-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D5rwfYja5Dn2VohgVUzhH0ahfL2QdPqh1619XT0zjmkB2Fu00Nwi4ZqoixkBaRuB 1PFuQxp9m/Gc0WbihIydOA== 0000793074-99-000005.txt : 19990325 0000793074-99-000005.hdr.sgml : 19990325 ACCESSION NUMBER: 0000793074-99-000005 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990324 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WERNER ENTERPRISES INC CENTRAL INDEX KEY: 0000793074 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 470648386 STATE OF INCORPORATION: NE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-14690 FILM NUMBER: 99571104 BUSINESS ADDRESS: STREET 1: 14507 FRONTIER ROAD STREET 2: P O BOX 45308 CITY: OMAHA STATE: NE ZIP: 68145 BUSINESS PHONE: 4028956640 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended December 31, 1998 Commission file number 0-14690 WERNER ENTERPRISES, INC. (Exact name of registrant as specified in its charter) NEBRASKA 47-0648386 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 14507 FRONTIER ROAD POST OFFICE BOX 45308 OMAHA, NEBRASKA 68145-0308 (402) 895-6640 (Address of principal executive offices) (Zip code) (Registrant's telephone number) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. [ X ] The aggregate market value of the registrant's $.01 par value common stock held by nonaffiliates of the registrant as of March 15, 1999 was approximately $487.2 million (based upon $17.125 per share closing price on that date, as reported by Nasdaq). (Aggregate market value estimated solely for the purposes of this report. This shall not be construed as an admission for purposes of determining affiliate status.) As of March 15, 1999, 47,333,409 shares of the registrant's common stock were outstanding. Portions of the 1998 Annual Report to Stockholders are incorporated in Parts I, II and IV of this report. Portions of the Proxy Statement of Registrant for the Annual Meeting of Stockholders to be held May 11, 1999 are incorporated in Part III of this report. PART I ITEM 1. BUSINESS General Werner Enterprises, Inc. ("Werner" or the "Company") is a transportation company engaged primarily in hauling truckload shipments of general commodities in both interstate and intrastate commerce. Werner is among the five largest truckload carriers in the United States and maintains its headquarters in Omaha, Nebraska, near the geographic center of its service area. Werner was founded by Chairman and Chief Executive Officer Clarence L. Werner in 1956 who started the business with one truck at the age of 19. Werner completed its initial public offering in April 1986 with a fleet of 630 trucks. Werner ended 1998 with a fleet of 6,150 trucks. The Company operates throughout the 48 contiguous states pursuant to operating authority, both common and contract, granted by the Department of Transportation and pursuant to intrastate authority granted by various states. The Company also has authority to operate in the ten provinces of Canada and provides through trailer service in and out of Mexico. The principal types of freight transported by the Company include consumer products, retail store merchandise, food products, paper products, beverages, industrial products and building materials. Marketing and Operations Werner's business philosophy is to provide superior on-time service to its customers at a low cost. To accomplish this, Werner operates premium, modern tractors and trailers which have a low frequency of breakdowns and help attract and retain qualified drivers. Werner has continually invested in technology to improve service to customers and improve retention of drivers. Werner focuses on shippers that value the broad geographic coverage, equipment capacity, technology, customized services, and flexibility available from a large, financially stable carrier. These shippers are generally less sensitive to rate levels, preferring to have their freight handled by a few core carriers with whom they can establish service-based, long-term relationships. Werner operates in the truckload segment of the trucking industry. Within the truckload segment, Werner provides specialized services to customers based on their trailer needs (van, flatbed, temperature controlled), geographic area (medium to long haul throughout the 48 contiguous states, regional), or conversion of their private fleet to Werner (dedicated). Werner also has a logistics division in which the Company manages the transportation requirements for individual customers. This can include transportation routing, transportation mode selection, truck brokerage, transloading and other services. Logistics is a non-asset based business that is highly dependent on information systems and qualified employees. As compared to trucking operations which requires a significant capital investment in equipment, logistics operating margins are generally lower than trucking operating margins. Werner has a diversified freight base and is not dependent on a small group of customers or a specific industry for a majority of its freight. During 1998, the Company's largest 5, 10, and 25 customers comprised 21%, 30%, and 43% of the Company's revenues, respectively. No one customer accounted for more than 7% of the Company's revenues in 1998. 2 Virtually all of Werner's company-owned and owner-operator tractors are equipped with satellite communications devices that enable the Company and drivers to conduct two-way communication using standardized and freeform messages. The satellite technology also enables the Company to monitor the progress of shipments. The Company obtains specific data on the location of all trucks in the fleet at least every hour of every day. Using the real- time data obtained from the satellite devices, Werner has developed advanced applications systems to improve customer service and driver service. Examples of such application systems include (1) an automated driver hours of service system which enables the Company to preplan and control driver hours of service, (2) automated engine diagnostics to continually monitor more than a dozen mechanical fault tolerances, (3) software which enables the Company to preplan shipments which can be swapped by drivers and trucks enroute to meet driver home time needs, without compromising on-time delivery requirements, and (4) automated "possible late load" tracking which informs the operations department of shipments that may be operating behind schedule, thereby allowing the Company to take preventive measures to avoid a late delivery, or to provide the customer with advance notice. In June 1998, Werner Enterprises became the first trucking company in the United States to receive authorization from the Federal Highway Administration to use the Company's proprietary Paperless Log System to automatically keep track of truck movement and drivers' hours of service. The Paperless Log System replaces the paper logbooks traditionally used by truck drivers to track their daily work activities. Seasonality In the trucking industry, revenues generally show a seasonal pattern as some customers reduce shipments during and after the winter holiday season. The Company's operating expenses have historically been higher in the winter months due primarily to decreased fuel efficiency, increased maintenance costs of revenue equipment in colder weather, and increased insurance and claims costs due to adverse winter weather conditions. The Company attempts to minimize the impact of seasonality through its marketing program which seeks additional freight from certain customers during traditionally slower shipping periods. Revenue can also be affected by bad weather and holidays, since revenue is directly related to available working days of shippers. Employees and Owner-Operator Drivers As of December 31, 1998, the Company employed 7,078 drivers, 543 mechanics and maintenance personnel, 1,188 office personnel for the trucking operation, and 62 office personnel for the non-trucking (logistics) operation. The Company also had contracts with independent contractors (owner-operators) for the services of 930 tractors that provide both a tractor and a qualified driver or drivers. None of the Company's employees is represented by a collective bargaining unit, and the Company considers relations with its employees to be good. The Company recognizes that its professional driver work force is one of its most valuable assets. Most of Werner's drivers are compensated based upon miles driven. The rate per mile increases with the drivers' length of service. Additional compensation may be earned through a fuel efficiency bonus, a mileage bonus, an annual achievement bonus and for extra work associated with their job (loading and unloading, extra stops, and shorter mileage trips, for example). The Company conducts a regular schedule of driver/top management meetings to share information and concerns and seek mutually satisfactory solutions. At times, there are shortages of drivers in the trucking industry. The Company's management believes the number of qualified drivers in the industry has been reduced because of the elimination of federal funding for driving schools, changes in the demographic composition of the work force, individual drivers' desire to be home more often, and a declining unemployment rate in the U.S. over the past several years. The Company anticipates that the competition for qualified drivers will continue to be high, and cannot predict whether it will experience shortages in the future. 3 The Company also recognizes that carefully selected owner-operators complement its Company-employed drivers. Owner-operators supply their own tractor and driver, and are responsible for their operating expenses. Because owner-operators provide their own tractors, less capital is required from the Company for growth. Also, owner-operators provide the Company with another source of drivers to support its growth. The Company intends to continue its emphasis on recruiting owner-operators, as well as Company drivers. Revenue Equipment As of December 31, 1998, the Company operated 5,220 Company-owned tractors and had contracts for 930 tractors owned by owner-operators. The tractors as of December 31, 1998 that operated in the Company's Truckload Division were as follows: 3,640 medium-to-long-haul dry vans; 410 medium-to-long- haul flatbeds; 820 regional short-haul vans; 310 temperature-controlled; and 970 dedicated. Approximately 78% of the Company-owned tractors are manufactured by Freightliner, a subsidiary of DaimlerChrysler. Most of the remaining Company-owned tractors are manufactured by Peterbilt. This standardization decreases downtime by simplifying maintenance. The Company adheres to a comprehensive maintenance program for both tractors and trailers. Due to continuous upgrading of the Company-owned tractor fleet, the average age was 1.3 years at December 31, 1998. Owner-operator tractors are inspected prior to acceptance by the Company for compliance with operational and safety requirements of the Company and the Department of Transportation. These tractors are then periodically inspected, similar to Company-owned tractors, to monitor continued compliance. The Company operated 16,350 trailers at December 31, 1998: 14,714 dry vans; 752 flatbeds; 819 temperature controlled; and 65 other specialized trailers. As of December 31, 1998, 97% of the Company's fleet of dry van trailers consisted of 53-foot trailers. Other trailer lengths such as 27- foot and 57-foot are also provided by the Company to meet the specialized needs of customers. The average age of the trailer fleet was 3.1 years at December 31, 1998. Fuel Shortages of fuel, increases in fuel prices or rationing of petroleum products could have a materially adverse effect on the operations and profitability of the Company. At times, the Company has experienced significant increases in the cost of fuel. During past periods of high fuel costs, the Company has recovered a portion of the increased cost from customers via the use of fuel surcharges. The Company cannot predict whether high fuel price levels will occur in the future or the extent to which fuel surcharges could be collected to offset such increases. The Company maintains above-ground and underground fuel storage tanks at some of its terminals. Leakage or damage to these facilities could expose the Company to environmental clean-up costs. The tanks are routinely inspected to help prevent and detect such problems. Regulation The Company is a motor carrier regulated by the Surface Transportation Board of the United States Department of Transportation (DOT). The DOT generally governs matters such as safety requirements, registration to engage in motor carrier operations, accounting systems, certain mergers, consolidations, acquisitions, and periodic financial reporting. The Company currently has a satisfactory DOT safety rating, which is the highest available rating. A conditional or unsatisfactory DOT safety rating could have an adverse effect on the Company, as some of the Company's contracts with customers require a satisfactory rating. Such matters as weight and dimensions of equipment are also subject to federal, state, and international regulations. The Company has unlimited authority to carry general commodities in interstate commerce throughout the 48 contiguous states. The Company currently has authority to carry freight on an intrastate basis in 43 states. The Federal Aviation Administration Authorization Act of 1994 (the FAAA Act) amended sections of the Interstate 4 Commerce Act to prevent states from regulating rates, routes or service of motor carriers after January 1, 1995. The FAAA Act did not address state oversight of motor carrier safety and financial responsibility, or state taxation of transportation. If a carrier wishes to operate in a state where it did not previously have intrastate authority, it must, in most cases, still apply for authority. The Company's operations are subject to various federal, state and local environmental laws and regulations, implemented principally by the EPA and similar state regulatory agencies, governing the management of hazardous wastes, other discharge of pollutants into the air and surface and underground waters, and the disposal of certain substances. The Company believes that its operations are in material compliance with current laws and regulations. Competition The trucking industry is highly competitive and includes thousands of trucking companies. The Company has a small but growing share (estimated at approximately 1%) of the markets targeted by the Company. The Company competes primarily with other truckload carriers. Railroads, less-than- truckload carriers and private carriers also provide competition, but to a lesser degree. Competition for the freight transported by the Company is based primarily on service and efficiency and, to some degree, on freight rates alone. Few other truckload carriers have greater financial resources, own more equipment or carry a larger volume of freight than the Company. The Company is believed to be one of the five largest truckload carriers in the trucking industry. Forward Looking Information The forward-looking statements in this report, which reflect management's best judgment based on factors currently known, involve risks and uncertainties. Actual results could differ materially from those anticipated in the forward-looking statements included herein as a result of a number of factors, including, but not limited to, those discussed in Item 7, "Management's Discussion and Analysis of Results of Operations and Financial Condition", incorporated herein by reference to pages 13 through 15 of the Annual Report. ITEM 2. PROPERTIES Werner's headquarters is located along Interstate 80 just west of Omaha, Nebraska, on approximately 210 acres, 171 of which are held for future expansion. The headquarters consist of the Company's 108,000 square-foot office building, a 5,000 square-foot computer center, and 73,000 square feet of maintenance and repair facilities containing a central parts warehouse, frame straightening and alignment machine, truck and trailer wash areas, equipment safety lanes, body shops for tractors and trailers and a paint booth. Additionally, the Omaha headquarters includes a drivers' lounge, a drivers' orientation section, a cafeteria and a Company store. The Company is completing construction of a 144,000 square-foot addition to the Company's headquarters office building. Most of the Omaha maintenance and repair facilities will eventually be relocated to the land nearby the corporate headquarters that is being held for future expansion. 5 The Company and its subsidiaries own a 22,000 square-foot terminal in Springfield, Ohio, a 32,000 square-foot facility near Denver, a 18,000 square-foot facility near Los Angeles, a 31,000 square-foot terminal near Atlanta, a 27,000 square-foot terminal in Dallas, and a 32,000 square-foot terminal in Phoenix. The Company leases terminal facilities in Allentown, Pennsyvania and in Indianapolis, Indiana. All eight locations include office and maintenance space. Additionally, the Company leases several small sales offices and trailer parking yards in various locations throughout the country. ITEM 3. LEGAL PROCEEDINGS The Company is a party to routine litigation incidental to its business, primarily involving claims for personal injury and property damage incurred in the transportation of freight. The Company has assumed liability up to $500,000 for each occurrence involving personal injury or property damage. The Company is also responsible for $1,500,000 annual aggregate amount of liability for claims between $500,000 and $1,000,000, and a $1,000,000 annual aggregate amount for claims between $1,000,000 and $2,000,000. The Company maintains insurance, which covers liability in excess of this amount to coverage levels that management considers adequate. The Company believes that adverse results in one or more of these claims would not have a material adverse effect on its results of operations or financial position. The information set forth in Note (1) "Insurance and Claims Accruals" on page 20 and Note (5) "Commitments and Contingencies" on page 23 of the Annual Report is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of 1998, no matters were submitted to a vote of security holders. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information set forth under the captions "Price Range of Common Stock" and "Dividend Policy" on page 24 of the Annual Report, "Consolidated Statements of Stockholders' Equity" on page 19 of the Annual Report, and Note (1) "Common Stock and Earnings Per Share" on page 21 of the Annual Report is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information set forth under the caption "Financial Highlights" on page 1 of the Annual Report is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The information set forth under the caption "Management's Discussion and Analysis of Results of Operations and Financial Condition" on pages 13 through 15 of the Annual Report is incorporated herein by reference. 6 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk from changes in interest rates and commodity prices. Interest Rate Risk The Company had $50 million of variable rate debt at December 31, 1998. The interest rates on the variable rate debt are based on the London Interbank Offered Rate (LIBOR). Assuming this level of borrowings, a hypothetical one percentage point increase in the LIBOR interest rate would increase the Company's annual interest expense by $500,000. Commodity Price Risk The price and availability of diesel fuel are subject to fluctuations due to changes in the level of global oil production, seasonality, weather, and other market factors. Historically, the Company has been able to recover a portion of short-term fuel price increases from customers in the form of fuel surcharges. The Company cannot predict whether high fuel price levels will occur in the future or the extent to which fuel surcharges could be collected to offset such increases. As of December 31, 1998, the Company had no derivative financial instruments to reduce its exposure to fuel price fluctuations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information set forth under the captions "Consolidated Statements of Income", "Consolidated Balance Sheets", "Consolidated Statements of Cash Flows", "Consolidated Statements of Stockholders' Equity", "Report of Independent Public Accountants", and "Notes to Consolidated Financial Statements", on pages 16 through 23 of the Annual Report is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE No reports on Form 8-K have been filed within the twenty-four months prior to December 31, 1998 involving a change of accountants or disagreements on accounting and financial disclosure. PART III Certain information required by Part III is omitted from this report on Form 10-K in that the Company will file a definitive proxy statement pursuant to Regulation 14A (Proxy Statement) not later than 120 days after the end of the fiscal year covered by this report on Form 10-K, and certain information included therein is incorporated herein by reference. Only those sections of the Proxy Statement which specifically address the items set forth herein are incorporated by reference. Such incorporation does not include the Compensation Committee Report or the Performance Graph included in the Proxy Statement. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item is incorporated herein by reference to the Company's Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated herein by reference to the Company's Proxy Statement. 7 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated herein by reference to the Company's Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated herein by reference to the Company's Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements and Schedules. (1) Financial Statements: See Part II, Item 8 hereof. (2) Financial Statement Schedules: The consolidated financial statement schedule set forth under the following caption is included herein. The page reference is to the consecutively numbered pages of this report on Form 10-K. Page ---- Report of Independent Public Accountants on Schedule 11 Schedule II - Valuation and Qualifying Accounts 12 Schedules not listed above have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto. (3) Exhibits: The response to this portion of Item 14 is submitted as a separate section of this report on Form 10-K (see Exhibit Index). (b) Reports on Form 8-K: A report on Form 8-K, filed October 19, 1998, regarding a news release on October 14, 1998, announcing the Company's operating revenues and earnings for the third quarter ended September 30, 1998. FORM 11-K INFORMATION INCLUDED HEREIN RELATED TO STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS Stock Option Plan The Company's Stock Option Plan (the Stock Option Plan) is a nonqualified plan that provides for the grant of options to management employees. Options are granted at prices equal to the market value of the common stock on the date the option is granted. The options are exercisable over a period (determined by the Option Committee of the Board of Directors) not to exceed ten years and one day from the date of grant. Stock appreciation rights may also be granted at the same time as participants are awarded stock options. Stock appreciation rights are exercisable at a time when the related options may be exercised. The maximum number of shares of common stock that may be optioned under the Stock Option Plan is 3,750,000 shares. Additionally, the maximum number of shares which may be optioned to any one person under the Stock Option 8 Plan is 937,500 shares. Members of the Option Committee are not eligible to participate in the Stock Option Plan while members of the Option Committee. Current members of the Option Committee are: Clarence L. Werner Irving B. Epstein Werner Enterprises, Inc. Epstein & Epstein PO Box 45308 Suite 123 Omaha, NE 68145 10050 Regency Circle Omaha, NE 68114 Curtis G. Werner Martin F. Thompson Werner Enterprises, Inc. c/o Werner Enterprises, Inc. PO Box 45308 PO Box 45308 Omaha, NE 68145 Omaha, NE 68145 These persons do not receive compensation for their services as members of the Option Committee, except outside directors, who receive a fee of $2,000 for each meeting of the Option Committee they attend if not held on a day on which a meeting of the Board of Directors is held. The information set forth in Note (4) "Stock Option and Employee Benefit Plans" on pages 22 and 23 of the Annual Report is incorporated herein by reference. No stock appreciation rights are outstanding. All employees to whom options were granted were provided with a copy of the Stock Option Plan's Prospectus, as well as the Company's most recent Annual Report. Employee Stock Purchase Plan Any person employed by the Company or any subsidiary at least 90 days and who is employed at least 20 hours per week on a regular basis may participate in the Company's Employee Stock Purchase Plan (the Purchase Plan). Eligible participants designate the amount of regular payroll deductions and/or a single annual payment, subject to a $1,950 yearly maximum amount, that will be used to purchase shares of the Company's common stock on the Over-The-Counter Market subject to the terms of the Purchase Plan. The Company contributes an amount equal to 15% of each participant's contributions under the Purchase Plan. Interest accrues on Purchase Plan contributions at a rate of 5.25%. The broker's commissions and administrative charges related to purchases of common stock under the Purchase Plan are paid by the Company. As of December 31, 1998, 642 employees were participating in the Purchase Plan. The administrator of the Purchase Plan is John J. Steele, Vice President, Treasurer and Chief Financial Officer of the Company, Post Office Box 45308, Omaha, Nebraska 68145. Mr. Steele has received no compensation for his services as administrator. The broker utilized by the Company to make purchases under the Purchase Plan is Salomon Smith Barney, Inc., 388 Greenwich Street, New York, New York 10013. The total amount of compensation received by Salomon Smith Barney, Inc. from the Purchase Plan for services in all capacities during the year ended December 31, 1998 was $7,631. Participants are provided with a copy of the Purchase Plan's Prospectus, as well as the Company's most recent Annual Report and any quarterly reports prepared since the Annual Report. Following each purchase under the Purchase Plan, each participant receives a statement from the broker detailing the number of shares purchased, the purchase price, and the accumulated number of shares owned by the participant. 9 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 24th day of March, 1999. WERNER ENTERPRISES, INC. By: /s/ John J. Steele ---------------------------------------- John J. Steele Vice President, Treasurer and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
Signature Position Date --------- -------- ---- /s/ Clarence L. Werner Chairman of the Board, Chief March 24, 1999 - -------------------------- Executive Officer and Director Clarence L. Werner /s/ Gary L. Werner Vice Chairman and March 24, 1999 - -------------------------- Director Gary L. Werner /s/ Curtis G. Werner Vice Chairman - Corporate March 24, 1999 - -------------------------- Development and Director Curtis G. Werner /s/ Gregory L. Werner President and Director March 24, 1999 - -------------------------- Gregory L. Werner /s/ John J. Steele Vice President, Treasurer and March 24, 1999 - -------------------------- Chief Financial Officer John J. Steele /s/ James L. Johnson Corporate Secretary and March 24, 1999 - -------------------------- Controller James L. Johnson /s/ Irving B. Epstein Director March 24, 1999 - -------------------------- Irving B. Epstein /s/ Martin F. Thompson Director March 24, 1999 - -------------------------- Martin F. Thompson /s/ Gerald H. Timmerman Director March 24, 1999 - -------------------------- Gerald H. Timmerman /s/ Donald W. Rogert Director March 24, 1999 - -------------------------- Donald W. Rogert /s/ Jeffrey G. Doll Director March 24, 1999 - -------------------------- Jeffrey G. Doll
10 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE ---------------------------------------------------- To the Stockholders and Board of Directors of Werner Enterprises, Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Werner Enterprises, Inc.'s annual report to stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 20, 1999. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14(a)(2) of this Form 10-K is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Omaha, Nebraska, January 20, 1999 11 SCHEDULE II WERNER ENTERPRISES, INC. VALUATION AND QUALIFYING ACCOUNTS (In thousands)
Balance Charged Write- Balance At To Off At Beginning Costs Of End Of And Doubtful Of Period Expenses Accounts Period ------ -------- -------- ------ Year ended December 31, 1998: Allowance for doubtful accounts $3,126 $206 $399 $2,933 ===================================== Year ended December 31, 1997: Allowance for doubtful accounts $3,359 $206 $439 $3,126 ===================================== Year ended December 31, 1996: Allowance for doubtful accounts $3,240 $606 $487 $3,359 =====================================
12 EXHIBIT INDEX
Exhibit Number Description Page Number or Incorporated by Reference to - ------- ----------- ------------------------------------------- 3(i)(A) Revised and Amended Exhibit 3 to Registration Statement on Form Articles of S-1, Registration No. 33-5245 Incorporation 3(i)(B) Articles of Amendment Exhibit 3(i) to the Company's report on to Articles of Form 10-Q for the quarter ended May 31, Incorporation 1994 3(i)(C) Articles of Amendment Filed herewith to Articles of Incorporation 3(ii) Revised and Amended Exhibit 3(ii) to the Company's report on By-Laws Form 10-K for the year ended December 31, 1994 10 Amended and Restated Exhibit 10 to the Company's report on Form Stock Option Plan 10-Q for the quarter ended May 31, 1994 11 Statement Re: Filed herewith Computation of Per Share Earnings 13 Incorporated by Filed herewith reference sections of Annual Report to Stockholders for the year ended December 31, 1998 21 Subsidiaries of the Filed herewith Registrant 23 Consent of Arthur Filed herewith Andersen LLP 27 Financial Data Filed herewith Schedule
13 EX-3 2 Exhibit 3(i)(C) ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION OF WERNER ENTERPRISES, INC. KNOW ALL MEN BY THESE PRESENTS, that the Articles of Incorporation of Werner Enterprises, Inc., have been amended in accordance with the Nebraska Business Act, Section 21-20,118, in the following respect: I. The name of the corporation is WERNER ENTERPRISES, INC., and the effective date of its incorporation is September 14, 1982. II. Article V of the Articles of Incorporation has been amended to read as follows: "ARTICLE V The aggregate number of shares of common stock which this corporation shall have authority to issue is 200,000,000 shares, having a par value of $0.01 each. All transfers of the shares of this corporation shall be made in accordance with the provisions of the By-Laws of the corporation." III. The date of adoption of this amendment by the shareholders was May 12, 1998. IV. The number of shares of the corporation outstanding at the time of such adoption was Thirty-Eight Million Three Hundred Seven Thousand Nine Hundred Sixty-Four (38,307,964) shares; and the number of shares entitled to vote thereon was Thirty-Eight Million Two Hundred Eighty-Two Thousand Eight Hundred Four (38,282,804) shares. 1 V. The number of shares voting for such amendment were Twenty- Four Million Nine Hundred Fifty-Six Thousand Eight Hundred One (24,956,801) shares; and the number of shares voted against such amendment were Eleven Million Three Hundred Fifty-One Thousand Seven Hundred Thirty-One (11,351,731) shares. VI. The amendment does not provide for exchange, reclassification, or cancellation of issued shares. Dated at Omaha, Nebraska on this 12th day of May, 1998. ATTEST: /s/James L. Johnson /s/Richard S. Reiser - ------------------------- -------------------------- James L. Johnson Richard S. Reiser Secretary Executive Vice-President STATE OF NEBRASKA ) ) ss. COUNTY OF SARPY ) On the 12th day of May, 1998, before me, the undersigned Notary Public, personally came Richard S. Reiser, Executive Vice- President of Werner Enterprises, Inc., and James L. Johnson, Secretary of Werner Enterprises, Inc., to me known to be the identical persons whose names are affixed to the foregoing instrument and acknowledged the execution thereof to be their voluntary act and deed. Subscribed and sworn to before me on the day last above written. /s/Regina M. Diehm --------------------------------- Notary Public 2 EX-11 3 EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS ---------------------------------------------- (in thousands, except per share amounts)
1998 1997 1996 ---------------------------------- Net income $57,246 $48,378 $40,555 ================================== Average common shares outstanding 47,667 47,756 47,342 Common stock equivalents (1) 243 203 233 ---------------------------------- Diluted shares outstanding 47,910 47,959 47,575 ================================== Earnings per share $1.20 $1.01 $ .86 ================================== Diluted earnings per share $1.19 $1.01 $ .85 ==================================
(1) Common stock equivalents represent the dilutive effect of outstanding stock options for all periods presented. EX-13 4
FINANCIAL HIGHLIGHTS (Dollars in thousands, except per share amounts) 1998 1997 1996 1995 1994 - -------------------------------------------------------------------------------------------- Operating revenues $863,417 $772,095 $643,274 $576,022 $516,006 Net income 57,246 48,378 40,555 36,380 36,662 Earnings per share (diluted)* 1.19 1.01 .85 .77 .77 Cash dividends declared per share* .093 .080 .075 .064 .053 Return on average stockholders' equity 13.7% 13.1% 12.4% 12.5% 14.1% Operating ratio 88.9% 89.9% 89.7% 89.4% 88.3% Book value per share* 9.31 8.27 7.34 6.55 5.85 Total assets 769,196 667,638 549,211 507,679 453,637 Long-term obligations 100,000 60,000 30,000 40,000 30,000 Stockholders' equity 440,588 395,118 348,371 309,052 276,414
*After giving retroactive effect for the May 1998, five-for-four stock split (all years presented). WERNER ENTERPRISES 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. - --------------------------------------------------------------------------------------------- 1998 1997 1996 -------------------------------------------------- Operating revenues 100.0% 100.0% 100.0% -------------------------------------------------- Operating expenses Salaries, wages and benefits 37.7 36.1 34.9 Fuel 6.6 8.8 9.6 Supplies and maintenance 8.4 8.2 8.3 Taxes and licenses 7.9 7.6 8.0 Insurance and claims 2.7 2.7 2.9 Depreciation 9.6 9.4 10.1 Rent and purchased transportation 16.1 17.1 15.2 Communications and utilities 1.2 1.1 1.3 Other (1.3) (1.1) (.6) -------------------------------------------------- Total operating expenses 88.9 89.9 89.7 -------------------------------------------------- Operating income 11.1 10.1 10.3 Net interest expense and other .4 .2 .1 -------------------------------------------------- Income before income taxes 10.7 9.9 10.2 Income taxes 4.1 3.6 3.9 -------------------------------------------------- Net income 6.6% 6.3% 6.3% ==================================================
THE FOLLOWING TABLE SETS FORTH CERTAIN INDUSTRY DATA REGARDING THE FREIGHT REVENUES AND OPERATIONS OF THE COMPANY. - --------------------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 -------------------------------------------------- Operating ratio 88.9% 89.9% 89.7% 89.4% 88.3% Average revenues per tractor per week (1) $2,783 $2,755 $2,710 $2,606 $2,563 Average annual miles per tractor 126,492 126,598 126,221 121,728 120,312 Average miles per trip 760 799 808 785 835 Average revenues per mile (1) $1.144 $1.132 $1.116 $1.113 $1.108 Average tractors in service 5,662 5,051 4,372 4,136 3,769 Total tractors (at year end) Company owned 5,220 4,490 3,840 3,674 3,473 Owner-operator owned 930 860 760 676 527 -------------------------------------------------- Total tractors 6,150 5,350 4,600 4,350 4,000 ================================================== Total trailers (at year end) 16,350 14,700 12,170 11,060 10,300 ================================================== (1) Net of fuel surcharge revenues.
13 WERNER ENTERPRISES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS 1998 Compared to 1997 Operating revenues increased by 12% over 1997, primarily due to a 12% increase in the average number of tractors in service and a 1% increase in the average revenue per mile, excluding fuel surcharges. These increases were partially offset by a 5% decrease in revenues from logistics and other non-trucking transportation services. The Company's operating ratio (operating expenses expressed as a percentage of operating revenues) decreased from 89.9% to 88.9%. The decrease in logistics and other non-trucking transportation services resulted in a shift in costs from the rent and purchased transportation expense category to several other expense categories as described below. Salaries, wages and benefits increased from 36.1% to 37.7% of revenues primarily due to increased dedicated business which required more compensation to drivers for loadings/unloadings and stops, decreased revenues from logistics and other non-trucking transportation services, and increased employee healthcare costs. At times, there have been shortages of drivers in the trucking industry. The Company anticipates that the competition for qualified drivers will continue to be high, and cannot predict whether it will experience shortages in the future. If such a shortage were to occur and increases in driver pay rates became necessary to attract and retain drivers, the Company's results of operations would be negatively impacted to the extent that corresponding freight rate increases were not obtained. Fuel decreased in 1998 from 8.8% to 6.6% of revenues due primarily to a 27% decrease in average fuel prices in 1998 compared to 1997. The Company cannot predict whether higher fuel price levels will return or the extent to which fuel surcharges could be collected from customers to offset such increases. Taxes and licenses increased from 7.6% to 7.9% of revenues due to the decreased revenues from logistics and other non-trucking transportation services and refunds and favorable development of state tax issues during 1997. Rent and purchased transportation decreased from 17.1% to 16.1% of revenues primarily due to the Company's decrease in logistics and other non-trucking transportation services. Other operating expenses changed from (1.1%) of revenues to (1.3%) of revenues due to an increase in gains on sales of revenue equipment to third parties resulting primarily from an increase in the number of tractors and trailers sold. The Company's effective income tax rate (income taxes as a percentage of income before income taxes) was 38.0% in 1998, compared to 36.4% in 1997, as described in Note 3 of the Notes to Consolidated Financial Statements. 1997 Compared to 1996 Operating revenues increased by 20% over 1996, primarily due to a 15% increase in the average number of tractors in service and a 1% increase in the average revenue per mile, excluding fuel surcharges. The increased revenue per mile resulted from the Company obtaining rate increases from customers to partially offset a 2 cent per mile driver pay and owner-operator settlement increase which became effective January 1, 1997. A $24.3 million increase in revenues from logistics and other non-trucking transportation services also contributed to the overall increase in operating revenues. The Company's operating ratio increased slightly from 89.7% to 89.9%. The increase in logistics and other non-trucking transportation services resulted in a shift in costs to the rent and purchased transportation expense category from several other categories, as described below. Salaries, wages and benefits increased from 34.9% to 36.1% of revenues due primarily to the impact of the 2 cent per mile driver pay increase. The increase was partially offset by the 1% increase in average revenue per mile, favorable workers' compensation claim experience, and increased revenues from logistics and other non-trucking transportation services. Fuel decreased from 9.6% to 8.8% of revenues due mainly to lower average fuel prices in 1997, compared to the unusually high prices during most of 1996. Increased revenues from logistics and other non-trucking transportation services also contributed to the decrease. Fuel prices began rising at the end of the first quarter of 1996 and, for the most part, remained at elevated price levels during the remainder of 1996 and the beginning of the first quarter of 1997. Taxes and licenses decreased from 8.0% to 7.6% of revenues due to increased revenues from logistics and other non-trucking transportation services and refunds and favorable development of state tax issues. Insurance and claims decreased from 2.9% to 2.7% of revenues, due primarily to fewer severe accident claims and continued favorable claims experience in 1997, and increased revenues from logistics and other non-trucking transportation services. Depreciation decreased from 10.1% to 9.4% of revenues, due principally to increased revenues from logistics and other non-trucking transportation services, and a 2% increase in the average revenue per tractor per week, excluding fuel surcharges. 14 WERNER ENTERPRISES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Rent and purchased transportation increased from 15.2% to 17.1% of revenues due primarily to the Company's increase in logistics and other non-trucking transportation services. Other operating expenses changed from (.6%) to (1.1%) of revenues due to an increase in gains on sales of revenue equipment to third parties resulting from an increase in the number of tractors and trailers sold. The Company's effective income tax rate (income taxes as a percentage of income before income taxes) was 36.4% in 1997, compared to 38.2% in 1996, as described in Note 3 of the Notes to Consolidated Financial Statements. Liquidity and Capital Resources The growth of the Company's business has required significant investment in new revenue equipment. Net capital expenditures in 1998, 1997, and 1996 were $172.4 million, $152.6 million, and $86.2 million, respectively. The capital expenditures were financed primarily with cash generated from operations and, to a lesser extent, borrowings. The Company has committed to approximately $106 million of capital expenditures (after trade-in allowances), which is a portion of its estimated 1999 capital expenditures. The Company expects to fund these expenditures primarily with cash generated from operations. From time to time, the Company has and may continue to repurchase shares of its common stock. The timing and amount of such purchases depends on market and other factors. The Company's board of directors has authorized the repurchase of up to 2,500,000 shares. The Company has purchased 750,725 shares pursuant to this authorization. The Company's financial position is strong. The Company has $100 million of long-term debt and $441 million of stockholders' equity. Based on the Company's strong financial position, management foresees no significant barriers to obtaining sufficient financing, if necessary, to continue with its growth plans. Year 2000 Readiness Disclosure In January 1997, the Company began conducting a comprehensive review of its Year 2000 issues and has since completed its review of information technology (IT) systems. Most of the Company's critical software programs have been developed internally, with the remainder having been licensed from and maintained by software vendors. The Company completed substantially all of its conversion of internally developed software programs to Year 2000 compliance in September 1998. The costs of converting these programs was not material. The Company is now working with vendors to verify compliance of vendor-supplied software programs, and has also begun evaluating compliance of non-IT systems. The following is an estimate of the status of the Company's IT systems and non-IT systems:
Year 2000 Modifications being Compliant performed Internally-developed IT systems 100% 0% Vendor-supplied IT systems 70% 30% Non-IT systems 60% 40%
Based on information currently available, the Company believes that with the appropriate modifications to vendor- supplied software programs, the Year 2000 issue will not pose significant operational or administrative problems for the Company. The cost of such remaining modifications is not expected to be material. The Company will continue to evaluate the Year 2000 readiness of third parties (primarily vendors and customers) with whom the Company has material relationships. The Company cannot presently estimate the effect on its results of operations, liquidity, and financial condition should material vendors and customers fail to become Year 2000 compliant. If the Company believes it is likely that a material vendor or customer will not achieve Year 2000 compliance, the Company will develop a contingency plan at that time. Forward-Looking Statements This report contains forward-looking statements which are based on information currently available to the Company's management. Although the Company believes the expectations reflected in such forward-looking statements to be reasonable, no assurance can be given that the expectations will be realized. Factors currently known to management that could cause actual results to differ materially from the expectations reflected in forward- looking statements include the following: price and availability of diesel fuel; availability of an adequate number of qualified drivers; competitive factors including rate competition; unanticipated changes in laws, regulations, and taxation; and the amount and severity of accident claims. General economic conditions and weather conditions may also significantly affect the Company's results, as equipment utilization and rate levels depend on the level of business activity of shippers in a variety of industries. 15 WERNER ENTERPRISES CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts) - --------------------------------------------------------------------------------------------- 1998 1997 1996 --------------------------------------------- Operating revenues (Note 1) $863,417 $772,095 $643,274 --------------------------------------------- Operating expenses: Salaries, wages and benefits 325,659 278,968 224,721 Fuel 56,786 67,600 61,611 Supplies and maintenance 72,273 63,060 53,337 Taxes and licenses 67,907 58,513 51,807 Insurance and claims 23,875 21,212 18,927 Depreciation (Note 1) 82,549 72,634 65,010 Rent and purchased transportation 139,026 132,261 97,525 Communications and utilities 10,796 8,358 8,164 Other (11,065) (8,158) (3,958) --------------------------------------------- Total operating expenses 767,806 694,448 577,144 --------------------------------------------- Operating income 95,611 77,647 66,130 --------------------------------------------- Other expense (income): Interest expense 4,889 3,002 2,063 Interest income (1,724) (1,580) (1,709) Other 114 130 112 --------------------------------------------- Total other expense 3,279 1,552 466 --------------------------------------------- Income before income taxes 92,332 76,095 65,664 Income taxes (Notes 1 and 3) 35,086 27,717 25,109 --------------------------------------------- Net income $ 57,246 $ 48,378 $ 40,555 ============================================= Average common shares outstanding (Note 1) 47,667 47,756 47,342 ============================================= Earnings per share (Note 1) $1.20 $1.01 $.86 ============================================= Diluted shares outstanding (Note 1) 47,910 47,959 47,575 ============================================= Diluted earnings per share (Note 1) $1.19 $1.01 $.85 =============================================
The accompanying notes are an integral part of these consolidated financial statements. 16 WERNER ENTERPRISES CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts) December 31 - --------------------------------------------------------------------------------------------- 1998 1997 --------------------------- ASSETS Current assets: Cash and cash equivalents (Note 1) $ 15,913 $ 22,294 Accounts receivable, less allowance of $2,933 and $3,126, respectively 94,329 93,461 Prepaid taxes, licenses, and permits 10,792 8,405 Current deferred income taxes (Notes 1 and 3) 6,000 6,200 Other 18,231 15,432 --------------------------- Total current assets 145,265 145,792 --------------------------- Property and equipment, at cost (Note 1) Land 15,257 17,856 Buildings and improvements 52,857 35,195 Revenue equipment 686,400 578,903 Service equipment and other 74,947 66,145 --------------------------- Total property and equipment 829,461 698,099 Less - accumulated depreciation 205,530 176,253 --------------------------- Property and equipment, net 623,931 521,846 --------------------------- $769,196 $667,638 =========================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 48,146 $ 44,167 Insurance and claims accruals (Note 1) 23,250 22,161 Accrued payroll 10,051 9,116 Income taxes payable 471 6,983 Driver escrow 3,307 2,635 Other 6,682 6,729 --------------------------- Total current liabilities 91,907 91,791 --------------------------- Long-term debt (Note 2) 100,000 60,000 Deferred income taxes (Notes 1 and 3) 105,900 91,400 Insurance, claims and other long-term accruals (Note 1) 30,801 29,329 Commitments and contingencies (Note 5) Stockholders' equity (Notes 1 and 4): Common stock, $.01 par value, 200,000,000 shares authorized; 48,320,835 and 48,320,966 shares issued; 47,309,310 and 47,782,669 shares outstanding, respectively 483 387 Paid-in capital 105,338 104,764 Retained earnings 349,351 296,533 Treasury stock, at cost; 1,011,525 and 538,297 shares, respectively (14,584) (6,566) --------------------------- Total stockholders' equity 440,588 395,118 --------------------------- $769,196 $667,638 ===========================
The accompanying notes are an integral part of these consolidated financial statements. 17 WERNER ENTERPRISES CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) - ------------------------------------------------------------------------------------------------------- 1998 1997 1996 --------------------------------------- Cash flows from operating activities: Net income $ 57,246 $ 48,378 $ 40,555 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 82,549 72,634 65,010 Deferred income taxes 14,700 9,500 6,500 Gain on disposal of operating equipment (12,251) (8,789) (5,156) Tax benefit from exercise of stock options 389 1,610 788 Insurance, claims and other long-term accruals 1,472 54 539 Changes in certain working capital items: Accounts receivable, net (868) (25,533) (10,057) Prepaid expenses and other current assets (5,186) (4,537) 1,097 Accounts payable 3,979 25,142 3,306 Accrued payroll 935 146 1,252 Other current liabilities (5,025) 7,432 122 --------------------------------------- Net cash provided by operating activities 137,940 126,037 103,956 --------------------------------------- Cash flows from investing activities: Additions to property and equipment (258,643) (215,585) (117,599) Retirements of property and equipment 86,260 62,941 31,382 --------------------------------------- Net cash used in investing activities (172,383) (152,644) (86,217) --------------------------------------- Cash flows from financing activities: Proceeds from issuance of long-term debt 40,000 50,000 - Repayments of long-term debt - (20,000) (10,000) Proceeds from issuance of short-term debt 20,000 - - Repayments of short-term debt (20,000) - - Dividends on common stock (4,201) (3,815) (3,344) Repurchases of common stock (9,072) (2,471) - Stock options exercised 1,335 3,051 1,514 --------------------------------------- Net cash provided by (used in) financing activities 28,062 26,765 (11,830) --------------------------------------- Net increase (decrease) in cash and cash equivalents (6,381) 158 5,909 Cash and cash equivalents, beginning of year 22,294 22,136 16,227 --------------------------------------- Cash and cash equivalents, end of year $ 15,913 $ 22,294 $ 22,136 ======================================= - ------------------------------------------------------------------------------------------------------- Supplemental disclosures of cash flow information: Cash paid during year for: Interest $ 4,800 $ 2,766 $ 3,398 Income taxes 26,100 13,328 15,904
The accompanying notes are an integral part of these consolidated financial statements. 18 WERNER ENTERPRISES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts) (Note 1) --------------------------------------------------------------------------------------------------------------------------- Total Common Paid-In Retained Treasury Stockholders' Stock Capital Earnings Stock Equity - ---------------------------------------------------------------------------------------------------------------------------- BALANCE, December 31, 1995 $ 258 $100,294 $214,959 $ (6,459) $309,052 Dividends on common stock ($.07 per share) - - (3,538) - (3,538) Exercise of stock options, 271,108 shares - 1,363 - 939 2,302 Three-for-two stock split 129 (129) - - - Net income - - 40,555 - 40,555 ------------------------------------------------------------------------- BALANCE, December 31, 1996 387 101,528 251,976 (5,520) 348,371 Purchases of 158,125 shares of common stock - - - (2,471) (2,471) Dividends on common stock ($.08 per share) - - (3,821) - (3,821) Exercise of stock options, 455,695 shares - 3,236 - 1,425 4,661 Net income - - 48,378 - 48,378 ------------------------------------------------------------------------- BALANCE, December 31, 1997 387 104,764 296,533 (6,566) 395,118 Purchases of 592,600 shares of common stock - - - (9,072) (9,072) Dividends on common stock ($.09 per share) - - (4,428) - (4,428) Five-for-four stock split (Note 1) 96 (96) - - - Exercise of stock options, 119,391 shares - 670 - 1,054 1,724 Net income - - 57,246 - 57,246 ------------------------------------------------------------------------- BALANCE, December 31, 1998 $ 483 $105,338 $349,351 $(14,584) $440,588 =========================================================================
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - ------------------------------------------------------------------------------ To the Stockholders and Board of Directors of Werner Enterprises, Inc.: We have audited the accompanying consolidated balance sheets of Werner Enterprises, Inc. (a Nebraska corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Werner Enterprises, Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Omaha, Nebraska, January 20, 1999. 19 WERNER ENTERPRISES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business Werner Enterprises, Inc. (the Company) is a transportation company operating under the jurisdiction of the Department of Transportation and various state regulatory commissions. The Company maintains a diversified freight base with no one customer or industry making up a significant percentage of the Company's receivables or revenues. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Werner Enterprises, Inc. and its majority-owned subsidiaries. All significant intercompany accounts and transactions relating to these entities have been eliminated. Use of Management Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments, purchased with a maturity of three months or less, to be cash equivalents. Property, Equipment and Depreciation Additions and improvements to property and equipment are capitalized at cost, while maintenance and repair expenditures are charged to operations as incurred. At the time of trade-in, the cost of new equipment is recorded at an amount equal to the lower of the monetary consideration paid plus the net book value of the traded property or the fair value of the new equipment. Depreciation is calculated based on the cost of the asset, reduced by its estimated salvage value, using the straight line method. Accelerated depreciation methods are used for income tax purposes. The lives and salvage values assigned to certain assets for financial reporting purposes are different than for income tax purposes. For financial reporting purposes, assets are depreciated over the estimated useful lives of 30 years for buildings and improvements, 5 to 7 years for revenue equipment and 3 to 8 years for service equipment and other. Tires Tires placed on new revenue equipment are capitalized as a part of the equipment cost. Replacement tires are expensed when placed in service. Insurance and Claims Accruals Insurance and claims accruals, both current and noncurrent, reflect the estimated cost for cargo loss and damage, bodily injury and property damage (BI/PD), group health, and workers' compensation claims, including estimated loss development and loss adjustment expenses, not covered by insurance. The costs for cargo and BI/PD are included in insurance and claims, while the costs of group health and workers' compensation claims are included in salaries, wages and benefits in the Consolidated Statements of Income. The Company is responsible for liability up to $500,000, plus administrative expenses, for each occurrence involving personal injury or property damage. The Company is also responsible for a $1,500,000 annual aggregate amount of liability for claims between $500,000 and $1,000,000, and a $1,000,000 annual aggregate amount for claims between $1,000,000 and $2,000,000. Liability in excess of these amounts is assumed by the insurance carriers in amounts which management considers adequate. The Company has assumed responsibility for workers' compensation, maintains a $6,000,000 bond, has statutory coverage and has obtained insurance for individual claims above $500,000. Under these insurance arrangements, the Company maintains $8,100,000 in letters of credit, as of December 31, 1998. Revenue Recognition The Consolidated Statements of Income reflect recognition of operating revenues and related direct costs when the shipment is delivered. Income Taxes The Company uses the asset and liability method of Statement of Financial Accounting Standards (SFAS) No. 109 in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. 20 WERNER ENTERPRISES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Common Stock and Earnings Per Share On May 13, 1998, the Company issued shares for a five- for-four common stock split effected in the form of a 25% stock dividend from authorized and unissued shares to stockholders of record on April 27, 1998. All references in the Consolidated Financial Statements and Notes to Consolidated Financial Statements with regard to the number of shares of common stock and the per share amounts have been adjusted to reflect the effect of the stock split. The stated par value of common stock of $.01 per share did not change. The Company computes and presents earnings per share (EPS) in accordance with SFAS No. 128 "Earnings per Share". The difference between the Company's weighted average shares outstanding and diluted shares outstanding is due to the dilutive effect of stock options for all periods presented. There are no differences in the numerator of the Company's computations of basic and diluted EPS for any period presented. (2) LONG-TERM DEBT Long-term debt consists of the following at December 31 (in thousands):
1998 1997 ------------------------ Notes payable to banks under committed credit facilities $ 50,000 $ 40,000 6.55% Series A Senior Notes, due November 2002 20,000 20,000 6.02% Series B Senior Notes, due November 2002 10,000 - 5.52% Series C Senior Notes, due December 2003 20,000 - ------------------------ $100,000 $ 60,000 ========================
The notes payable to banks under committed credit facilities bear variable interest (5.6% at December 31, 1998) based on the London Interbank Offered Rate (LIBOR) and mature in May 2000. In addition, the Company has $30 million of short-term credit facilities with banks which bear variable interest based on LIBOR. No borrowings were outstanding under the short-term credit facilities at December 31, 1998. Each of the debt agreements require, among other things, that the Company maintain a minimum consolidated tangible net worth and not exceed a maximum ratio of indebtedness to total capitalization. The Company was in compliance with these covenants at December 31, 1998. The carrying amount of the Company's long-term debt approximates fair value due to the duration of the notes and their interest rates. (3) INCOME TAXES
Income tax expense consists of the following (in thousands): - ----------------------------------------------------------------- 1998 1997 1996 ---------------------------------------- Current Federal $17,186 $15,217 $17,109 State 3,200 3,000 1,500 ---------------------------------------- 20,386 18,217 18,609 ---------------------------------------- Deferred Federal 12,378 8,017 4,465 State 2,322 1,483 2,035 ---------------------------------------- 14,700 9,500 6,500 ---------------------------------------- Total income tax expense $35,086 $27,717 $25,109 ========================================
The effective income tax rate differs from the federal corporate tax rate of 35% in 1998, 1997, and 1996 as follows (in thousands):
1998 1997 1996 ---------------------------------------- Tax at statutory rate $32,316 $26,633 $22,982 State income taxes, net of federal tax benefits 3,589 2,914 2,298 Favorable settlement of income tax issues - (2,000) - Income tax credits (536) (564) (465) Other, net (283) 734 294 ---------------------------------------- $35,086 $27,717 $25,109 ========================================
At December 31, deferred tax assets and liabilities consisted of the following (in thousands):
1998 1997 -------------------------- Deferred tax assets: Insurance and claims accruals $ 20,962 $ 19,904 Allowance for uncoll. accounts 693 860 Other 2,717 2,255 -------------------------- $ 24,372 $ 23,019 ========================== Deferred tax liabilities: Property and equipment $118,337 $103,291 Prepaid expenses 5,408 4,341 Other 527 587 -------------------------- $124,272 $108,219 ========================== 21 WERNER ENTERPRISES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (4) STOCK OPTION AND EMPLOYEE BENEFIT PLANS Stock Option Plan The Company's Stock Option Plan (the Stock Option Plan) is a nonqualified plan that provides for the grant of options to management employees. Options are granted at prices equal to the market value of the common stock on the date the option is granted. Options granted become exercisable in installments from six to sixty-six months after the date of grant. The options are exercisable over a period not to exceed ten years and one day from the date of grant. The maximum number of shares of common stock that may be optioned under the Stock Option Plan is 3,750,000 shares. At December 31, 1998, 796,833 shares were available for granting further options. At December 31, 1998, 1997, and 1996, options for 522,295, 409,005, and 602,014 shares with weighted average exercise prices of $11.43, $11.35, and $7.83 were exercisable, respectively. The following table summarizes Stock Option Plan activity for the three years ended December 31, 1998:
Options Outstanding ---------------------------- Weighted-Average Shares Exercise Price ---------------------------- Balance, December 31, 1995 1,856,857 $ 9.30 Options exercised (271,108) 5.58 Options canceled (72,891) 11.77 ------------- Balance, December 31, 1996 1,512,858 9.85 Options granted 563,125 16.10 Options exercised (455,695) 6.69 Options canceled (39,169) 11.04 ------------- Balance, December 31, 1997 1,581,119 12.95 Options granted 86,250 16.66 Options exercised (119,391) 11.18 Options canceled (22,998) 13.01 ------------- Balance, December 31, 1998 1,524,980 13.30 =============
The following tables summarize information about stock options outstanding and exercisable at December 31, 1998:
Options Outstanding ------------------------------------------------ Weighted-Average Weighted-Average Range of Number Remaining Exercise Exercise Prices Outstanding Contractual Life Price - ----------------------------------------------------------------- $4.73 16,313 1.5 years $ 4.73 $10.46 to $13.25 882,292 5.8 years 11.37 $16.10 to $17.38 626,375 9.0 years 16.24 ---------- 1,524,980 7.0 years 13.30 ==========
Options Exercisable --------------------------------------- Weighted-Average Range of Number Exercise Exercise Prices Exercisable Price - -------------------------------------------------------- $4.73 16,313 $ 4.73 $10.46 to $13.25 505,982 11.64 --------- 522,295 11.43 =========
The Company applies the intrinsic value based method of Accounting Principles Board (APB) Opinion No. 25 and related interpretations in accounting for its Stock Option Plan. SFAS No. 123 "Accounting for Stock-Based Compensation" requires pro forma disclosure of net income and earnings per share had the estimated fair value of option grants on their grant date been charged to salaries, wages and benefits. If the fair value based method of SFAS 123 had been applied for 1998, 1997, and 1996, compensation expense related to stock options and the effect on net income and earnings per share would not have been significant. The fair value of the options granted during 1998 and 1997 was estimated using the Black-Scholes option-pricing model with the following assumptions: risk-free interest rate of 5.5 percent in 1998 and 6 percent in 1997; dividend yield of 0.5 percent; expected life of 5.5 years; and volatility of 30 percent. The weighted-average fair value of options granted during 1998 and 1997 was $6.16 and $6.11 per share, respectively. Employee Stock Purchase Plan Employees meeting certain eligibility requirements may participate in the Company's Employee Stock Purchase Plan (the Purchase Plan). Eligible participants designate the amount of regular payroll deductions and/or single annual payment, subject to a yearly maximum amount, that is used to purchase shares of the Company's common stock on the Over- The-Counter Market subject to the terms of the Purchase Plan. The Company contributes an amount equal to 15% of each participant's contributions under the Purchase Plan. Company contributions for the Purchase Plan were $100,045, $85,062, and $67,704 for 1998, 1997, and 1996, respectively. Interest accrues on Purchase Plan contributions at a rate of 5.25%. The broker's commissions and administrative charges related to purchases of common stock under the Purchase Plan are paid by the Company. 22 WERNER ENTERPRISES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 401(k) Retirement Savings Plan The Company has an Employees' 401(k) Retirement Savings Plan (the 401(k) Plan). Employees are eligible to participate in the 401(k) Plan if they have been continuously employed with the Company or its subsidiaries for six months or more. The Company matches a portion of the amount each employee contributes to the 401(k) Plan. It is the Company's intention, but not its obligation, that the Company's total annual contribution for employees will equal 2 1/2 percent of net income (exclusive of extraordinary items). Salaries, wages and benefits expense in the accompanying Consolidated Statements of Income includes Company 401(k) Plan contributions and administrative expenses of $1,191,372, $1,014,633, and $1,030,248 for 1998, 1997, and 1996, respectively. (5) COMMITMENTS AND CONTINGENCIES The Company has committed to approximately $106,000,000 of net capital expenditures, which is a portion of its estimated 1999 capital expenditures. The Company is involved in certain claims and pending litigation arising in the normal course of business. Management believes the ultimate resolution of these matters will not have a material effect on the financial condition of the Company. (6) SEGMENT INFORMATION In June 1997, the Financial Accounting Standards Board issued SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information", which requires public companies to disclose certain information about reportable operating segments. The Company operates in one reportable segment - Truckload transportation services. The reportable Truckload segment consists of five operating fleets which have been aggregated since they have similar economic characteristics and meet the other aggregation criteria of SFAS No. 131. The Medium- to Long-Haul Van fleet transports a variety of consumer, non-durable products and other commodities in truckload quantities over irregular routes using dry van trailers. The Regional Short-Haul fleet provides comparable truckload van service within five geographic regions. The Flatbed and Temperature-Controlled fleets provide truckload services for products with specialized trailers. The Dedicated Services fleet provides truckload services required by a specific company, plant or distribution center. The Company's Logistics division, which provides customers with transportation management, mode selection, routing, and brokerage, is not reportable under the quantitative thresholds of SFAS No. 131. Operating revenues from external customers for the Company's major service categories were as follows:
1998 1997 1996 ----------------------------------- Truckload $821,596 $728,140 $623,610 Logistics and other 41,821 43,955 19,664 ----------------------------------- Total operating revenues $863,417 $772,095 $643,274 ===================================
Substantially all of the Company's revenues are generated within the United States or from North American shipments with origins or destinations in the United States. No one customer accounts for more than 10% of the Company's revenues. (7) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share amounts) First Quarter Second Quarter Third Quarter Fourth Quarter - ------------------------------------------------------------------------------------------------------------ 1998: - ---------------------------------------- Operating revenues $199,707 $211,678 $219,715 $232,317 Operating income 18,143 25,042 26,499 25,927 Net income 10,873 15,012 15,915 15,446 Diluted earnings per share .23 .31 .33 .33 1997: - ---------------------------------------- Operating revenues $172,049 $193,635 $200,237 $206,174 Operating income 11,453 20,049 23,027 23,118 Net income 7,449 12,532 14,199 14,198 Diluted earnings per share .16 .26 .30 .29 - ------------------------------------------------------------------------------------------------------------
23 WERNER ENTERPRISES CORPORATE INFORMATION Price Range of Common Stock The Company's common stock trades on the Nasdaq National Market tier of The Nasdaq Stock Market under the symbol WERN. The following table sets forth for the quarters indicated the high and low sale prices per share of the Company's common stock in the Nasdaq National Market from January 1, 1997, through December 31, 1998.
- ----------------------------------------------------------- High Low ------------------------- 1998 Quarter ended: March 31 21.40 15.60 June 30 22.40 17.00 September 30 19.75 14.31 December 31 19.25 11.25 1997 Quarter ended: March 31 15.40 12.70 June 30 16.60 14.60 September 30 19.80 14.00 December 31 21.30 15.20 - -----------------------------------------------------------
As of February 18, 1999, the Company's common stock was held by 288 stockholders of record and approximately 7,200 stockholders through nominee or street name accounts with brokers. Dividend Policy The Company has been paying cash dividends on its common stock following each of its quarters since the fiscal quarter ended May 31, 1987. The Company intends to continue payment of dividends on a quarterly basis and does not currently anticipate any restrictions on its future ability to pay such dividends. However, no assurance can be given that dividends will be paid in the future since they are dependent on earnings, the financial condition of the Company and other factors. Corporate Offices Werner Enterprises, Inc. 14507 Frontier Road P.O. Box 45308 Omaha, Nebraska 68145-0308 Telephone: (402) 895-6640 http://www.werner.com e-mail: werner@werner.com Annual Meeting The Annual Meeting will be held on Tuesday, May 11, 1999 at 10:00 a.m. in the Peter Kiewit Conference Center, 1313 Farnam Street, Omaha, Nebraska. Stock Listing The Company's common stock trades on the Nasdaq National Market tier of The Nasdaq Stock Market under the symbol WERN. Independent Public Accountants Arthur Andersen LLP 1700 Farnam Street Omaha, Nebraska 68102 Stock Transfer Agent and Registrar ChaseMellon Shareholder Services, L.L.C. Overpeck Centre 85 Challenger Road Ridgefield Park, NJ 07660 Telephone: (800) 288-9541 http://www.chasemellon.com Form 10-K A copy of the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission may be obtained by calling or writing the Investor Relations Department, P.O. Box 45308, Omaha, Nebraska 68145-0308, (402) 895-6640. 24 EX-21 5 EXHIBIT 21 SUBSIDIARIES OF WERNER ENTERPRISES, INC. ---------------------------------------- STATE OF SUBSIDIARY INCORPORATION --------------------------------- ------------- 1. Werner Leasing, Inc. Nebraska 2. Werner Aire, Inc. Nebraska 3. Gra-Gar, Inc. Nebraska 4. Drivers Management, Inc. Nebraska 5. Frontier Clinic, Inc. Nebraska 6. Fleet Truck Sales, Inc. Nebraska 7. Professional Truck Drivers School, Inc. Nebraska 8. Werner Transportation, Inc. Nebraska EX-23 6 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- As independent public accountants, we hereby consent to the incorporation of our reports included and incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statement File Nos. 33- 15894 and 33-15895. ARTHUR ANDERSEN LLP Omaha, Nebraska, March 22, 1999 EX-27 7
5 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 15,913 0 94,329 0 0 145,265 829,461 205,530 769,196 91,907 0 0 0 483 440,105 769,196 863,417 863,417 0 767,806 (1,610) 0 4,889 92,332 35,086 57,246 0 0 0 57,246 1.20 1.19
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