rent and purchased transportation
increased from 15.9% to 17.0% 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 (1.3%) 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 $85 million of variable rate debt at September 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 $850,000.
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. As of September 30, 1999, the Company has
implemented customer fuel surcharges with a majority of its revenue base to
offset a portion of the higher fuel cost per gallon. The Company cannot
predict whether high fuel price levels will continue in the future or the
extent to which fuel surcharges will be collected to offset such increases.
As of September 30, 1999, the Company had no derivative financial
instruments to reduce its exposure to fuel price fluctuations.
10
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Incorporated
Number Description by Reference to
------- ----------- ---------------
11 Statement Re: Computation of Per Share Earnings Filed herewith
27 September 30, 1999 Financial Data Schedule Filed herewith
(b) Reports on Form 8-K.
(i) A report on Form 8-K, filed July 21, 1999, regarding a news
release on July 16, 1999, announcing the Company's operating
revenues and earnings for the second quarter ended June 30, 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: November 12, 1999 By: /s/ John J. Steele
------------------ --------------------------------
John J. Steele
Vice President, Treasurer and
Chief Financial Officer
Date: November 12, 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 Nine Months Ended
September 30 September 30
----------------- -----------------
1999 1998 1999 1998
----------------- -----------------
<S> <C> <C> <C> <C>
Net income $16,977 $15,915 $47,175 $41,800
================= =================
Average common shares outstanding 47,464 47,658 47,389 47,786
Common stock equivalents (1) 277 188 259 269
----------------- -----------------
Diluted shares outstanding 47,741 47,846 47,648 48,055
================= =================
Earnings per share $ .36 $ .33 $ 1.00 $ .87
================= =================
Diluted earnings per share $ .36 $ .33 $ .99 $ .87
================= =================
</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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 18,367
<SECURITIES> 0
<RECEIVABLES> 135,056
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 185,402
<PP&E> 939,329
<DEPRECIATION> 249,085
<TOTAL-ASSETS> 875,646
<CURRENT-LIABILITIES> 119,635
<BONDS> 0
0
0
<COMMON> 483
<OTHER-SE> 486,533
<TOTAL-LIABILITY-AND-EQUITY> 875,646
<SALES> 771,770
<TOTAL-REVENUES> 771,770
<CGS> 0
<TOTAL-COSTS> 691,995
<OTHER-EXPENSES> (888)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,574
<INCOME-PRETAX> 76,089
<INCOME-TAX> 28,914
<INCOME-CONTINUING> 47,175
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,175
<EPS-BASIC> 1.00
<EPS-DILUTED> .99
</TABLE>
