-----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, WiL6V0AafiQpeMpXviyIaQxhWRx4KUX7u0SU9W4XHYOfCd9dTg4pdfFvd1Lpga1a KbFjvnL2UU6OsPz4Cz6GYA== 0000793074-96-000002.txt : 19960329 0000793074-96-000002.hdr.sgml : 19960329 ACCESSION NUMBER: 0000793074-96-000002 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NASD 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: 1934 Act SEC FILE NUMBER: 000-14690 FILM NUMBER: 96540376 BUSINESS ADDRESS: STREET 1: P O BOX 37308 STREET 2: P O BOX 37308 CITY: OMAHA STATE: NE ZIP: 68137 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, 1995 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.) INTERSTATE 80 & HIGHWAY 50 POST OFFICE BOX 37308 OMAHA, NEBRASKA 68137 (402) 895-6640 (Address of principal (Zip code) (Registrant's telephone number) executive offices) 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 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 ] 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 ___ The aggregate market value of the registrant's $.01 par value common stock held by nonaffiliates of the registrant as of March 15, 1996 was $327,902,238 (based upon $23.75 per share closing price on that date, as reported by NASDAQ). In making this calculation the registrant has assumed, without admitting for any purpose, that all executive officers and directors of the registrant, and no other persons, are affiliates. As of March 15, 1996, 25,191,916 shares of the registrant's common stock were outstanding. Exhibit index is located on page 13. Portions of the 1995 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 14, 1996 are incorporated in Part III of this report. PAGE 1 OF 29 PAGES PART I ITEM 1. BUSINESS General Werner Enterprises, Inc. is a transportation company primarily engaged in hauling truckload shipments of general commodities in both interstate and intrastate commerce, with its headquarters in Omaha, Nebraska. References to Werner or the Company are to Werner Enterprises, Inc. and its wholly-owned subsidiaries. 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 eight provinces of Canada and has through trailer service in and out of Mexico. The principal types of freight transported include retail store merchandise, foodstuffs, beverages and beverage containers, paper products, plastic products, metal products, lumber and building materials. Marketing and Operations Werner's business philosophy is to provide "high service, low cost" transportation services. The Company has achieved this by (1) meeting the special needs of its customers; (2) careful attention to its quality work force; and (3) operating premium, modern equipment. Until 1992, the Company operated in the high-service end of the dry van and flatbed medium-to-long- haul segments of the truckload market which continues to be the Company's major revenue source. In these markets, the Company focuses on shippers who value the broad geographic coverage, customized services and flexibility available from a larger, 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. In order to strengthen these customer relationships and to provide opportunities for profitable growth, the Company began expanding into new markets beginning in 1992. The Company's management analyzed possible new markets based on the following criteria: market size, cost of entry, potential long-term profitability and synergy with the Company's existing business. It was decided to enter into three new markets: regional short- haul, temperature-controlled and dedicated fleet services. Regional short- haul consists of dry-van freight with a shorter length of haul, generally around a major metropolitan area or areas. Temperature-controlled freight requires specialized van trailers for products which are sensitive to temperature conditions. Dedicated fleet services involves assuming total responsibility for the transportation needs of a specific customer and generally replacing their private fleet. In 1993, the Company also began offering logistics services and rail intermodal transportation services. These service offerings build on the Company's existing strengths in its traditional markets and strategically position the Company to provide a broad range of transportation services for its customers. See "Revenue Equipment" for the number of tractors operated in each of the Company's service divisions. 2 The Company continues to improve its operational efficiencies by applying new technologies and refining its management processes. In 1993 the Company completed installation of two-way, satellite-based communications equipment in the entire fleet. This technology streamlines communication between drivers and the Company. Customers also benefit from the flexibility and quick response provided by real-time communications. The Company's satellite communication technology is complemented by a load optimization system which considers factors such as transit time, maintenance, driver needs and equipment needs in making optimal dispatch recommendations. The Company also utilizes Electronic Data Interchange (EDI) which allows customers to network with the Company to send and track orders, receive billing information, etc. In addition, the Company continues to refine its formal quality improvement program to satisfy customers' needs cost effectively. The Company has a diversified customer base and is not dependent on a small group of customers or a specific industry for its freight. During 1995, the Company's largest 5, 10 and 25 customers comprised approximately 19%, 25% and 37% of the Company's revenues, respectively. 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 slightly higher in the winter months due primarily to decreased fuel efficiency and increased maintenance costs of revenue equipment in colder weather. However, 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, 1995, the Company employed 4,542 drivers, 440 mechanics and maintenance personnel, and 840 management, administrative and support personnel. The Company also had contracts with independent contractors (owner-operators) for the services of 676 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. Over the past four years, several driver retention programs have been introduced by the Company - including creation of a pay package that more fairly compensates drivers for work associated with their job (loading and unloading, extra stops, and layovers, for example). These extra pay items are in addition to the drivers' mileage based pay which increases with a driver's length of service and incentive pay such as a fuel efficiency bonus and a mileage bonus. Effective May 1, 1994, the Company increased the mileage pay for Company drivers by two cents per mile. This increase has helped the Company to attract and retain qualified drivers to meet its growth plans. Also, a regular schedule of driver/top management meetings was initiated approximately four years ago to share information and concerns and seek mutually satisfactory solutions. As a result of management's attention to driver retention, the Company has significantly reduced its driver turnover over the past several years, to a level believed to be below the industry average. 3 At times, there are shortages of drivers in the trucking industry, particularly the long-haul segment. The Company's management believes that the number of qualified drivers in the industry has been reduced because of the Federal License Program implemented during 1992, elimination of federal funding for driving schools, as well as individual drivers' desire to be home more often. 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 supply their own tractor and driver, and are responsible for their operating expenses in return for a portion of the revenues generated. Because owner-operators provide their own tractors, less capital is required 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. Revenue Equipment As of December 31, 1995, the Company operated 3,674 Company-owned tractors and had contracts for 676 tractors owned by owner-operators. The tractors as of December 31, 1995 were operated in the Company's service divisions as follows: 2,880 medium-to-long-haul dry vans; 340 medium-to-long-haul flatbeds; 460 regional short-haul vans; 290 temperature-controlled; and 380 dedicated. Approximately 70% of the Company's tractors are manufactured by Freightliner. 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 1.5 years at December 31, 1995. 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 11,060 trailers at December 31, 1995 in the Company's service divisions as follows: 9,695 dry vans; 759 flatbed; 537 temperature controlled; and 69 other specialized trailers. As of December 31, 1995, 96% of the Company's fleet of van trailers consisted of 53-foot trailers of which 8,827 of these 53-foot trailers are the new "plate" trailer design which provides more capacity. 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 1.9 years at December 31, 1995. 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. During a portion of 1993, the Company experienced a temporary increase in the cost of fuel. The Company collected a temporary fuel surcharge from its customers for a majority of this cost increase. The Company can not predict when future fuel price increases will occur or if such fuel surcharges could be used to offset future price increases. 4 The Company maintains above-ground and underground fuel storage tanks at certain 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 formerly regulated by the Interstate Commerce Commission (ICC). The ICC Termination Act of 1995 transferred regulation of motor carriers to the Surface Transportation Board of the United States Department of Transportation (DOT), which assumed some of the former functions of the ICC effective January 1, 1996, generally governing matters such as registration to engage in motor carrier operations, accounting systems, certain mergers, consolidations, acquisitions, and periodic financial reporting. Motor carrier operations are also subject to safety requirements prescribed by the DOT governing interstate operation. 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 federal Motor Carrier Act of 1980 was enacted to increase competition among motor carriers and limit the level of regulation in the industry (commonly referred to as deregulation). The Motor Carrier Act of 1980 enabled applicants to obtain ICC operating authority more easily and allowed interstate motor carriers to change rates without ICC approval. This law also removed many route and commodity restrictions on the transportation of freight. As a result, the Company has obtained 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 39 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 is currently in the process of applying for intrastate authority in several of the remaining states where it does not currently have such authority. Competition The trucking industry is highly competitive and includes thousands of trucking companies. The Company competes primarily with other truckload carriers. Railroads, less-than-truckload carriers and private carriers also provide competition, but to a lesser degree. Deregulation of the trucking industry in 1980 created an influx of truckload carriers which, with other factors, created downward pressure on the industry's price structure. 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 truckload carriers in the trucking industry. 5 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 maintenance area includes a drivers' lounge, a drivers' orientation section and a Company store. The Company and its subsidiaries own a 22,000 square-foot terminal in Springfield, Ohio, a 32,000 square-foot facility in Denver, a 18,000 square- foot facility in Los Angeles, a 31,000 square-foot terminal in Atlanta, and a 27,000 square-foot terminal in Dallas. All five locations include office and maintenance space. The Company also is constructing a 25,000 square-foot full-service terminal in Phoenix which is scheduled to open in the Spring of 1996. Additionally, the Company leases several small sales offices and/or 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 per claim and a $1,000,000 annual aggregate amount of liability between $500,000 and $1,000,000 for personal injury and property damage claims. 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, Note (4) "Insurance and Claims" on page 21 and Note (7) "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 1995, 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. 6 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. 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. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE No reports on Form 8-K have been filed within the twenty-four months prior to December 31, 1995, 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. 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. 7 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements and Schedules. (1) Financial Statements -- The information set forth under the following captions on pages 16 through 23 of the Annual Report is incorporated by reference. Page references are to page numbers in the Annual Report. Page Consolidated Statements of Income 16 Consolidated Balance Sheets 17 Consolidated Statements of Cash Flows 18 Consolidated Statements of Stockholders' Equity 19 Report of Independent Public Accountants 19 Notes to Consolidated Financial Statements 20-23 (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 (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). (4) Reports on Form 8-K -- There were no reports on Form 8-K filed by the Company during the fourth quarter of 1995. 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 2,000,000 shares. Additionally, the maximum number of shares which may be optioned to any one person under the Stock Option Plan is 500,000 shares. Members of the Option Committee are not eligible to participate in the Stock Option Plan while members of the Option Committee. 8 Current members of the Option Committee are: Clarence L. Werner Irving B. Epstein Werner Enterprises, Inc. Epstein & Epstein P.O. Box 37308 Suite 123 Omaha, NE 68137 10050 Regency Cr. Omaha, NE 68114 Curtis G. Werner Martin F. Thompson Werner Enterprises, Inc. 5145 S. 184th Plaza P.O. Box 37308 Omaha, NE 68135 Omaha, NE 68137 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 (6) "Stock Option Plan" on page 22 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, 1995, 480 employees were participating in the Purchase Plan. The administrator of the Purchase Plan is John J. Steele, Vice President - Controller and Secretary of the Company, Post Office Box 37308, Omaha, Nebraska 68137. 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 Smith Barney, Inc., 388 Greenwich Street, New York, New York 10013. The total amount of compensation received by Smith Barney, Inc. from the Purchase Plan for services in all capacities during the year ended December 31, 1995 was $8,593. 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 26th day of March, 1996. WERNER ENTERPRISES, INC. By: /s/ Robert E. Synowicki, Jr. Robert E. Synowicki, Jr. Executive Vice President 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, March 26, 1996 Clarence L. Werner Chief Executive Officer and Director /s/ Gary L. Werner Vice Chairman, President March 26, 1996 Gary L. Werner and Director /s/ Curtis G. Werner Executive Vice President, March 26, 1996 Curtis G. Werner Chief Operating Officer and Director /s/ Gregory L. Werner Executive Vice President March 26, 1996 Gregory L. Werner and Director /s/ Robert E. Synowicki, Jr. Executive Vice President March 26, 1996 Robert E. Synowicki, Jr. and Chief Financial Officer /s/ John J. Steele Vice President - Controller March 26, 1996 John J. Steele and Secretary /s/ Irving B. Epstein Director March 26, 1996 Irving B. Epstein /s/ Martin F. Thompson Director March 26, 1996 Martin F. Thompson /s/ Gerald H. Timmerman Director March 26, 1996 Gerald H. Timmerman /s/ Gail M. Werner-Robertson Director March 26, 1996 Gail M. Werner-Robertson /s/ Donald W. Rogert Director March 26, 1996 Donald W. Rogert 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 24, 1996. 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 a 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 24, 1996 11 SCHEDULE II WERNER ENTERPRISES, INC. VALUATION AND QUALIFYING ACCOUNTS (In thousands) Balance at Charged to Writeoff Balance at Beginning Costs and of Doubtful End of of Period Expenses Accounts Period Year ended December 31, 1995: Allowance for doubtful accounts $2,791 $606 $157 $3,240 Year ended December 31, 1994: Allowance for doubtful accounts $2,552 $455 $216 $2,791 Year ended December 31, 1993: Allowance for doubtful accounts $2,444 $360 $252 $2,552 12 EXHIBIT INDEX Exhibit Page Number or Incorporated Number Description by Reference to 3(i)(A) Revised and Amended Articles Exhibit 3 to Registration of Incorporation Statement on Form S-1, Registration No. 33-5245 3(i)(B) Articles of Amendment to Exhibit 3(i) to the Articles of Incorporation Company's report on Form 10-Q for the quarter ended May 31, 1994 3(ii) Revised and Amended By-Laws Exhibit 3(ii) to the Company's report on Form 10-K for the year ended December 31, 1994 10 Amended and Restated Stock Exhibit 10 to the Company's Option Plan report on Form 10-Q for the quarter ended May 31, 1994 13 Incorporated by reference Page 14 of sequentially sections of Annual Report numbered pages to Stockholders for the year ended December 31, 1995 21 Subsidiaries of the Page 27 of sequentially Registrant numbered pages 23 Consent of Arthur Andersen LLP Page 28 of sequentially numbered pages 27 Financial Data Schedule Page 29 of sequentially numbered pages 13 EX-13 2
Financial Highlights (Dollars in thousands, except per share amounts) 1995 1994 1993 1992 1991 Operating revenues $576,022 $516,006 $418,308 $361,791 $318,478 Income before cumulative effect of change in accounting principle 36,380 36,662 29,964 24,138 18,990 Net income 36,380 36,662 29,964 23,084 18,990 Earnings per share* 1.45 1.45 1.28 1.06 .83 Cash dividends declared per share .12 .10 .09 .08 .07 Return on average stockholders' equity* 12.5% 14.1% 15.9% 15.9% 14.4% Operating ratio 89.4% 88.3% 87.8% 88.7% 89.7% Book value per share* 12.27 10.97 9.68 7.12 6.17 Total assets 507,679 453,637 373,375 288,664 250,613 Long-term obligations 40,000 30,000 - 7,009 11,592 Stockholders' equity 309,052 276,414 245,004 162,872 140,481 *After giving retroactive effect for the September 1992, two-for-one stock split (all years presented) and before the cumulative effect of a change in accounting principle in 1992.
1 14 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. 1995 1994 1993 Operating revenues 100.0% 100.0% 100.0% Operating expenses Salaries, wages and benefits 36.2 35.6 35.8 Fuel 8.2 8.2 9.8 Supplies and maintenance 8.8 8.8 8.9 Taxes and licenses 8.6 8.7 8.8 Insurance and claims 3.5 3.3 3.8 Depreciation 10.6 10.4 10.6 Rent and purchased transportation 13.1 12.1 8.6 Communications and utilities 1.4 1.8 1.9 Other (1.0) (.6) (.4) Total operating expenses 89.4 88.3 87.8 Operating income 10.6 11.7 12.2 Net interest expense and other .2 .1.3 Income before income taxes 10.4 11.6 11.9 Income taxes 4.1 4.5 4.7 Net income 6.3% 7.1% 7.2%
THE FOLLOWING TABLE SETS FORTH CERTAIN INDUSTRY DATA REGARDING THE FREIGHT REVENUES AND OPERATIONS OF THE COMPANY.
1995 1994 1993 1992 1991 Operating ratio 89.4% 88.3% 87.8% 88.7% 89.7% Average revenues per tractor per week (1) $2,606 $2,563 $2,507 $2,533 $2,430 Average annual miles per tractor 121,728 120,312 122,304 124,992 121,728 Average miles per trip 785 835 881 959 1,032 Average revenues per mile (1) $1.113 $1.108 $1.066 $1.054 $1.038 Total tractors operated (at year end) Company owned 3,674 3,473 3,085 2,678 2,488 Owner-operator owned 676 527 442 222 78 Total tractors 4,350 4,000 3,527 2,900 2,566 Total trailers operated (at year end) 11,060 10,300 8,420 6,573 5,549
(1) Net of fuel surcharge revenues. 13 15 WERNER ENTERPRISES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS 1995 Compared to 1994 Operating revenues increased 12% due primarily to a 10% increase in the average number of tractors in service and increased revenue from intermodal and logistics transportation services. Average miles per tractor increased 1%, mostly due to increased empty miles resulting from softer freight demand. Year over year growth in the Company's regional short-haul and dedicated fleet divisions contributed to a 6% decrease in the average miles per trip, and a 17% increase in the total number of shipments, although growth in the regional division was scaled back later in 1995 as freight demand softened. The Company's operating ratio (operating expenses expressed as a percentage of operating revenues) increased from 88.3% to 89.4%, as described below. Salaries, wages and benefits increased as a percentage of operating revenues primarily due to a 2 cent per mile (or about 9%) driver pay increase effective May 1, 1994; the retention of more experienced, higher paid drivers; and increased employee health benefit costs. These increases were partially offset by reductions in the estimated liability for accrued driver payroll of approximately $2.9 million during 1995. Fuel costs were comparable to 1994, as slightly higher average fuel prices were offset by improved fuel efficiency. Supplies and maintenance costs were also comparable as a percentage of operating revenues, as reduced driver advertising and tire expenses were offset by increased third- party loading and unloading costs. Taxes and licenses were slightly lower as a percentage of operating revenues, due primarily to the effect of increased revenues from intermodal and logistics transportation services. Insurance and claims expense increased slightly from 3.3% to 3.5% of revenues due principally to accident claims experience in 1995. Depreciation increased from 10.4% to 10.6% of revenues due primarily to the November 1994 purchase of satellite tracking equipment which had previously been leased, and a higher average trailer to tractor ratio during 1995, partially offset by the effect of a change in the estimated salvage value for certain trailers (See "Property, Equipment and Depreciation" in Note 1 of the Notes to Consolidated Financial Statements). Rent and purchased transportation increased by 1.0% of revenues due mainly to an increase in the use of intermodal and logistics services. The average percentage of owner- operator tractors to total tractors was comparable to the prior year, and therefore did not cause significant fluctuations between years in this expense category (see further discussion of owner-operators in the 1994 comparison to 1993 described below). Communications and utilities decreased from 1.8% to 1.4% of revenues, essentially due to the purchase of previously leased satellite tracking equipment. Other operating expenses decreased to (1.0%) of revenues due to increased gains recognized on the sale of revenue equipment to third parties. Interest expense increased from .2% to .4% of revenues, due to an increase in the average outstanding amount of long- term borrowings. The Company's effective income tax rate (income tax expense as a percentage of income before income taxes) was 39.0% for 1995, compared with 38.9% for 1994, as described in Note 5 of the Notes to Consolidated Financial Statements. 1994 Compared to 1993 Operating revenues grew 23% due to a 19% increase in the average number of tractors in service and revenue per mile increases averaging approximately 4%, net of a 2% decrease in average annual miles per tractor. Continued expansion into regional short-haul and dedicated markets caused a 5% decrease in the average miles per trip, while the total number of shipments increased 25%. The operating ratio increased from 87.8% to 88.3%, as described below. Owner-operator tractors represented a larger percentage of total tractors during 1994 than during 1993, which caused a shift in expenses as a percentage of operating revenues from the salaries, wages and benefits; fuel; supplies and maintenance; taxes and licenses; and depreciation categories (owner-operators are independent contractors and are responsible for these costs 14 16 WERNER ENTERPRISES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION under their contracts with the Company; conversely, the Company incurs such costs when a Company driver is driving a Company-owned tractor) to the rent and purchased transportation category. Salaries, wages and benefits decreased as a percentage of operating revenues due primarily to the increase in owner- operators, partially offset by the 2 cent per mile (or about 9%) driver pay increase effective May 1, 1994, retention of more experienced, higher paid drivers, and other driver pay increases. These driver pay increases have continued to help the Company attract and retain qualified drivers. Fuel costs decreased as a percentage of operating revenues due primarily to the increase in owner-operators who purchase their own fuel, as well as improved fuel efficiency and slightly lower average fuel prices during the year. Supplies and maintenance decreased slightly as a percentage of operating revenues, as the effect of the increase in owner-operators was substantially offset by increased driver advertising, tolls, and third-party loading and unloading costs. Taxes and licenses decreased slightly as a percentage of operating revenues due primarily to the increase in owner- operators, partially offset by the effect of the Federal diesel fuel tax increase of 4.3 cents per gallon effective October 1, 1993. Insurance and claims expense decreased from 3.8% to 3.3% of operating revenues due principally to improvement in claims handling and experience. Depreciation decreased as a percentage of operating revenues due primarily to the increase in owner-operators, partially offset by an increase in the trailer to tractor ratio. Trailer additions were made primarily to improve service for customers and maintain tractor productivity. Other operating expenses decreased to (.6%) of operating revenues due to an increase in gains recognized on the sale of revenue equipment, primarily tractors. The Company's effective income tax rate decreased from 39.7% in 1993 to 38.9% in 1994, as described in Note 5 of the Notes to Consolidated Financial Statements. Liquidity and Capital Resources Historically, the Company has relied primarily on cash generated from operations to fund working capital requirements. The growth of the Company's business has required significant investment in new revenue equipment. Net capital expenditures in 1995, 1994 and 1993 were $95.5 million, $117.4 million, and $109.1 million, respectively. The 1995 and 1994 capital expenditures were financed primarily with cash generated from operations and, to a lesser extent, borrowings. The 1993 capital expenditures were financed with cash generated from operations and a portion of the net proceeds from the Company's October 1993 public stock offering. The Company has committed to approximately $46 million of capital expenditures (after trade-in allowances) which is a portion of its estimated 1996 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 financial position is strong. The current ratio is 1.86. The Company has $40 million of long-term debt and $309 million in 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. 15 17 WERNER ENTERPRISES CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts) 1995 1994 1993 Operating revenues (Note 1) $576,022 $516,006 $418,308 Operating expenses: Salaries, wages and benefits 208,669 183,851 149,901 Fuel 47,431 42,017 40,936 Supplies and maintenance 50,646 45,593 37,223 Taxes and licenses 49,636 44,729 36,972 Insurance and claims 19,776 17,208 15,876 Depreciation (Note 1) 61,195 53,722 44,153 Rent and purchased transportation 75,229 62,522 35,984 Communications and utilities 8,086 9,338 7,926 Other (5,662) (3,211) (1,586) Total operating expenses 515,006 455,769 367,385 Operating income 61,016 60,237 50,923 Other expense (income): Interest expense 2,317 743 1,540 Interest income (1,072) (649) (469) Other 132 161 137 Total other expense 1,377 255 1,208 Income before income taxes 59,639 59,982 49,715 Income taxes (Notes 1 and 5) 23,259 23,320 19,751 Net income $ 36,380 $ 36,662 $ 29,964 Average common shares outstanding (Note 1) 25,172 25,303 23,427 Earnings per share (Note 1) $1.45 $1.45 $1.28
The accompanying notes are an integral part of these consolidated financial statements. 16 18 WERNER ENTERPRISES CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts) December 31 1995 1994 ASSETS Current assets: Cash and cash equivalents (Note 1) $ 16,227 $ 11,660 Accounts receivable, less allowance of $3,240 and $2,791, respectively 57,871 52,522 Prepaid taxes, licenses, and permits 7,752 7,826 Current deferred income taxes (Notes 1 and 5) 6,500 5,000 Other 12,645 11,168 Total current assets 100,995 88,176 Property and equipment, at cost (Note 1) Land 16,499 12,276 Buildings and improvements 26,471 23,885 Revenue equipment 435,159 401,481 Service equipment and other 48,079 41,647 Total property and equipment 526,208 479,289 Less - accumulated depreciation 119,524 113,828 Property and equipment, net 406,684 365,461 $507,679 $453,637 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 15,719 $ 18,564 Insurance and claims accruals (Notes 1 and 4) 19,073 15,642 Accrued payroll 7,718 9,888 Income taxes payable 3,226 5,659 Driver escrow 3,368 2,958 Other 5,087 4,576 Total current liabilities 54,191 57,287 Long-term debt, net of current maturities (Note 3) 40,000 30,000 Deferred income taxes (Notes 1 and 5) 75,700 65,500 Insurance and claims accruals (Notes 1 and 4) 26,000 21,300 Other long-term liabilities 2,736 3,136 Commitments and contingencies (Note 7) Stockholders' equity (Notes 1 and 6): Common stock, $.01 par value, 60,000,000 shares authorized; 25,771,200 shares issued; 25,180,816 and 25,206,816 shares outstanding, respectively 258 258 Paid-in capital 100,294 100,171 Retained earnings 214,959 181,599 Less - treasury stock, at cost (6,459) (5,614) Total stockholders' equity 309,052 276,414 $507,679 $453,637
The accompanying notes are an integral part of these consolidated financial statements. 17 19 WERNER ENTERPRISES CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) 1995 1994 1993 Cash flows from operating activities: Net income $ 36,380 $ 36,662 $ 29,964 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 61,195 53,722 44,153 Deferred income taxes 8,700 11,800 8,978 Gain on disposal of operating equipment (6,921) (4,042) (2,667) Tax benefit from exercise of stock options 123 107 1,080 Long-term liabilities 4,300 1,046 1,004 Changes in certain working capital items: Accounts receivable, net (5,349) (7,219) (8,089) Prepaid expenses and other current assets (1,403) (3,659) 336 Accounts payable (2,845) (5,816) (2,058) Accrued payroll (2,170) 2,098 2,349 Other current liabilities 1,794 (2,974) (2,573) Net cash provided by operating activities 93,804 99,305 72,477 Cash flows from investing activities: Additions to property and equipment (131,585) (145,369) (125,998) Retirements of property and equipment 36,088 27,950 16,867 Net cash used in investing activities (95,497) (117,419) (109,131) Cash flows from financing activities: Short-term borrowings - - 20,000 Repayments of short-term borrowings - - (20,000) Proceeds from issuance of debt (10,000) 30,000 - Repayments of long-term debt and capitalized lease obligations - (4,552) (7,036) Proceeds from issuance of common stock, net of related expenses - - 52,182 Dividends on common stock (2,895) (2,659) (1,832) Repurchases of common stock (1,013) (2,939) - Stock options exercised 168 109 1,040 Net cash provided by financing activities 6,260 19,959 44,354 Net increase in cash and cash equivalents 4,567 1,845 7,700 Cash and cash equivalents, beginning of year 11,660 9,815 2,115 Cash and cash equivalents, end of year $ 16,227 $ 11,660 $ 9,815 Supplemental disclosures of cash flow information: Cash paid during year for: Interest $ 3,294 $ 640 $ 1,634 Income taxes 15,822 10,508 8,591
The accompanying notes are an integral part of these consolidated financial statements. 18 20 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, 1992 $ 235 $ 46,830 $119,636 $ (3,829) $162,872 Dividends on common stock ($.09 per share) - - (2,134) - (2,134) Exercise of stock options, 147,300 shares - 1,055 - 1,065 2,120 Proceeds from offering of 2,300,000 shares of common stock, net of related expenses 23 52,159 - - 52,182 Net income - - 29,964 - 29,964 BALANCE, December 31, 1993 258 100,044 147,466 (2,764) 245,004 Purchases of 128,600 shares of common stock - - - (2,939) (2,939) Dividends on common stock ($.10 per share) - - (2,529) - (2,529) Exercise of stock options, 12,700 shares - 127 - 89 216 Net income - - 36,662 - 36,662 BALANCE, December 31, 1994 258 100,171 181,599 (5,614) 276,414 Purchases of 50,000 shares of common stock - - - (1,013) (1,013) Dividends on common stock ($.12 per share) - - (3,020) - (3,020) Exercise of stock options, 24,000 shares - 123 - 168 291 Net income - - 36,380 - 36,380 BALANCE, December 31, 1995 $ 258 $100,294 $214,959 $ (6,459) $309,052
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, 1995 and 1994, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. 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, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Omaha, Nebraska, January 24, 1996. 19 21 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 wholly- 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. The Company periodically reviews its estimates related to the useful lives and salvage values of its revenue equipment. Effective April 1, 1995, the Company changed, on a prospective basis, the estimated salvage value for certain trailers. This change was to better reflect the value of used equipment and lower trailer utilization due to a higher trailer to tractor ratio and a decrease in the average miles per trip. The change resulted in a decrease in depreciation expense of approximately $2,600,000 and an increase in net income of approximately $1,600,000 ($.06 per share) for the year ended December 31, 1995. Tires Tires placed on new revenue equipment are capitalized as a part of the equipment cost. Replace-ment 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. 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 20 22 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 On September 29, 1993, a special meeting of stockholders was held to vote on the Board of Directors' resolution to amend the Company's Articles of Incorporation and increase the number of authorized shares of common stock from 25,000,000 shares to 60,000,000 shares. The resolution was approved by the necessary affirmative vote of over two-thirds of the outstanding common stock. During October 1993, a public offering of the Company's common stock was successfully completed. The Company sold a total of 2,300,000 shares and 1,150,000 shares were sold by Clarence L. Werner, Chairman and Chief Executive Officer, and members of his family. The Company used the net proceeds from the offering of $52,182,000 to repay short-term borrowings, retire long-term debt and purchase revenue equipment. Earnings per share have been computed based on the weighted average number of common shares outstanding. (2) LEASE OBLIGATIONS In September 1992, the Company entered into a three-year operating lease for communications equipment. In November 1994, the Company purchased this equipment and terminated the lease agreement. Communications and utilities expense in the accompanying Consolidated Statements of Income includes $4,247,000 and $3,923,000 for lease of communications equipment during 1994 and 1993, respectively. (3) LONG-TERM DEBT The Company had borrowings of $30,000,000 at December 31, 1994. These borrowings bore variable interest based on the London Interbank Offered Rate (LIBOR). In January 1995, the borrowings were refinanced with a $30,000,000 long-term credit facility. The new credit facility bears variable interest (6.15% at December 31, 1995) based on LIBOR or the overnight federal funds rate, at the Company's option, and matures in January 1999. The new facility requires, among other things, that the Company not exceed a maximum ratio of indebtedness to total capitalization of .6 to 1. In June 1995, the Company borrowed $10,000,000 under a separate long-term credit facility. This borrowing bears variable interest based on LIBOR (6.31% at December 31, 1995) and matures in July 1997. The carrying amount of the Company's long-term debt approximates fair value due to its variable interest rates. (4) INSURANCE AND CLAIMS The Company annually reviews its public liability and property damage insurance coverage in August. Effective August 1992, the Company assumed responsibility for liability up to $500,000, plus administrative expenses, for each occurrence involving personal injury or property damage. Effective August 1993, the Company also assumed responsibility for a $1,000,000 annual aggregate amount of liability for claims between $500,000 and $1,000,000. Liability in excess of these amounts is assumed by the insurance carriers in amounts which management considers adequate. The Company's public liability and property damage premiums for coverage between $50,000 and $1,000,000 per claim prior to August 1992 are subject to retrospective adjustments based on actual incurred losses until all claims are settled. Management does not expect any significant adjustment will be made to the premiums paid or accrued for these policy years. 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 $10,450,000 in letters of credit, as of December 31, 1995. 21 23 WERNER ENTERPRISES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (5) INCOME TAXES Income tax expense consists of the following (in thousands): 1995 1994 1993 Current Federal $12,472 $ 9,364 $ 8,389 State 2,087 2,156 2,384 14,559 11,520 10,773 Deferred Federal 6,887 9,804 7,920 State 1,813 1,996 1,058 8,700 11,800 8,978 Total income tax expense $23,259 $23,320 $19,751 The effective income tax rate differs from the federal corporate tax rate of 35% in 1995, 1994 and 1993 as follows (in thousands): 1995 1994 1993 Tax at statutory rate $20,874 $20,994 $17,400 State income taxes, net of federal tax benefits 2,535 2,699 2,237 Effect of tax rate change on deferred tax assets and liabilities - - 990 Adoption of SFAS No. 109 - - (200) Other, net (150) (373) (676) $23,259 $23,320 $19,751 At December 31, deferred tax assets and liabilities consisted of the following (in thousands): 1995 1994 Deferred tax assets: Insurance and claims accruals $17,981 $14,757 Allowance for uncollectible accounts 1,300 1,116 Other 3,230 3,236 $22,511 $19,109 Deferred tax liabilities: Property and equipment $87,314 $75,404 Prepaid taxes, licenses and insurance 3,944 3,767 Other 453 438 $91,711 $79,609 (6) 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. 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 2,000,000 shares. At December 31, 1995, 699,275 shares were available for granting further options and options for 990,325 shares were outstanding at prices of $6.625 to $24.00 per share, of which options for 391,025 shares with a weighted average exercise price of $11.59 were exercisable. Options granted become exercisable in installments from six to sixty-six months after the date of grant. Options Outstanding Weighted-Average Shares Exercise Price Balance, December 31, 1992 473,400 $ 7.44 Options Granted 439,750 22.78 Options Exercised (147,300) 7.06 Options Canceled (5,750) 22.50 Balance, December 31, 1993 760,100 16.27 Options Exercised (12,700) 8.61 Options Canceled (14,000) 21.90 Balance, December 31, 1994 733,400 16.30 Options Granted 291,425 19.62 Options Exercised (24,000) 7.00 Options Canceled (10,500) 22.50 Balance, December 31, 1995 990,325 17.44 In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation." This new standard requires all companies to change their disclosures related to employee stock-based compensation plans, encourages but does not require a change in the method of accounting for these plans, and requires companies who do not change their accounting method to make pro forma footnote disclosures of what earnings and earnings per share would have been had the companies adopted the accounting method. Companies that do not adopt the accounting method will continue to account 22 24 WERNER ENTERPRISES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for these plans under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." The Company has elected not to adopt SFAS No. 123's accounting method, but will instead comply with the statement's disclosure requirements, which are effective for financial statements for fiscal years beginning after December 15, 1995. 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 $79,977, $58,072 and $42,634 for 1995, 1994 and 1993, 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. 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 $952,129, $950,740 and $778,344 for 1995, 1994 and 1993, respectively. (7) COMMITMENTS AND CONTINGENCIES The Company has committed to approximately $46,000,000 of capital expenditures (net cost, after revenue equipment trade-in allowances of approximately $28,000,000) which is a portion of its estimated 1996 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. (8) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share amounts) First Quarter Second Quarter Third Quarter Fourth Quarter 1995: Operating revenues $132,434 $143,325 $150,303 $149,960 Operating income 12,598 14,380 17,009 17,029 Net income 7,512 8,578 10,125 10,165 Earnings per share .30 .34 .40 .40 1994: Operating revenues $115,993 $129,623 $134,614 $135,776 Operating income 11,666 15,436 17,076 16,059 Net income 7,178 9,384 10,387 9,713 Earnings per share .28 .37 .41 .38
23 25 WERNER ENTERPRISES CORPORATE INFORMATION Price Range of Common Stock The Company's common stock is traded in the NASDAQ National Market System 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 System from January 1, 1994, through December 31, 1995. High Low 1995 Quarter ended: March 31 25 3/4 18 47/64 June 30 21 1/4 17 1/2 September 30 23 19 December 31 22 18 1/2 1994 Quarter ended: March 31 33 3/4 27 June 30 30 3/4 24 1/2 September 30 28 1/4 22 3/4 December 31 26 1/4 21 1/4 As of February 29, 1996, the Company's common stock was held by 305 stockholders of record and approximately 4,400 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 anticipate any restrictions on its future ability to pay such dividends. Corporate Offices Werner Enterprises, Inc. Interstate 80 & Highway 50 P.O. Box 37308 Omaha, Nebraska 68137 Telephone: (402) 895-6640 http://www.werner.com e mail: werner@werner.com Annual Meeting The Annual Meeting will be held on Tuesday, May 14, 1996 at 10:00 a.m. in the Peter Kiewit Conference Center, 1313 Farnam Street, Omaha, Nebraska. Stock Listing The Company's common stock is traded in the NASDAQ National Market System under the symbol WERN. Independent Public Accountants Arthur Andersen LLP 1700 Farnam Street Omaha, Nebraska 68102 Stock Transfer Agent and Registrar Chemical Mellon Shareholder Services, L.L.C. Overpeck Centre 85 Challenger Road Ridgefield Park, NJ 07660 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 37308, Omaha, Nebraska 68137, (402) 895-6640. 24 26 EX-21 3 EXHIBIT 21 SUBSIDIARIES OF WERNER ENTERPRISES, INC. SUBSIDIARY STATE OF 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 9. Worley Enterprises, Inc. Nebraska . 27 EX-23 4 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 27, 1996 28 EX-27 5
5 1000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 16,227 0 57,871 0 0 100,995 526,208 119,524 507,679 54,191 0 0 0 258 308,794 507,679 576,022 576,022 0 515,006 (940) 0 2,317 59,639 23,259 36,380 0 0 0 36,380 1.45 1.45
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