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, 1999
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 February 29, 2000
was approximately $377 million (based upon $13.375 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 February 29, 2000, 47,042,035 shares of the registrant's common
stock were outstanding.
Portions of the Proxy Statement of Registrant for the Annual Meeting
of Stockholders to be held May 9, 2000 are incorporated in Part III of
this report.
<PAGE>
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business 1
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 6
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Results
of Operations and Financial Condition 7
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk 10
Item 8. Financial Statements and Supplementary Data 12
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 25
PART III
Item 10. Directors and Executive Officers of the Registrant 25
Item 11. Executive Compensation 25
Item 12. Security Ownership of Certain Beneficial Owners
and Management 25
Item 13. Certain Relationships and Related Transactions 26
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 26
<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 in 1956 by Chairman and Chief Executive
Officer Clarence L. Werner, 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
1999 with a fleet of 7,125 trucks.
The Company operates throughout the 48 contiguous states
pursuant to operating authority, both common and contract,
granted by the United States 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. This
equipment has a lower frequency of breakdowns and helps 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 equipment
investment, logistics operating margins are generally lower than
trucking operating margins.
On March 14, 2000, the Company, along with five other large
transportation companies, announced the intent to merge their
logistics business units into a commonly owned, Internet-based
transportation logistics company, Transplace.com. The
consummation of the transaction is dependent upon receiving
approval of federal and, perhaps, state regulators regarding
antitrust issues and other laws. The Company will invest $5
million in cash and will have a 16% equity stake in
Transplace.com.
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 1999, the Company's largest 5,
10, and 25
1
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customers comprised 21%, 29%, and 43% of the Company's revenues,
respectively. No one customer accounted for more than 9% of the
Company's revenues in 1999.
Virtually all of Werner's company 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 plan and 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 application systems to
improve customer service and driver service. Examples of such
application systems include (1) automated engine diagnostics to
continually monitor mechanical fault tolerances, (2) software
which preplans shipments that can be swapped by drivers enroute
to meet driver home time needs, without compromising on-time
delivery requirements, (3) 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, and
(4) the Company's proprietary Paperless Log System to
automatically keep track of truck movement and drivers' hours of
service. In June 1998, Werner Enterprises became the first
trucking company in the United States to receive authorization
from the Federal Highway Administration, under a pilot program,
to use a paperless log system in place of the paper logbooks
traditionally used by truck drivers to track their daily work
activities. The United States Department of Transportation has
recently requested that Congress consider making onboard
monitoring devices mandatory on commercial trucks. If such
changes are adopted, the Company may be better positioned than
most of the industry due to its proven paperless log system.
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 that 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, 1999, the Company employed 7,989 drivers,
602 mechanics and maintenance personnel, 1,347 office personnel
for the trucking operation, and 95 office personnel for the non-
trucking (logistics) operation. The Company also had 1,230
contracts with independent contractors (owner-operators) for
services 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
workforce 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.
2
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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 workforce, 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.
The Company also recognizes that carefully selected owner-
operators complement its Company-employed drivers. Owner-
operators are independent contractors that supply their own
tractor and driver, and are responsible for their operating
expenses. Because owner-operators provide their own tractors,
less financial 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. However, it is more difficult for the Company and the
industry to recruit and retain owner-operators in the current
high fuel price environment.
Revenue Equipment
As of December 31, 1999, Werner operated 5,895 Company
tractors and had contracts for 1,230 tractors owned by owner-
operators. The tractors that operated in the Company's Truckload
Division as of December 31, 1999, were as follows: 3,900 medium-
to-long-haul dry vans; 500 medium-to-long-haul flatbeds; 940
regional short-haul vans; 290 temperature-controlled; and 1,495
dedicated. Approximately 72% of the Company tractors are
manufactured by Freightliner, a subsidiary of DaimlerChrysler.
Most of the remaining Company tractors are manufactured by
Peterbilt. This standardization of the Company tractor fleet
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 tractor
fleet, the average age was 1.4 years at December 31, 1999. The
Company generally adheres to a 3-year replacement cycle for most
of its tractors. 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 tractors, to monitor continued compliance.
The Company operated 18,900 trailers at December 31, 1999:
17,020 dry vans; 950 flatbeds; 846 temperature-controlled; and 84
other specialized trailers. Most of the Company's trailers are
manufactured by Wabash National Corporation. As of December 31,
1999, 98% of the Company's fleet of dry van trailers consisted of
53-foot trailers and 99% consisted of aluminum plate or composite
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 3.5 years at
December 31, 1999.
Fuel
The Company purchases the majority of its fuel through a
network of approximately 300 fuel stops throughout the United
States. The Company has negotiated discounted pricing based on
certain volume commitments with these fuel stops. Bulk fueling
facilities are maintained at the Company's terminals to further
reduce fuel costs.
Shortages of fuel, increases in fuel prices or rationing of
petroleum products can have a materially adverse effect on the
operations and profitability of the Company. During the second
half of 1999, the Company began experiencing significant
increases in the cost of fuel. The Company has recovered a
portion of the increased cost from customers via the use of fuel
3
<PAGE>
surcharges. However, a significant portion of the fuel expense
increase was not recovered during 1999. This is due to several
factors, including: the base fuel price levels which determine
when surcharges are collected, empty miles between freight
shipments, out-of-route miles caused in part by driver home time
needs, and truck idling. Company management continues to meet
with customers during the first quarter of 2000 to explain the
significant impact of high fuel prices and to improve the amount
and percentage of fuel surcharge reimbursement. However, 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 December 31,
1999, the Company had no derivative financial instruments to
reduce its exposure to fuel price fluctuations.
The Company maintains aboveground 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 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 44 states. The Federal Aviation
Administration Authorization Act of 1994 (the FAAA Act) amended
sections of the Interstate Commerce Act to prevent states from
regulating rates, routes or service of motor carriers after
January 1, 1995. The FAAA Act did not address state oversight of
motor carrier safety and financial responsibility, or state
taxation of transportation. If a carrier wishes to operate in a
state where it did not previously have intrastate authority, it
must, in most cases, still apply for authority.
The Company's operations are subject to various federal,
state and local environmental laws and regulations, implemented
principally by the EPA and similar state regulatory agencies,
governing the management of hazardous wastes, other discharge of
pollutants into the air and surface and underground waters, and
the disposal of certain substances. The Company believes that
its operations are in material compliance with current laws and
regulations.
Competition
The trucking industry is highly competitive and includes
thousands of trucking companies. It is estimated that the annual
revenue of domestic trucking amounts to $370 billion per year.
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 one of the five
largest carriers in the truckload transportation industry.
4
<PAGE>
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".
ITEM 2. PROPERTIES
Werner's headquarters is located along Interstate 80 just
west of Omaha, Nebraska, on approximately 210 acres, 153 of which
are held for future expansion. During 1999, the Company completed
construction of a 166,500 square-foot addition to the Company's
headquarters office building. The 286,000 square-foot office
building includes a 5,000 square-foot computer center, drivers'
lounge areas, a drivers' orientation section, a cafeteria and a
Company store. The Omaha headquarters also consists of 131,000
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 including
a new 77,500 square-foot trailer maintenance facility constructed
in 1999. Portions of the former trailer maintenance building are
planned to be converted into a driver training facility. The
Company owns all of its corporate headquarters facilities.
The Company and its subsidiaries own a 22,000 square-foot
terminal in Springfield, Ohio, a 33,000 square-foot facility near
Denver, an 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, Pennsylvania and
in Indianapolis, Indiana. All eight locations include office and
maintenance space. The Company also leases office space in
Laredo, Texas and is beginning construction of a new 18,000
square-foot office facility there with a tentative completion
date in fourth quarter 2000.
The Company also owns a 73,000 square foot disaster recovery
and warehouse facility in another area of Omaha. Additionally,
the Company leases several small sales offices and trailer
parking yards in various locations throughout the country.
The Company's headquarters facilities have suitable
additional space available to accommodate expansion needs for at
least the next 3 to 5 years.
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 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. 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. See also Note (1) "Insurance and Claims Accruals" and
Note (6) "Commitments and Contingencies" in the Notes to
Consolidated Financial Statements under Item 8 of this Form 10-K.
5
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1999, no matters were submitted
to a vote of security holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
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 and the Company's dividends declared
per common share from January 1, 1998, through December 31, 1999.
<TABLE>
<CAPTION>
Dividends
Declared Per
High Low Common Share
------ ------ ------------
<S> <C> <C> <C>
1999
Quarter ended:
March 31 $20.75 $15.75 $.025
June 30 21.63 14.50 .025
September 30 22.25 16.13 .025
December 31 18.34 12.25 .025
1998
Quarter ended:
March 31 $21.40 $15.60 $.020
June 30 22.40 17.00 .024
September 30 19.75 14.31 .024
December 31 19.25 11.25 .025
</TABLE>
As of March 13, 2000, the Company's common stock was held by
296 stockholders of record and approximately 7,100 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 does not currently intend to
discontinue 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.
6
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in
conjunction with the consolidated financial statements and notes
under Item 8 of this Form 10-K.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- -------- -------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating revenues $1,052,333 $863,417 $772,095 $643,274 $576,022
Net income 60,011 57,246 48,378 40,555 36,380
Earnings per share (diluted) 1.26 1.19 1.01 .85 .77
Cash dividends declared per share .100 .093 .080 .075 .064
Return on average stockholders' equity 12.8% 13.7% 13.1% 12.4% 12.5%
Operating ratio 90.3% 88.9% 89.9% 89.7% 89.4%
Book value per share 10.48 9.31 8.27 7.34 6.55
Total assets 896,879 769,196 667,638 549,211 507,679
Long-term obligations 120,000 100,000 60,000 30,000 40,000
Stockholders' equity 494,772 440,588 395,118 348,371 309,052
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The following table sets forth the percentage relationship of
income and expense items to operating revenues for the years
indicated.
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Operating revenues 100.0% 100.0% 100.0%
----- ----- -----
Operating expenses
Salaries, wages and benefits 36.4 37.7 36.1
Fuel 7.5 6.6 8.8
Supplies and maintenance 8.3 8.4 8.2
Taxes and licenses 7.8 7.9 7.6
Insurance and claims 3.0 2.7 2.7
Depreciation 9.5 9.6 9.4
Rent and purchased transportation 17.6 16.1 17.1
Communications and utilities 1.3 1.2 1.1
Other (1.1) (1.3) (1.1)
----- ----- -----
Total operating expenses 90.3 88.9 89.9
----- ----- -----
Operating income 9.7 11.1 10.1
Net interest expense and other .5 .4 .2
----- ----- -----
Income before income taxes 9.2 10.7 9.9
Income taxes 3.5 4.1 3.6
----- ----- -----
Net income 5.7% 6.6% 6.3%
===== ===== =====
</TABLE>
7
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The following table sets forth certain industry data
regarding the freight revenues and operations of the Company.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Operating ratio 90.3% 88.9% 89.9% 89.7% 89.4%
Average revenues per tractor per week (1) $ 2,813 $ 2,783 $ 2,755 $ 2,710 $ 2,606
Average annual miles per tractor 125,856 126,492 126,598 126,221 121,728
Average miles per trip 734 760 799 808 785
Average revenues per total mile (1) $ 1.162 $ 1.144 $ 1.132 $ 1.116 $ 1.113
Average revenues per loaded mile (1) $ 1.287 $ 1.265 $ 1.251 $ 1.236 $ 1.242
Average tractors in service 6,769 5,662 5,051 4,372 4,136
Total tractors (at year end)
Company 5,895 5,220 4,490 3,840 3,674
Owner-operator 1,230 930 860 760 676
------- ------- ------- ------- -------
Total tractors 7,125 6,150 5,350 4,600 4,350
======= ======= ======= ======= =======
Total trailers (at year end) 18,900 16,350 14,700 12,170 11,060
======= ======= ======= ======= =======
- ----------
(1) Net of fuel surcharge revenues.
</TABLE>
Results of Operations
1999 Compared to 1998
Operating revenues increased by 22% over 1998, primarily due
to a 20% increase in the average number of tractors in service
and a 2% increase in the average revenue per mile, excluding fuel
surcharges. Customer rate increases and a higher percentage of
freight in the regional and dedicated fleets were the primary
factors in the increased revenue per mile. Regional and
dedicated trips have a shorter length of haul, on average, than
medium- to long-haul van trips. Revenue per mile tends to
increase as length of haul decreases. An $18.6 million increase
in revenues from logistics and other non-trucking transportation
services also contributed to the overall increase in operating
revenues.
The Company's operating ratio (operating expenses expressed
as a percentage of operating revenues) increased from 88.9% to
90.3%. Owner-operator miles as a percentage of total miles
increased from 16.6% in 1998 to 18.2% in 1999, resulting in 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. The increase in
logistics and other non-trucking transportation services also
contributed to this shift among expense categories.
On March 14, 2000, the Company, along with five other large
transportation companies, announced the intent to merge their
logistics business units into a commonly owned, Internet-based
transportation logistics company, Transplace.com. The
consummation of the transaction is dependent upon receiving
approval of federal and, perhaps, state regulators regarding
antitrust issues and other laws. The Company will invest $5
million in cash and will have a 16% equity stake in
Transplace.com. Transferring the logistics business to a
corporation in which the Company is a minority stockholder would
result in a decrease in non-trucking revenues and corresponding
rent and purchased transportation expenses in future periods.
Salaries, wages and benefits decreased from 37.7% to 36.4%
of revenues primarily due to increased revenues from logistics
and other non-trucking transportation services, more owner-
8
<PAGE>
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. 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 increased in 1999 from 6.6% to 7.5% of revenues due
primarily to a 22% increase in average fuel prices (excluding
fuel taxes) in 1999 compared to 1998. This increase was
partially offset by the increases in owner-operator miles and
logistics and non-trucking revenues. The Company has implemented
customer fuel surcharge reimbursement programs to recover a
portion of the increased fuel cost. However, a significant
portion of the fuel expense increase was not recovered during
1999. This is due to several factors, including: the fuel price
levels which determine when fuel surcharges are collected,
unreimbursed empty miles between freight shipments, unreimbursed
out-of-route miles caused in part by driver home time needs, and
the unreimbursed costs of truck idling. Management continues to
meet with customers to explain the significant impact of high
fuel prices and to improve the amount and percentage of fuel
surcharge reimbursement. The Company cannot predict whether
higher fuel price levels will continue or the extent to which
fuel surcharges could be collected from customers to offset such
increases. If fuel prices remain at elevated levels, the
Company's operating results for 2000 and beyond will be adversely
impacted to the extent the higher costs are not recovered from
customers.
Insurance and claims increased from 2.7% to 3.0% of revenues
due in part to an increase in the frequency of property damage
claims. Rent and purchased transportation increased from 16.1%
to 17.6% of revenues primarily due to the Company's increase in
logistics and other non-trucking transportation services and the
increase in owner-operator miles. Other operating expenses
changed from (1.3%) of revenues to (1.1%) of revenues due in part
to lower gains per tractor sold, net of repair costs.
The Company's effective income tax rate (income taxes as a
percentage of income before income taxes) was 38.0% in 1999 and
1998, as described in Note 4 of the Notes to Consolidated
Financial Statements under Item 8 of this Form 10-K.
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 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 that
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.
Fuel decreased in 1998 from 8.8% to 6.6% of revenues due
primarily to a 27% decrease in average fuel prices (excluding
fuel taxes) in 1998 compared to 1997. 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.
9
<PAGE>
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 was 38.0% in 1998,
compared to 36.4% in 1997, as described in Note 4 of the Notes to
Consolidated Financial Statements under Item 8 of this Form 10-K.
Liquidity and Capital Resources
The growth of the Company's business has required
significant investment in new revenue equipment. Net capital
expenditures in 1999, 1998, and 1997 were $171.0 million, $172.4
million, and $152.6 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 $132 million of capital expenditures
(after trade-in allowances), which is a portion of its estimated
2000 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. As of December 31, 1999, the Company has
purchased 1,053,325 shares pursuant to this authorization.
The Company's financial position is strong. As of December
31, 1999, the Company had $145 million of debt and $495 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 Issue
The impact of the Year 2000 issue on the Company's
operations was insignificant.
Forward-Looking Statements
This report contains forward-looking statements that 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Company is exposed to market risk from changes in
interest rates and commodity prices.
10
<PAGE>
Interest Rate Risk
The Company had $95 million of variable rate debt at
December 31, 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 $950,000.
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 the extent to which
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, 1999, the Company had no
derivative financial instruments to reduce its exposure to fuel
price fluctuations.
11
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
Werner Enterprises, Inc.:
We have audited the accompanying consolidated balance sheet
of Werner Enterprises, Inc. and subsidiaries as of December 31,
1999, and the related consolidated statements of income,
stockholders' equity and cash flows and the financial statement
schedule listed in Item 14(a)(2) of this Form 10-K for the year
then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements
based on our audit. The consolidated financial statements of
Werner Enterprises, Inc. and subsidiaries as of and for the years
ended December 31, 1998 and 1997 were audited by other auditors
whose report dated January 20, 1999, expressed an unqualified
opinion on those statements.
We conducted our audit 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
audit provides a reasonable basis for our opinion.
In our opinion, the 1999 consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Werner Enterprises, Inc. and subsidiaries
as of December 31, 1999, and the results of their operations and
their cash flows for the year then ended, in conformity with
generally accepted accounting principles. In addition, in our
opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the
information required to be included therein.
KPMG LLP
Omaha, Nebraska,
January 20, 2000, except as to Note 8,
which is as of March 14, 2000
12
<PAGE>
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
---------- -------- --------
<S> <C> <C> <C>
Operating revenues $1,052,333 $863,417 $772,095
---------- -------- --------
Operating expenses:
Salaries, wages and benefits 382,824 325,659 278,968
Fuel 79,029 56,786 67,600
Supplies and maintenance 87,600 72,273 63,060
Taxes and licenses 82,089 67,907 58,513
Insurance and claims 31,728 23,875 21,212
Depreciation 99,955 82,549 72,634
Rent and purchased transportation 185,129 139,026 132,261
Communications and utilities 13,444 10,796 8,358
Other (11,666) (11,065) (8,158)
---------- -------- --------
Total operating expenses 950,132 767,806 694,448
---------- -------- --------
Operating income 102,201 95,611 77,647
---------- -------- --------
Other expense (income):
Interest expense 6,565 4,889 3,002
Interest income (1,407) (1,724) (1,580)
Other 245 114 130
---------- -------- --------
Total other expense 5,403 3,279 1,552
---------- -------- --------
Income before income taxes 96,798 92,332 76,095
Income taxes 36,787 35,086 27,717
---------- -------- --------
Net income $ 60,011 $ 57,246 $ 48,378
========== ======== ========
Average common shares outstanding 47,406 47,667 47,756
========== ======== ========
Basic earnings per share $ 1.27 $ 1.20 $ 1.01
========== ======== ========
Diluted shares outstanding 47,631 47,910 47,959
========== ======== ========
Diluted earnings per share $ 1.26 $ 1.19 $ 1.01
========== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
13
<PAGE>
WERNER ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 31
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,368 $ 15,913
Accounts receivable, trade, less allowance of
$3,236 and $2,933, respectively 127,211 94,329
Other receivables 11,217 8,254
Inventories and supplies 5,296 5,408
Prepaid taxes, licenses, and permits 12,423 10,792
Current deferred income taxes 8,500 6,000
Other 8,812 4,569
-------- --------
Total current assets 188,827 145,265
-------- --------
Property and equipment, at cost
Land 14,522 15,257
Buildings and improvements 65,152 52,857
Revenue equipment 800,613 686,400
Service equipment and other 90,322 74,947
-------- --------
Total property and equipment 970,609 829,461
Less - accumulated depreciation 262,557 205,530
-------- --------
Property and equipment, net 708,052 623,931
-------- --------
$896,879 $769,196
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 35,686 $ 48,146
Short-term debt 25,000 -
Insurance and claims accruals 32,993 23,250
Accrued payroll 11,846 10,051
Other current liabilities 15,681 10,460
-------- --------
Total current liabilities 121,206 91,907
-------- --------
Long-term debt 120,000 100,000
Deferred income taxes 130,600 105,900
Insurance, claims and other long-term accruals 30,301 30,801
Commitments and contingencies
Stockholders' equity
Common stock, $.01 par value, 200,000,000 shares
authorized; 48,320,835 shares issued;
47,205,236 and 47,309,310 shares
outstanding, respectively 483 483
Paid-in capital 105,884 105,338
Retained earnings 404,625 349,351
Treasury stock, at cost; 1,115,599 and
1,011,525 shares, respectively (16,220) (14,584)
-------- --------
Total stockholders' equity 494,772 440,588
-------- --------
$896,879 $769,196
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
14
<PAGE>
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 60,011 $ 57,246 $ 48,378
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 99,955 82,549 72,634
Deferred income taxes 22,200 14,700 9,500
Gain on disposal of operating equipment (13,047) (12,251) (8,789)
Tax benefit from exercise of stock options 663 389 1,610
Insurance, claims and other long-term accruals (500) 1,472 54
Changes in certain working capital items:
Accounts receivable, net (32,882) (868) (25,533)
Prepaid expenses and other current assets (8,725) (5,186) (4,537)
Accounts payable (12,460) 3,979 25,142
Accrued and other current liabilities 16,762 (4,090) 7,578
--------- --------- ---------
Net cash provided by operating activities 131,977 137,940 126,037
--------- --------- ---------
Cash flows from investing activities:
Additions to property and equipment (255,326) (258,643) (215,585)
Retirements of property and equipment 84,297 86,260 62,941
--------- --------- ---------
Net cash used in investing activities (171,029) (172,383) (152,644)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 30,000 40,000 50,000
Repayments of long-term debt - - (20,000)
Proceeds from issuance of short-term debt 30,000 20,000 -
Repayments of short-term debt (15,000) (20,000) -
Dividends on common stock (4,740) (4,201) (3,815)
Repurchases of common stock (3,941) (9,072) (2,471)
Stock options exercised 2,188 1,335 3,051
--------- --------- ---------
Net cash provided by financing activities 38,507 28,062 26,765
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (545) (6,381) 158
Cash and cash equivalents, beginning of year 15,913 22,294 22,136
--------- --------- ---------
Cash and cash equivalents, end of year $ 15,368 $ 15,913 $ 22,294
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during year for:
Interest $ 7,329 $ 4,800 $ 2,766
Income taxes 13,275 26,100 13,328
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
15
<PAGE>
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Total
Common Paid-In Retained Treasury Stockholders'
Stock Capital Earnings Stock Equity
------ -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
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 ($.09 per share) - - (4,428) - (4,428)
Five-for-four stock split 96 (96) - - -
Exercise of stock options, 119,391 shares - 670 - 1,054 1,724
Net income - - 57,246 - 57,246
---- -------- -------- -------- --------
BALANCE, December 31, 1998 483 105,338 349,351 (14,584) 440,588
Purchases of 302,600 shares of common stock - - - (3,941) (3,941)
Dividends on common stock ($.10 per share) - - (4,737) - (4,737)
Exercise of stock options, 198,526 shares - 546 - 2,305 2,851
Net income - - 60,011 - 60,011
---- -------- -------- -------- --------
BALANCE, December 31, 1999 $483 $105,884 $404,625 $(16,220) $494,772
==== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
16
<PAGE>
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1)--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Werner Enterprises, Inc. (the Company) is a truckload
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.
Inventories and Supplies
Inventories and supplies consist primarily of revenue
equipment parts, tires, fuel and supplies and are stated at
average cost.
Tires placed on new revenue equipment are capitalized as a
part of the equipment cost. Replacement tires are expensed when
placed in service.
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. If equipment is traded
rather than sold, 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 10 years for revenue equipment
and 3 to 8 years for service equipment and other.
17
<PAGE>
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 expense,
while the costs of group health and workers' compensation claims
are included in salaries, wages and benefits expense 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
$9,400,000 in letters of credit, as of December 31, 1999.
Revenue Recognition
The Consolidated Statements of Income reflect recognition of
operating revenues and related direct costs when the shipment is
delivered.
Income Taxes
The Company uses the asset and liability method of Statement
of Financial Accounting Standards (SFAS) No. 109 in accounting
for income taxes. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities
are measured using the enacted tax rates expected to apply to
taxable income in the years in which those temporary differences
are expected to be recovered or settled.
Common Stock and Earnings Per Share
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.
Reclassifications
Certain amounts in prior years' consolidated financial
statements have been reclassified to conform to the current year
presentation.
18
<PAGE>
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(2)--LONG-TERM DEBT
Long-term debt consists of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Notes payable to banks under committed credit facilities $ 95,000 $ 50,000
6.55% Series A Senior Notes, due November 2002 20,000 20,000
6.02% Series B Senior Notes, due November 2002 10,000 10,000
5.52% Series C Senior Notes, due December 2003 20,000 20,000
-------- --------
145,000 100,000
Less short-term debt (25,000) -
-------- --------
Long-term debt $120,000 $100,000
======== ========
</TABLE>
The notes payable to banks under committed credit facilities
bear variable interest (6.6% at December 31, 1999) based on the
London Interbank Offered Rate (LIBOR), and these credit
facilities mature at various dates from June 2000 to September
2001. The Company has an additional $20 million of short-term
credit facilities with banks which bear variable interest based
on LIBOR, on which no borrowings were outstanding at December 31,
1999. 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, 1999.
The aggregate future maturities of long-term and short-term
debt by year consist of the following at December 31, 1999 (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
2000 $ 25,000
2001 70,000
2002 30,000
2003 20,000
2004 -
--------
$145,000
========
</TABLE>
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)--LEASES
The Company leases certain revenue equipment under operating
leases. At December 31, 1999, the future minimum lease payments
under non-cancelable revenue equipment operating leases are as
follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
2000 $3,732
2001 3,732
2002 3,219
2003 63
2004 -
</TABLE>
Rental expense under non-cancelable revenue equipment
operating leases was $596 (in thousands) in 1999 and was $0 in
1998 and 1997.
19
<PAGE>
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(4)--INCOME TAXES
Income tax expense consists of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current
Federal $11,787 $17,186 $15,217
State 2,800 3,200 3,000
------- ------- -------
14,587 20,386 18,217
------- ------- -------
Deferred
Federal 19,112 12,378 8,017
State 3,088 2,322 1,483
------- ------- -------
22,200 14,700 9,500
------- ------- -------
Total income tax expense $36,787 $35,086 $27,717
======= ======= =======
</TABLE>
The effective income tax rate differs from the federal
corporate tax rate of 35% in 1999, 1998, and 1997 as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Tax at statutory rate $33,879 $32,316 $26,633
State income taxes, net of
federal tax benefits 3,827 3,589 2,914
Favorable settlement of
income tax issues - - (2,000)
Income tax credits (691) (536) (564)
Other, net (228) (283) 734
------- ------- -------
$36,787 $35,086 $27,717
======= ======= =======
</TABLE>
At December 31, deferred tax assets and liabilities
consisted of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Insurance and claims accruals $ 22,715 $ 20,962
Allowance for uncollectible accounts 874 693
Other 3,266 2,717
-------- --------
$ 26,855 $ 24,372
======== ========
Deferred tax liabilities:
Property and equipment $142,312 $118,337
Prepaid expenses 5,982 5,408
Other 661 527
-------- --------
$148,955 $124,272
======== ========
</TABLE>
20
<PAGE>
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(5)--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 seventy-two 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. The Board of Directors has unanimously
approved and recommended that the stockholders consider and
approve an amendment to increase the maximum number of shares
that may be optioned or sold under the Stock Option Plan by
5,000,000 shares. If a quorum exists at the May 9, 2000 Annual
Meeting of Stockholders, and if the votes cast favoring the Plan
Amendment exceed the votes cast opposing the Plan Amendment, the
maximum number of shares that may be optioned or sold under the
Stock Option Plan will be increased to 8,750,000. In December
1999, options for 623,700 shares were granted subject to
stockholder approval of the Amendment. If the Amendment is not
approved by the stockholders, the 623,700 options granted will be
canceled.
At December 31, 1999, no shares were available for granting
further options. If the Amendment to the Stock Option Plan is
approved by the stockholders, there would then be 4,397,324
shares available for granting further options. At December 31,
1999, 1998, and 1997, options for 669,178, 522,295, and 409,005
shares with weighted average exercise prices of $12.62, $11.43,
and $11.35 were exercisable, respectively.
The following table summarizes Stock Option Plan activity
for the three years ended December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding
------------------------------
Weighted-
Average
Shares Exercise Price
--------- --------------
<S> <C> <C>
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
Options granted 1,419,510 12.52
Options exercised (198,526) 11.02
Options canceled (20,001) 15.03
---------
Balance, December 31, 1999 2,725,963 13.05
=========
</TABLE>
21
<PAGE>
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following tables summarize information about stock
options outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding
--------------------------------
Weighted-
Average Weighted-
Range of Number Remaining Average
Exercise Prices Outstanding Contractual Life Exercise Price
---------------- ----------- ---------------- --------------
<S> <C> <C> <C>
$4.73 1,413 .4 years $ 4.73
$10.46 to $13.25 2,020,737 8.1 years 11.95
$14.94 to $20.50 703,813 8.1 years 16.20
---------
2,725,963 8.1 years 13.05
=========
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
------------------------------
Weighted-
Average
Range of Number Exercise
Exercise Prices Exercisable Price
---------------- ----------- --------------
<S> <C> <C>
$4.73 1,413 $ 4.73
$10.46 to $13.25 524,057 11.64
$14.94 to $20.50 143,708 16.24
-------
669,178 12.62
=======
</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 1999, 1998, and 1997, 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 1999, 1998, and 1997 was
estimated using the Black-Scholes option-pricing model with the
following assumptions: risk-free interest rate of 6.5 percent in
1999, 5.5 percent in 1998, and 6 percent in 1997; dividend yield
of 0.5 percent; expected life of 7.0 years in 1999 and 5.5 years
in 1998 and 1997; and volatility of 30 percent. The weighted-
average fair value of options granted during 1999, 1998, and
1997 was $5.56, $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
$104,304, $100,045, and $85,062 for 1999, 1998, and 1997,
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, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
$1,364,254, $1,191,372, and $1,014,633 for 1999, 1998, and 1997,
respectively.
(6)--COMMITMENTS AND CONTINGENCIES
The Company has committed to approximately $132 million of
net capital expenditures, which is a portion of its estimated
2000 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.
(7)--SEGMENT INFORMATION
The following disclosure is pursuant to 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 that 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 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---------- -------- --------
<S> <C> <C> <C>
Truckload $ 991,954 $821,596 $728,140
Logistics and other 60,379 41,821 43,955
---------- -------- --------
Total operating revenues $1,052,333 $863,417 $772,095
========== ======== ========
</TABLE>
23
<PAGE>
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
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.
(8)--SUBSEQUENT EVENT
On March 14, 2000, the Company, along with five other large
transportation companies, announced the intent to merge their
logistics business units into a commonly owned, Internet-based
transportation logistics company, Transplace.com. The
consummation of the transaction is dependent upon receiving
approval of federal and, perhaps, state regulators regarding
antitrust issues and other laws. The Company will invest $5
million in cash and will have a 16% equity stake in
Transplace.com.
(9)--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>
1999:
Operating revenues $240,980 $260,646 $270,144 $280,563
Operating income 21,243 29,691 28,841 22,426
Net income 12,622 17,576 16,977 12,836
Diluted earnings per share .27 .37 .36 .27
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
</TABLE>
24
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
During the second quarter of 1999, the Company solicited and
received formal proposals for accounting and tax services from
several accounting firms. Effective June 10, 1999, the Company
(a) engaged KPMG LLP as independent accountants and (b) dismissed
Arthur Andersen LLP ("AA LLP") as independent accountants. The
decision to change accountants was approved by the Company's
Board of Directors.
The reports of AA LLP for the past two fiscal years
contained no adverse opinion, disclaimer of opinion, or opinion
that was qualified or modified as to uncertainty, audit scope, or
accounting principles.
During the Company's two most recent fiscal years and
subsequent interim periods preceding the effective date of the
change in accountants there were no:
1) disagreements between the Company and AA LLP on any matter
of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of AA
LLP, would have caused them to make reference to the subject
matter of the disagreements in their reports.
2) reportable events involving AA LLP that would have required
disclosure under Item 304(a)(1)(v) of Regulation S-K.
3) consultations between the Company and KPMG LLP regarding any
of the matters or events set forth in Item 304(a)(2)(i) and
(ii) of Regulation S-K.
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.
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.
25
<PAGE>
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.
Page
----
Report of Independent Public Accountants 12
Consolidated Statements of Income 13
Consolidated Balance Sheets 14
Consolidated Statements of Cash Flows 15
Consolidated Statements of Stockholders' Equity 16
Notes to Consolidated Financial Statements 17
(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
----
Schedule II-Valuation and Qualifying Accounts 28
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 on page 29).
(b) Reports on Form 8-K:
A report on Form 8-K, filed October 19, 1999, regarding a
news release on October 14, 1999, announcing the Company's
operating revenues and earnings for the third quarter ended
September 30, 1999.
A report on Form 8-K filed November 23, 1999, regarding a
news release on November 23, 1999, announcing that higher fuel
prices are affecting the Company's fourth quarter 1999 earnings.
26
<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 27th day of March, 2000.
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 27, 2000
- ----------------------- Executive Officer
Clarence L. Werner and Director
/s/ Gary L. Werner Vice Chairman and March 27, 2000
- ----------------------- Director
Gary L. Werner
/s/ Curtis G. Werner Vice Chairman - Corporate March 27, 2000
- ----------------------- Development and Director
Curtis G. Werner
/s/ Gregory L. Werner President, Chief Operating March 27, 2000
- ----------------------- Officer and Director
Gregory L. Werner
/s/ John J. Steele Vice President, Treasurer and March 27, 2000
- ----------------------- Chief Financial Officer
John J. Steele
/s/ James L. Johnson Corporate Secretary and March 27, 2000
- ----------------------- Controller
James L. Johnson
/s/ Irving B. Epstein Director March 27, 2000
- -----------------------
Irving B. Epstein
/s/ Martin F. Thompson Director March 27, 2000
- -----------------------
Martin F. Thompson
/s/ Gerald H. Timmerman Director March 27, 2000
- -----------------------
Gerald H. Timmerman
/s/ Donald W. Rogert Director March 27, 2000
- -----------------------
Donald W. Rogert
/s/ Jeffrey G. Doll Director March 27, 2000
- -----------------------
Jeffrey G. Doll
</TABLE>
27
<PAGE>
SCHEDULE II
WERNER ENTERPRISES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Balance at Charged to Write-Off Balance at
Beginning of Costs and of Doubtful End of
Period Expenses Accounts Period
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1999:
Allowance for doubtful accounts $2,933 $606 $303 $3,236
====== ==== ==== ======
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
====== ==== ==== ======
</TABLE>
28
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page Number or Incorporated
Number Description 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 Exhibit 3(i) to the Company's report on
to Articles of Form 10-K for the year ended December 31,
Incorporation 1998
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
21 Subsidiaries of the Filed herewith
Registrant
23.1 Consent of KPMG LLP Filed herewith
23.2 Consent of Arthur Filed herewith
Andersen LLP
27 Financial Data Filed herewith
Schedule
99 Report of Independent Filed herewith
Public Accountants of
Arthur Andersen LLP
</TABLE>
29
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
----------------------------------------------
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net income $60,011 $57,246 $48,378
======= ======= =======
Average common shares outstanding 47,406 47,667 47,756
Common stock equivalents (1) 225 243 203
------- ------- -------
Diluted shares outstanding 47,631 47,910 47,959
======= ======= =======
Basic earnings per share $1.27 $1.20 $1.01
======= ======= =======
Diluted earnings per share $1.26 $1.19 $1.01
======= ======= =======
</TABLE>
(1) Common stock equivalents represent the dilutive effect of
outstanding stock options for all periods presented.
EXHIBIT 21
SUBSIDIARIES OF WERNER ENTERPRISES, INC.
----------------------------------------
JURISDICTION OF
SUBSIDIARY ORGANIZATION
--------------------------------- ---------------
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
9. Werner de Mexico, S. de R.L. de C.V. Mexico
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
--------------------
We consent to incorporation by reference in the registration
statements (File No. 33-15894 and No. 33-15895) on Form S-8 of
Werner Enterprises, Inc. of our report dated January 20, 2000,
except as to Note 8 which is as of March 14, 2000, relating to
the consolidated balance sheet as of December 31, 1999 of Werner
Enterprises, Inc. and subsidiaries and the related statements of
income, stockholders' equity, and cash flows for the year ended
December 31, 1999, and related schedule, which report appears in
the December 31, 1999, annual report on Form 10-K of Werner
Enterprises, Inc.
KPMG LLP
Omaha, Nebraska
March 27, 2000
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K, into the
Company's previously filed Registration Statement File Nos. 33-
15894 and 33-15895.
ARTHUR ANDERSEN LLP
Omaha, Nebraska,
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 15368
<SECURITIES> 0
<RECEIVABLES> 127211
<ALLOWANCES> 0
<INVENTORY> 5296
<CURRENT-ASSETS> 188827
<PP&E> 970609
<DEPRECIATION> 262557
<TOTAL-ASSETS> 896879
<CURRENT-LIABILITIES> 121206
<BONDS> 0
0
0
<COMMON> 483
<OTHER-SE> 494289
<TOTAL-LIABILITY-AND-EQUITY> 896879
<SALES> 1052333
<TOTAL-REVENUES> 1052333
<CGS> 0
<TOTAL-COSTS> 950132
<OTHER-EXPENSES> (1162)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6565
<INCOME-PRETAX> 96798
<INCOME-TAX> 36787
<INCOME-CONTINUING> 60011
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60011
<EPS-BASIC> 1.27
<EPS-DILUTED> 1.26
</TABLE>
EXHIBIT 99
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Stockholders and Board of Directors of Werner Enterprises,
Inc.:
We have audited the accompanying consolidated balance sheet
of Werner Enterprises, Inc. (a Nebraska corporation) and
Subsidiaries as of December 31, 1998, and the related
consolidated statements of income, stockholders' equity and cash
flows for each of the two 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 the results of their operations and their cash flows
for each of the two years in the period ended December 31, 1998,
in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion
on the basic financial statements taken as a whole. The schedule
listed in the index of financial statement schedules is presented
for purposes of complying with the Securities and Exchange
Commissions rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic 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 financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Omaha, Nebraska,
January 20, 1999
