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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, 2000
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 (Registrant's
principal executive offices) (Zip code) 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.
[ ]
The aggregate market value of the registrant's $.01 par value common
stock held by nonaffiliates of the registrant as of February 28,
2001 was approximately $471 million (based upon $16.688 per share
closing price on that date, as reported by Nasdaq). (Aggregate
market value estimated solely for the purposes of this report. This
shall not be construed as an admission for purposes of determining
affiliate status.)
As of February 28, 2001, 47,089,534 shares of the registrant's
common stock were outstanding.
Portions of the Proxy Statement of Registrant for the Annual Meeting
of Stockholders to be held May 1, 2001 are incorporated in Part III
of this report.
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business 1
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 6
Item 6. Selected Financial Data 6
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition 7
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk 11
Item 8. Financial Statements and Supplementary Data 12
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 26
PART III
Item 10. Directors and Executive Officers of the Registrant 26
Item 11. Executive Compensation 26
Item 12. Security Ownership of Certain Beneficial Owners
and Management 26
Item 13. Certain Relationships and Related Transactions 26
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 27
PART I
ITEM 1. BUSINESS
General
Werner Enterprises, Inc. ("Werner" or the "Company") is a
transportation company engaged primarily in hauling truckload
shipments of general commodities in both interstate and intrastate
commerce. Werner is among the five largest truckload carriers in the
United States and maintains its headquarters in Omaha, Nebraska, near
the geographic center of its service area. Werner was founded in 1956
by Chairman and Chief Executive Officer, Clarence L. Werner, who
started the business with one truck at the age of 19. Werner
completed its initial public offering in April 1986 with a fleet of
630 trucks. Werner ended 2000 with a fleet of 7,475 trucks.
The Company operates throughout the 48 contiguous states pursuant
to operating authority, both common and contract, granted by the
United States Department of Transportation and pursuant to intrastate
authority granted by various states. The Company also has authority
to operate in the ten provinces of Canada and provides through trailer
service in and out of Mexico. The principal types of freight
transported by the Company include consumer products, retail store
merchandise, food products, paper products, beverages, industrial
products and building materials.
Marketing and Operations
Werner's business philosophy is to provide superior on-time
service to its customers at a low cost. To accomplish this, Werner
operates premium, modern tractors and trailers. This equipment has a
lower frequency of breakdowns and helps attract and retain qualified
drivers. Werner has continually invested in technology to improve
service to customers and improve retention of drivers. Werner focuses
on shippers that value the broad geographic coverage, equipment
capacity, technology, customized services, and flexibility available
from a large, financially stable carrier. These shippers are
generally less sensitive to rate levels, preferring to have their
freight handled by a few core carriers with whom they can establish
service-based, long-term relationships.
Werner operates in the truckload segment of the trucking
industry. Within the truckload segment, Werner provides specialized
services to customers based on their trailer needs (van, flatbed,
temperature-controlled), geographic area (medium to long haul
throughout the 48 contiguous states, regional), or conversion of their
private fleet to Werner (dedicated).
On June 30, 2000, the Company, along with five other large
transportation companies, contributed their logistics business units
into a commonly owned, Internet-based transportation logistics
company, Transplace.com. This transaction is dependent upon receiving
approval of federal and, perhaps, state regulators regarding antitrust
issues and other laws. The Company invested $5 million in cash and
has an approximate 15% equity stake in Transplace.com. The Company
transferred logistics business representing about 4% of total revenues
for the six months ended June 30, 2000 to Transplace.com. The Company
is recording its approximate 15% investment in Transplace.com using
the equity method of accounting and is accruing its percentage share
of Transplace.com's earnings as other non-operating income.
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 2000, the Company's largest 5, 10, and 25 customers
comprised 23%, 31%, and 45% of the Company's revenues, respectively.
No one customer accounted for more than 9% of the Company's revenues
in 2000.
1
Virtually all of Werner's company and owner-operator tractors are
equipped with satellite communications devices that enable the Company
and drivers to conduct two-way communication using standardized and
freeform messages. The satellite technology also enables the Company
to plan and monitor the progress of shipments. The Company obtains
specific data on the location of all trucks in the fleet at least
every hour of every day. Using the real-time data obtained from the
satellite devices, Werner has developed advanced application systems
to improve customer service and driver service. Examples of such
application systems include (1) automated engine diagnostics to
continually monitor mechanical fault tolerances, (2) software which
preplans shipments that can be swapped by drivers enroute to meet
driver home time needs, without compromising on-time delivery
requirements, (3) automated "possible late load" tracking which
informs the operations department of shipments that may be operating
behind schedule, thereby allowing the Company to take preventive
measures to avoid a late delivery, and (4) the Company's proprietary
Paperless Log System to automatically keep track of truck movement and
drivers' hours of service. In June 1998, Werner Enterprises became
the first trucking company in the United States to receive
authorization from the Federal Highway Administration, under a pilot
program, to use a paperless log system in place of the paper logbooks
traditionally used by truck drivers to track their daily work
activities.
The Federal Motor Carrier Safety Administration (FMCSA) issued a
Notice of Proposed Rulemaking (FMCSA-98-2350) on May 2, 2000 that
proposes to make numerous changes to the regulations which govern
drivers' hours of service. The comment period for filing comments to
the proposed rules was initially scheduled to be due July 31, 2000,
but the deadline was extended twice. Werner Enterprises and hundreds
of other carriers and industry groups submitted comment letters to the
FMCSA in the proceeding by the final deadline of December 15, 2000.
The Company believes that the current proposed rules would be, at
best, safety neutral, and, more likely detrimental to highway safety.
At the same time, the current proposed rules would mandate a huge cost
for the American public. If changes are to be made to the current
drivers' hours of service regulations, those changes cannot become
effective until at least October 2001. It is widely expected that, if
new regulations are ultimately enacted, the new regulations will be
substantially different from the current proposed regulations.
Seasonality
In the trucking industry, revenues generally show a seasonal
pattern as some customers reduce shipments during and after the winter
holiday season. The Company's operating expenses have historically
been higher in the winter months due primarily to decreased fuel
efficiency, increased maintenance costs of revenue equipment in colder
weather, and increased insurance and claims costs due to adverse
winter weather conditions. The Company attempts to minimize the
impact of seasonality through its marketing program that seeks
additional freight from certain customers during traditionally slower
shipping periods. Revenue can also be affected by bad weather and
holidays, since revenue is directly related to available working days
of shippers.
Employees and Owner-Operator Drivers
As of December 31, 2000, the Company employed 8,664 drivers, 526
mechanics and maintenance personnel, 1,346 office personnel for the
trucking operation, and 121 personnel for the non-trucking operations.
The Company also had 1,175 contracts with independent contractors
(owner-operators) for services that provide both a tractor and a
qualified driver or drivers. None of the Company's employees is
represented by a collective bargaining unit, and the Company considers
relations with its employees to be good.
The Company recognizes that its professional driver workforce is
one of its most valuable assets. Most of Werner's drivers are
compensated based upon miles driven. The rate per mile increases with
2
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 management
meetings to share information and concerns with its drivers.
At times, there are shortages of drivers in the trucking
industry. The Company's management believes the number of qualified
drivers in the industry has been reduced because of the elimination of
federal funding for driving schools, changes in the demographic
composition of the workforce, individual drivers' desire to be home
more often, and a declining unemployment rate in the U.S. over the
past several years. The Company anticipates that the competition for
qualified drivers will continue to be high and cannot predict whether
it will experience shortages in the future.
The Company also recognizes that carefully selected owner-
operators complement its company-employed drivers. Owner-operators are
independent contractors that supply their own tractor and driver, and
are responsible for their operating expenses. Because owner-operators
provide their own tractors, less financial capital is required from
the Company for growth. Also, owner-operators provide the Company with
another source of drivers to support its growth. The Company intends
to continue its emphasis on recruiting owner-operators, as well as
company drivers. However, it has been more difficult for the Company
and the industry to recruit and retain owner-operators over the past
year due to high fuel prices and a weak used truck pricing market.
Revenue Equipment
As of December 31, 2000, Werner operated 6,300 company tractors
and had contracts for 1,175 tractors owned by owner-operators.
Approximately 70% of the company tractors are manufactured by
Freightliner, a subsidiary of DaimlerChrysler. Most of the remaining
company tractors are manufactured by Peterbilt. This standardization
of the company tractor fleet decreases downtime by simplifying
maintenance. The Company adheres to a comprehensive maintenance
program for both tractors and trailers. Due to continuous upgrading
of the company tractor fleet, the average age was 1.6 years at
December 31, 2000. The Company generally adheres to a 3-year
replacement cycle for most of its tractors. Owner-operator tractors
are inspected prior to acceptance by the Company for compliance with
operational and safety requirements of the Company and the Department
of Transportation. These tractors are then periodically inspected,
similar to company tractors, to monitor continued compliance.
The Company operated 19,770 trailers at December 31, 2000: 17,835
dry vans; 910 flatbeds; 940 temperature-controlled; and 85 other
specialized trailers. Most of the Company's trailers are manufactured
by Wabash National Corporation. As of December 31, 2000, 97% of the
Company's fleet of dry van trailers consisted of 53-foot trailers, and
99% consisted of aluminum plate or composite trailers. Other trailer
lengths such as 27-foot and 57-foot are also provided by the Company
to meet the specialized needs of customers. The average age of the
trailer fleet was 4.2 years at December 31, 2000.
Fuel
The Company purchases approximately 90% of its fuel through a
network of approximately 300 fuel stops throughout the United States.
The Company has negotiated discounted pricing based on certain volume
commitments with these fuel stops. Bulk fueling facilities are
maintained at the Company's terminals to further reduce fuel costs.
3
Shortages of fuel, increases in fuel prices or rationing of
petroleum products can have a materially adverse effect on the
operations and profitability of the Company. Beginning in the second
half of 1999 and continuing throughout 2000, the Company experienced
significant increases in the cost of diesel fuel. By the end of 2000,
the Company was able to recover most of the increase in the cost of
fuel through the use of customer fuel surcharges. The Company cannot
predict whether high fuel prices will continue in the future or the
extent to which fuel surcharges will be collected to offset such
increases. As of December 31, 2000, the Company had no derivative
financial instruments to reduce its exposure to fuel price
fluctuations.
The Company maintains aboveground and underground fuel storage
tanks at a few of its terminals. Leakage or damage to these
facilities could expose the Company to environmental clean-up costs.
The tanks are routinely inspected to help prevent and detect such
problems.
Regulation
The Company is a motor carrier regulated by the United States
Department of Transportation (DOT). The DOT generally governs matters
such as safety requirements, registration to engage in motor carrier
operations, accounting systems, certain mergers, consolidations,
acquisitions, and periodic financial reporting. The Company currently
has a satisfactory DOT safety rating, which is the highest available
rating. A conditional or unsatisfactory DOT safety rating could have
an adverse effect on the Company, as some of the Company's contracts
with customers require a satisfactory rating. Such matters as weight
and dimensions of equipment are also subject to federal, state, and
international regulations.
The Company has unlimited authority to carry general commodities
in interstate commerce throughout the 48 contiguous states. The
Company currently has authority to carry freight on an intrastate
basis in 44 states. The Federal Aviation Administration Authorization
Act of 1994 (the FAAA Act) amended sections of the Interstate Commerce
Act to prevent states from regulating rates, routes or service of
motor carriers after January 1, 1995. The FAAA Act did not address
state oversight of motor carrier safety and financial responsibility,
or state taxation of transportation. If a carrier wishes to operate
in a state where it did not previously have intrastate authority, it
must, in most cases, still apply for authority.
The Company's operations are subject to various federal, state
and local environmental laws and regulations, implemented principally
by the EPA and similar state regulatory agencies, governing the
management of hazardous wastes, other discharge of pollutants into the
air and surface and underground waters, and the disposal of certain
substances. The Company believes that its operations are in material
compliance with current laws and regulations.
Competition
The trucking industry is highly competitive and includes
thousands of trucking companies. It is estimated that the annual
revenue of domestic trucking amounts to $390 billion per year. The
Company has a small but growing share (estimated at approximately 1%)
of the markets targeted by the Company. The Company competes
primarily with other truckload carriers. Railroads, less-than-
truckload carriers and private carriers also provide competition, but
to a lesser degree.
Competition for the freight transported by the Company is based
primarily on service and efficiency and, to some degree, on freight
rates alone. Few other truckload carriers have greater financial
resources, own more equipment or carry a larger volume of freight than
the Company. The Company believes it is one of the five largest
carriers in the truckload transportation industry.
4
Forward Looking Information
The forward-looking statements in this report, which reflect
management's best judgment based on factors currently known, involve
risks and uncertainties. Actual results could differ materially from
those anticipated in the forward-looking statements included herein as
a result of a number of factors, including, but not limited to, those
discussed in Item 7, "Management's Discussion and Analysis of Results
of Operations and Financial Condition".
ITEM 2. PROPERTIES
Werner's headquarters is located along Interstate 80 just west of
Omaha, Nebraska, on approximately 210 acres, 153 of which are held for
future expansion. During 1999, the Company completed construction of a
166,500 square-foot addition to the Company's headquarters office
building. The 286,000 square-foot office building includes a 5,000
square-foot computer center, drivers' lounge areas, a drivers'
orientation section, a cafeteria and a Company store. The Omaha
headquarters also consists of 131,000 square feet of maintenance and
repair facilities containing a central parts warehouse, frame
straightening and alignment machine, truck and trailer wash areas,
equipment safety lanes, body shops for tractors and trailers and a
paint booth including a 77,500 square-foot trailer maintenance
facility constructed in 1999. Portions of the former trailer
maintenance building are being converted into a driver training
facility. The Company owns all of its corporate headquarters
facilities.
The Company and its subsidiaries own a 22,000 square-foot
terminal in Springfield, Ohio, a 33,000 square-foot facility near
Denver, an 18,000 square-foot facility near Los Angeles, a 31,000
square-foot terminal near Atlanta, a 27,000 square-foot terminal in
Dallas, and a 32,000 square-foot terminal in Phoenix. The Company
leases terminal facilities in Allentown, Pennsylvania and in
Indianapolis, Indiana. All eight locations include office and
maintenance space. The Company also leases office space in Laredo,
Texas and is completing construction of a new 18,000 square-foot
office facility there with a tentative completion date in the spring
of 2001.
The Company also owns a 73,000 square foot disaster recovery and
warehouse facility in another area of Omaha. Additionally, the Company
leases several small sales offices and trailer parking yards in
various locations throughout the country.
The Company's headquarters facilities have suitable space
available to accommodate planned expansion needs for the next 3 to 5
years.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its
business, primarily involving claims for personal injury and property
damage incurred in the transportation of freight. The Company has
assumed liability up to $500,000, 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. The Company maintains insurance, which covers liability
in excess of this amount to coverage levels that management considers
adequate. The Company believes that adverse results in one or more of
these claims would not have a material adverse effect on its results
of operations or financial position. See also Note (1) "Insurance and
Claims Accruals" and Note (7) "Commitments and Contingencies" in the
Notes to Consolidated Financial Statements under Item 8 of this Form
10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 2000, no matters were submitted to a
vote of security holders.
5
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Price Range of Common Stock
The Company's common stock trades on the Nasdaq National Market
tier of The Nasdaq Stock Market under the symbol WERN. The following
table sets forth for the quarters indicated the high and low sale
prices per share of the Company's common stock in the Nasdaq National
Market and the Company's dividends declared per common share from
January 1, 1999, through December 31, 2000.
Dividends
Declared Per
High Low Common Share
------ ------ ------------
2000
Quarter ended:
March 31 $17.63 $12.31 $.025
June 30 19.13 10.81 .025
September 30 14.81 11.44 .025
December 31 17.75 10.06 .025
1999
Quarter ended:
March 31 $20.75 $15.75 $.025
June 30 21.63 14.50 .025
September 30 22.25 16.13 .025
December 31 18.34 12.25 .025
As of March 6, 2001, the Company's common stock was held by 257
stockholders of record and approximately 6,000 stockholders through
nominee or street name accounts with brokers.
Dividend Policy
The Company has been paying cash dividends on its common stock
following each of its quarters since the fiscal quarter ended May 31,
1987. The Company does not currently intend to discontinue payment of
dividends on a quarterly basis and does not currently anticipate any
restrictions on its future ability to pay such dividends. However, no
assurance can be given that dividends will be paid in the future since
they are dependent on earnings, the financial condition of the Company
and other factors.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in
conjunction with the consolidated financial statements and notes under
Item 8 of this Form 10-K.
2000 1999 1998 1997 1996
---------- ---------- -------- -------- --------
(In thousands, except per share amounts)
Operating revenues $1,214,628 $1,052,333 $863,417 $772,095 $643,274
Net income 48,023 60,011 57,246 48,378 40,555
Earnings per share (diluted) 1.02 1.26 1.19 1.01 .85
Cash dividends declared per share .100 .100 .093 .080 .075
Return on average stockholders' equity 9.3% 12.8% 13.7% 13.1% 12.4%
Operating ratio 93.2% 90.3% 88.9% 89.9% 89.7%
Book value per share 11.40 10.48 9.31 8.27 7.34
Total assets 927,207 896,879 769,196 667,638 549,211
Long-term debt 105,000 120,000 100,000 60,000 30,000
Total debt (current and long-term) 105,000 145,000 100,000 60,000 30,000
Stockholders' equity 536,084 494,772 440,588 395,118 348,371
6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The following table sets forth the percentage relationship of
income and expense items to operating revenues for the years indicated.
2000 1999 1998
----- ----- -----
Operating revenues 100.0% 100.0% 100.0%
----- ----- -----
Operating expenses
Salaries, wages and benefits 35.4 36.4 37.7
Fuel 11.3 7.5 6.6
Supplies and maintenance 8.5 8.3 8.4
Taxes and licenses 7.3 7.8 7.9
Insurance and claims 2.8 3.0 2.7
Depreciation 9.0 9.5 9.6
Rent and purchased transportation 17.9 17.6 16.1
Communications and utilities 1.2 1.3 1.2
Other (0.2) (1.1) (1.3)
----- ----- -----
Total operating expenses 93.2 90.3 88.9
----- ----- -----
Operating income 6.8 9.7 11.1
Net interest expense and other .4 .5 .4
----- ----- -----
Income before income taxes 6.4 9.2 10.7
Income taxes 2.4 3.5 4.1
----- ----- -----
Net income 4.0% 5.7% 6.6%
===== ===== =====
The following table sets forth certain industry data regarding
the freight revenues and operations of the Company.
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
Operating ratio 93.2% 90.3% 88.9% 89.9% 89.7%
Average revenues per tractor per week (1) $ 2,889 $ 2,813 $ 2,783 $ 2,755 $ 2,710
Average annual miles per tractor 125,568 125,856 126,492 126,598 126,221
Average miles per trip 746 734 760 799 808
Average revenues per total mile (1) $ 1.197 $ 1.162 $ 1.144 $ 1.132 $ 1.116
Average revenues per loaded mile (1) $ 1.328 $ 1.287 $ 1.265 $ 1.251 $ 1.236
Average tractors in service 7,303 6,769 5,662 5,051 4,372
Total tractors (at year end)
Company 6,300 5,895 5,220 4,490 3,840
Owner-operator 1,175 1,230 930 860 760
------- ------- ------- ------- -------
Total tractors 7,475 7,125 6,150 5,350 4,600
======= ======= ======= ======= =======
Total trailers (at year end) 19,770 18,900 16,350 14,700 12,170
======= ======= ======= ======= =======
- ------------
(1) Net of fuel surcharge revenues.
Results of Operations
2000 Compared to 1999
Operating revenues increased 15% over 1999, due to an 8% increase
in the average number of tractors in service, a 3% increase in average
revenue per mile (excluding fuel surcharges), and a 5% increase in
7
revenues due to fuel surcharges. Customer rate increases were the
primary factor in the increase in average revenue per mile. Fuel
surcharges were collected from customers in 2000 to recover a majority
of the increase in fuel expense caused by higher fuel prices.
The company's operating ratio (operating expenses expressed as a
percentage of operating revenues) increased from 90.3% to 93.2%.
Salaries, wages and benefits decreased from 36.4% to 35.4% of
revenues by maintaining the average payroll cost per mile while at the
same time increasing average revenue per mile. Offsetting this,
workers' compensation expense increased due to rising medical costs
and higher weekly claim payments.
Fuel increased from 7.5% to 11.3% of revenues due to
substantially higher fuel prices. The average price per gallon of
diesel fuel, excluding fuel taxes, was 65% higher in 2000 than 1999.
The Company implemented customer fuel surcharge programs to recover a
majority of the increased fuel cost. The Company is unable to predict
whether higher fuel price levels will continue or the extent to which
fuel surcharges will be collected in the future from customers.
Taxes and licenses decreased from 7.8% to 7.3% of revenues due to
higher revenue per mile. On a cost per mile basis, taxes and license
expenses were about the same. Insurance and claims decreased slightly
from 3.0% to 2.8% of revenues. Improved liability claims experience
was offset by increased cargo claims. Depreciation decreased from
9.5% to 9.0% of revenues due to higher revenue per mile. On a cost
per mile basis, depreciation was slightly higher.
Rent and purchased transportation expense increased from 17.6%
to 17.9% of revenues due primarily to increases in rental expense on
leased tractors (.3% of revenue in 2000 compared to .1% in 1999) and
payments to owner-operators (12.6% of revenue in 2000 compared to
12.4% in 1999). Owner-operators are independent contractors that
supply their own tractor and driver and are responsible for operating
expenses such as fuel, supplies and maintenance, fuel taxes, and
payroll. Payments to owner-operators increased slightly in 2000
compared to 1999 caused in part by an increase in owner-operator miles
as a percentage of total Company miles. On a per-mile basis, payments
to owner-operators increased due to amounts reimbursed by the Company
to owner-operators for the higher cost of fuel. Increases in
logistics and other non-trucking transportation services in the first
half of 2000 offset the decrease in the latter half of the year due to
transferring most of the Company's logistics business to
Transplace.com.
On June 30, 2000, the Company transferred its logistics business
unit to Transplace.com. The Company is one of six large truckload
transportation companies that contributed their logistics businesses
to this commonly owned, Internet-based logistics company. Each of the
six founding members of Transplace.com contributed their logistics
business, related intangible assets, and $5 million of cash. The
Company transferred logistics business representing about 4% of total
revenues for the six months ended June 30, 2000 to Transplace.com.
The Company is recording its approximate 15% investment in
Transplace.com using the equity method of accounting and is accruing
its percentage share of Transplace.com's earnings as other non-
operating income.
Other operating expenses changed from (1.1%) to (0.2%) of
revenues due to a weak market for the sale of used trucks. During
2000, the Company traded more of its used trucks, and the excess of
the trade price over the net book value of the truck reduced the cost
basis of the new truck. In 1999, the Company sold most of its used
trucks to third parties through its Fleet Truck Sales retail network
and realized gains of $13.0 million. Due to a reduced number of trucks
sold to third parties and a lower average gain per truck, in 2000 the
Company realized gains of $5.1 million.
The Company's effective income tax rate (income taxes as a
percentage of income before income taxes) was 38.0% in 2000 and 1999,
as described in Note 5 of the Notes to Consolidated Financial
Statements under Item 8 of this Form 10-K.
8
1999 Compared to 1998
Operating revenues increased by 22% over 1998, primarily due to a
20% increase in the average number of tractors in service and a 2%
increase in the average revenue per mile, excluding fuel surcharges.
Customer rate increases and a higher percentage of freight in the
regional and dedicated fleets were the primary factors in the
increased revenue per mile. Regional and dedicated trips have a
shorter length of haul, on average, than medium- to long-haul van
trips. Revenue per mile tends to increase as length of haul
decreases. An $18.6 million increase in revenues from logistics and
other non-trucking transportation services also contributed to the
overall increase in operating revenues.
The Company's operating ratio (operating expenses expressed as a
percentage of operating revenues) increased from 88.9% to 90.3%. Owner-
operator miles as a percentage of total miles increased from 16.6% in
1998 to 18.2% in 1999, resulting in a shift in costs to the rent and
purchased transportation expense category from several other expense
categories. The increase in expenses paid to third-party companies for
logistics and other non-trucking transportation services also
contributed to this shift among expense categories.
Salaries, wages and benefits decreased from 37.7% to 36.4% of
revenues primarily due to increased revenues from logistics and other
non-trucking transportation services, more owner-operator miles as a
percentage of total miles, and a higher ratio of tractors to non-
driver employees.
Fuel increased in 1999 from 6.6% to 7.5% of revenues due
primarily to a 22% increase in average fuel prices (excluding fuel
taxes) in 1999 compared to 1998. This increase was partially offset
by the increases in owner-operator miles and logistics and non-
trucking revenues. The Company has implemented customer fuel
surcharge reimbursement programs to recover a portion of the increased
fuel cost. However, a significant portion of the fuel expense
increase was not recovered during 1999. This is due to several
factors, including: the fuel price levels which determine when fuel
surcharges are collected, unreimbursed empty miles between freight
shipments, unreimbursed out-of-route miles caused in part by driver
home time needs, and the unreimbursed costs of truck idling.
Insurance and claims increased from 2.7% to 3.0% of revenues due
in part to an increase in the frequency of property damage claims.
Rent and purchased transportation increased from 16.1% to 17.6% of
revenues primarily due to the Company's increase in logistics and
other non-trucking transportation services and the increase in owner-
operator miles. Other operating expenses changed from (1.3%) of
revenues to (1.1%) of revenues due in part to lower gains per tractor
sold, net of repair costs.
The Company's effective income tax rate (income taxes as a
percentage of income before income taxes) was 38.0% in 1999 and 1998,
as described in Note 5 of the Notes to Consolidated Financial
Statements under Item 8 of this Form 10-K.
Liquidity and Capital Resources
Net cash provided by operating activities was $170.1 million in
2000, $132.0 million in 1999, and $137.9 million in 1998. The 29%
increase in operating cash flows from 1999 to 2000 was primarily due
to improved billing and collection of accounts receivable, increased
depreciation due to more revenue equipment, and other working capital
improvements. Activity with Transplace.com included a $3.2 million
short-term note and a $2.1 million operating advance, both of which
9
were repaid by Transplace.com subsequent to year-end. The cash flow
from operations enabled the Company to make capital expenditures and
repay debt as discussed below.
Net cash used in investing activities was $113.2 million in 2000,
$171.0 million in 1999, and $172.4 million in 1998. The growth of the
Company's business has required significant investment in new revenue
equipment. Net capital expenditures in 2000, 1999, and 1998 were
$108.5 million, $171.0 million, and $172.4 million, respectively. The
capital expenditures were financed primarily with cash provided by
operations and, to a lesser extent in 1999 and 1998, borrowings.
Capital expenditures were lower in 2000 due to the Company's planned
slower fleet growth. The Company also invested $5.0 million in
Transplace.com in 2000.
As of December 31, 2000, the Company has committed to
approximately $9 million of net capital expenditures, which is a small
portion of its estimated 2001 capital expenditures.
Net financing activities used $46.8 million in 2000 and generated
$38.5 million in 1999 and $28.1 million in 1998. In 2000, the Company
repaid $40 million of debt compared to net borrowings of $45 million
and $20 million in 1999 and 1998, respectively. The Company paid
dividends of $4.7 million in 2000 and 1999, and $4.2 million in 1998.
Financing activities also included common stock repurchases of $2.8
million in 2000, $3.9 million in 1999, and $9.1 million in 1998. From
time to time, the Company has and may continue to repurchase shares of
its common stock. The timing and amount of such purchases depends on
market and other factors. The Company's board of directors has
authorized the repurchase of up to 2,500,000 shares. As of December
31, 2000, the Company has purchased 1,278,526 shares pursuant to this
authorization.
The Company's financial position is strong. As of December 31,
2000, the Company had $105 million of debt and $536 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.
Inflation
Inflation can be expected to have an impact on the Company's
operating costs. A prolonged period of inflation could cause interest
rates, fuel, wages, and other costs to increase and could adversely
affect the Company's results of operations unless freight rates could
be increased correspondingly. However, the effect of inflation has
been minimal over the past three years.
Year 2000 Issue
The impact of the Year 2000 issue on the Company's operations was
insignificant.
Forward-Looking Statements
This report contains forward-looking statements that are based on
information currently available to the Company's management. Although
the Company believes the expectations reflected in such forward-
looking statements to be reasonable, no assurance can be given that
the expectations will be realized. Factors currently known to
management that could cause actual results to differ materially from
the expectations reflected in forward-looking statements include, but
are not limited to, 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; the market value for used revenue
equipment; 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
10
depend on the level of business activity of shippers in a variety of
industries. The Company assumes no obligation to update any forward-
looking statements to the extent it becomes aware that it will not be
achieved for any reason.
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 $55 million of variable rate debt at December 31,
2000. 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
$550,000.
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 majority of fuel price increases
from customers in the form of fuel surcharges. The Company cannot
predict the extent to which high fuel price levels will occur in the
future or the extent to which fuel surcharges could be collected to
offset such increases. As of December 31, 2000, the Company had no
derivative financial instruments to reduce its exposure to fuel price
fluctuations.
11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
Werner Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of
Werner Enterprises, Inc. and subsidiaries as of December 31, 2000, and
1999, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the two years in the period ended
December 31, 2000. In connection with our audits of the consolidated
financial statements, we have also audited the information in the
financial statement schedule for each of the two years in the period
ended December 31, 2000 listed in Item 14(a)(2) of this Form 10-K.
These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our
audit. The consolidated financial statements and financial statement
schedule of Werner Enterprises, Inc. and subsidiaries for the year
ended December 31, 1998 were audited by other auditors whose report
dated January 20, 1999, expressed an unqualified opinion on those
statements.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. 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 2000 and 1999 consolidated financial
statements referred to above present fairly, in all material respects,
the financial position of Werner Enterprises, Inc. and subsidiaries as
of December 31, 2000, and 1999, and the results of their operations
and their cash flows for each of the two years in the period ended
December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. In addition, in our
opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the
information for each of the two years in the period ended December 31,
2000 set forth therein.
KPMG LLP
Omaha, Nebraska
January 22, 2001
12
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
2000 1999 1998
---------- ---------- --------
Operating revenues $1,214,628 $1,052,333 $863,417
---------- ---------- --------
Operating expenses:
Salaries, wages and benefits 429,825 382,824 325,659
Fuel 137,620 79,029 56,786
Supplies and maintenance 102,784 87,600 72,273
Taxes and licenses 89,126 82,089 67,907
Insurance and claims 34,147 31,728 23,875
Depreciation 109,107 99,955 82,549
Rent and purchased transportation 216,917 185,129 139,026
Communications and utilities 14,454 13,444 10,796
Other (2,173) (11,666) (11,065)
---------- ---------- --------
Total operating expenses 1,131,807 950,132 767,806
---------- ---------- --------
Operating income 82,821 102,201 95,611
---------- ---------- --------
Other expense (income):
Interest expense 8,169 6,565 4,889
Interest income (2,650) (1,407) (1,724)
Other (154) 245 114
---------- ---------- --------
Total other expense 5,365 5,403 3,279
---------- ---------- --------
Income before income taxes 77,456 96,798 92,332
Income taxes 29,433 36,787 35,086
---------- ---------- --------
Net income $ 48,023 $ 60,011 $ 57,246
========== ========== ========
Average common shares outstanding 47,061 47,406 47,667
========== ========== ========
Basic earnings per share $ 1.02 $ 1.27 $ 1.20
========== ========== ========
Diluted shares outstanding 47,257 47,631 47,910
========== ========== ========
Diluted earnings per share $ 1.02 $ 1.26 $ 1.19
========== ========== ========
The accompanying notes are an integral part of these consolidated
financial statements.
13
WERNER ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
December 31
--------------------
2000 1999
---------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 25,485 $ 15,368
Accounts receivable, trade, less allowance
of $3,994 and $3,236, respectively 123,518 127,211
Receivable from unconsolidated affiliate 5,332 -
Other receivables 10,257 11,217
Inventories and supplies 7,329 5,296
Prepaid taxes, licenses, and permits 12,396 12,423
Current deferred income taxes 11,552 8,500
Other 10,908 8,812
---------- --------
Total current assets 206,777 188,827
---------- --------
Property and equipment, at cost
Land 19,157 14,522
Buildings and improvements 72,631 65,152
Revenue equipment 829,549 800,613
Service equipment and other 100,342 90,322
---------- --------
Total property and equipment 1,021,679 970,609
Less - accumulated depreciation 313,881 262,557
---------- --------
Property and equipment, net 707,798 708,052
---------- --------
Notes receivable 4,420 -
Investment in unconsolidated affiliate 5,324 -
Other non-current assets 2,888 -
---------- --------
$ 927,207 $896,879
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 30,710 $ 35,686
Short-term debt - 25,000
Insurance and claims accruals 36,057 32,993
Accrued payroll 12,746 11,846
Income taxes payable 7,157 926
Other current liabilities 14,749 14,755
---------- --------
Total current liabilities 101,419 121,206
---------- --------
Long-term debt 105,000 120,000
Deferred income taxes 152,403 130,600
Insurance, claims and other long-term accruals 32,301 30,301
Commitments and contingencies
Stockholders' equity
Common stock, $.01 par value, 200,000,000 shares
authorized; 48,320,835 shares issued;
47,039,290 and 47,205,236 shares
outstanding, respectively 483 483
Paid-in capital 105,844 105,884
Retained earnings 447,943 404,625
Accumulated other comprehensive loss (34) -
Treasury stock, at cost; 1,281,545
and 1,115,599 shares, respectively (18,152) (16,220)
---------- --------
Total stockholders' equity 536,084 494,772
---------- --------
$ 927,207 $896,879
========== ========
The accompanying notes are an integral part of these consolidated
financial statements.
14
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income $ 48,023 $ 60,011 $ 57,246
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 109,107 99,955 82,549
Deferred income taxes 18,751 22,200 14,700
Gain on disposal of operating equipment (5,055) (13,047) (12,251)
Equity in income of unconsolidated affiliate (324) - -
Tax benefit from exercise of stock options 130 663 389
Other long-term assets (2,888) - -
Insurance, claims and other long-term accruals 2,000 (500) 1,472
Changes in certain working capital items:
Accounts receivable, net 3,693 (32,882) (868)
Prepaid expenses and other current assets (8,474) (8,725) (5,186)
Accounts payable (4,976) (12,460) 3,979
Accrued and other current liabilities 10,160 16,762 (4,090)
--------- --------- ---------
Net cash provided by operating activities 170,147 131,977 137,940
--------- --------- ---------
Cash flows from investing activities:
Additions to property and equipment (169,113) (255,326) (258,643)
Retirements of property and equipment 60,608 84,297 86,260
Investment in unconsolidated affiliate (5,000) - -
Proceeds from collection of notes receivable 287 - -
--------- --------- ---------
Net cash used in investing activities (113,218) (171,029) (172,383)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 10,000 30,000 40,000
Repayments of long-term debt (25,000) - -
Proceeds from issuance of short-term debt - 30,000 20,000
Repayments of short-term debt (25,000) (15,000) (20,000)
Dividends on common stock (4,710) (4,740) (4,201)
Repurchases of common stock (2,759) (3,941) (9,072)
Stock options exercised 657 2,188 1,335
--------- --------- ---------
Net cash provided by (used in) financing activities (46,812) 38,507 28,062
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 10,117 (545) (6,381)
Cash and cash equivalents, beginning of year 15,368 15,913 22,294
--------- --------- ---------
Cash and cash equivalents, end of year $ 25,485 $ 15,368 $ 15,913
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during year for:
Interest $ 7,876 $ 7,329 $ 4,800
Income taxes 3,916 13,275 26,100
Supplemental disclosures of non-cash investing activities:
Notes receivable from sale of revenue equipment $ 4,707 - -
The accompanying notes are an integral part of these consolidated
financial statements.
15
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
Accumulated
Other Total
Common Paid-In Retained Comprehensive Treasury Stockholders'
Stock Capital Earnings Loss Stock Equity
------ -------- -------- ------------- -------- -------------
BALANCE, December 31, 1997 $387 $104,764 $296,533 $ - $ (6,566) $395,118
Purchases of 592,600 shares
of common stock - - - - (9,072) (9,072)
Dividends on common stock
($.09 per share) - - (4,428) - - (4,428)
Five-for-four stock split 96 (96) - - - -
Exercise of stock options,
119,391 shares - 670 - - 1,054 1,724
Comprehensive income:
Net income - - 57,246 - - 57,246
---- -------- -------- ---- -------- --------
BALANCE, December 31, 1998 483 105,338 349,351 - (14,584) 440,588
Purchases of 302,600 shares
of common stock - - - - (3,941) (3,941)
Dividends on common stock
($.10 per share) - - (4,737) - - (4,737)
Exercise of stock options,
198,526 shares - 546 - - 2,305 2,851
Comprehensive income:
Net income - - 60,011 - - 60,011
---- -------- -------- ---- -------- --------
BALANCE, December 31, 1999 483 105,884 404,625 - (16,220) 494,772
Purchases of 225,201 shares
of common stock - - - - (2,759) (2,759)
Dividends on common stock
($.10 per share) - - (4,705) - - (4,705)
Exercise of stock options,
59,255 shares - (40) - - 827 787
Comprehensive income (loss):
Net income - - 48,023 - - 48,023
Foreign currency
translation adjustments - - - (34) - (34)
---- -------- -------- ---- -------- --------
Total comprehensive income - - $ 48,023 $(34) - $ 47,989
---- -------- -------- ---- -------- --------
BALANCE, December 31, 2000 $483 $105,844 $447,943 $(34) $(18,152) $536,084
==== ======== ======== ==== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
16
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1)--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Werner Enterprises, Inc. (the Company) is a truckload
transportation company operating under the jurisdiction of the
Department of Transportation and various state regulatory commissions.
The Company maintains a diversified freight base with no one customer
or industry making up a significant percentage of the Company's
receivables or revenues.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Werner Enterprises, Inc. and its majority-owned
subsidiaries. All significant intercompany accounts and transactions
relating to these majority-owned entities have been eliminated. The
equity method of accounting is used for the Company's investment in
Transplace.com (see Note 2).
Use of Management Estimates
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements,
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments, purchased
with a maturity of three months or less, to be cash equivalents.
Inventories and Supplies
Inventories and supplies consist primarily of revenue equipment
parts, tires, fuel and supplies and are stated at average cost.
Tires placed on new revenue equipment are capitalized as a part
of the equipment cost. Replacement tires are expensed when placed in
service.
Property, Equipment and Depreciation
Additions and improvements to property and equipment are
capitalized at cost, while maintenance and repair expenditures are
charged to operations as incurred. If equipment is traded rather than
sold, the cost of new equipment is recorded at an amount equal to the
lower of the monetary consideration paid plus the net book value of
the traded property or the fair value of the new equipment.
Depreciation is calculated based on the cost of the asset,
reduced by its estimated salvage value, using the straight-line
method. Accelerated depreciation methods are used for income tax
purposes. The lives and salvage values assigned to certain assets for
financial reporting purposes are different than for income tax
purposes. For financial reporting purposes, assets are depreciated
over the estimated useful lives of 30 years for buildings and
improvements, 5 to 10 years for revenue equipment and 3 to 10 years
for service equipment and other.
17
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Insurance and Claims Accruals
Insurance and claims accruals, both current and noncurrent,
reflect the estimated cost for cargo loss and damage, bodily injury
and property damage (BI/PD), group health, and workers' compensation
claims, including estimated loss development and loss adjustment
expenses, not covered by insurance. The costs for cargo and BI/PD are
included in insurance and claims expense, while the costs of group
health and workers' compensation claims are included in salaries,
wages and benefits expense in the Consolidated Statements of Income.
The Company is responsible for liability up to $500,000, plus
administrative expenses, for each occurrence involving personal injury
or property damage. The Company is also responsible for a $1,500,000
annual aggregate amount of liability for claims between $500,000 and
$1,000,000, and a $1,000,000 annual aggregate amount for claims
between $1,000,000 and $2,000,000. Liability in excess of these
amounts is assumed by the insurance carriers in amounts which
management considers adequate.
The Company has assumed responsibility for workers' compensation,
maintains a $15,000,000 bond, has statutory coverage and has obtained
insurance for individual claims above $500,000.
Under these insurance arrangements, the Company maintains
$9,300,000 in letters of credit, as of December 31, 2000.
Revenue Recognition
The Consolidated Statements of Income reflect recognition of
operating revenues and related direct costs when the shipment is
delivered.
Foreign Currency Translation
Local currencies are generally considered the functional
currencies outside the United States. Assets and liabilities are
translated at year-end exchange rates for operations in local currency
environments. Income and expense items are translated at average
rates of exchange prevailing during the year.
Income Taxes
The Company uses the asset and liability method of Statement of
Financial Accounting Standards (SFAS) No. 109 in accounting for income
taxes. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to temporary
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using the enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
Common Stock and Earnings Per Share
The Company computes and presents earnings per share (EPS) in
accordance with SFAS No. 128 "Earnings per Share". The difference
between the Company's weighted average shares outstanding and diluted
shares outstanding is due to the dilutive effect of stock options for
all periods presented. There are no differences in the numerator of
the Company's computations of basic and diluted EPS for any period
presented.
18
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Comprehensive Income
Comprehensive income consists of net income and other
comprehensive loss. Other comprehensive income (loss) refers to
revenues, expenses, gains and losses that are not included in net
income, but rather are recorded directly in stockholders' equity. For
the year ended December 31, 2000, comprehensive income consists of net
income and foreign currency translation adjustments. For the years
ended December 31, 1999 and 1998, the Company had no items of other
comprehensive loss, and, accordingly, comprehensive income is the same
as net income.
Accounting Standards
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities". SFAS 133, effective for all fiscal quarters of fiscal
years beginning after June 15, 2000, establishes standards for
reporting and display of derivative instruments and for hedging
activities. As of December 31, 2000, the Company had no derivative
financial instruments. Because of the Company's minimal historical
use of derivatives, management believes that SFAS 133 will not have a
material effect on the financial position or results of operations of
the Company.
(2)--INVESTMENT IN UNCONSOLIDATED AFFILIATE
Effective June 30, 2000, the Company contributed its non-asset
based logistics business to Transplace.com, LLC (TPC), in exchange for
an equity interest in TPC of approximately 15%. TPC is an Internet-
based logistics company founded by six large transportation companies
- - Covenant Transport, Inc.; J.B. Hunt Transport Services, Inc.; M.S.
Carriers, Inc.; Swift Transportation Co., Inc.; U.S. Xpress
Enterprises, Inc.; and Werner Enterprises, Inc. The Company is
accounting for its investment in TPC using the equity method. At
December 31, 2000, the investment in unconsolidated affiliate includes
a $5,000,000 cash investment in TPC plus the Company's 15% equity in
the estimated cumulative earnings of unconsolidated affiliate of
$324,000.
In October 2000, the Company provided funds of $3,200,000 to TPC
in the form of a short-term note that bears interest at the rate of
8%. The Company recorded interest income on the note from TPC of
approximately $61,000 during 2000. As of December 31, 2000, the
receivable from unconsolidated affiliate included this $3,200,000 note
as well as an operating advance to TPC. Interest is not accrued on
the operating advance. Both the note receivable, including accrued
interest, and operating advance were repaid subsequent to December 31,
2000.
The Company and TPC enter into transactions with each other for
certain of their purchased transportation needs. The Company recorded
operating revenue from TPC of approximately $15,500,000, and recorded
purchased transportation expense to TPC of approximately $1,500,000
during 2000.
The Company also provides certain administrative functions to TPC
as well as providing office space, supplies, and communications. The
allocation from the Company for these services was approximately
$518,000 during 2000. The allocations for rent are recorded in the
Consolidated Statement of Income as miscellaneous revenue and the
remaining amounts are recorded as a reduction of the respective
operating expenses.
The Company believes that the transactions with TPC are on terms
no less favorable to the Company than those that could be obtained
from unaffiliated third parties, on an arm's length basis.
19
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(3)--LONG-TERM DEBT
Long-term debt consists of the following at December 31 (in
thousands):
2000 1999
-------- --------
Notes payable to banks under committed credit facilities $ 55,000 $ 95,000
6.55% Series A Senior Notes, due November 2002 20,000 20,000
6.02% Series B Senior Notes, due November 2002 10,000 10,000
5.52% Series C Senior Notes, due December 2003 20,000 20,000
-------- --------
105,000 145,000
Less short-term debt - (25,000)
-------- --------
Long-term debt $105,000 $120,000
======== ========
The notes payable to banks under committed credit facilities bear
variable interest (7.2% at December 31, 2000) based on the London
Interbank Offered Rate (LIBOR), and these credit facilities mature at
various dates from August 2002 to May 2003. The Company has an
additional $55 million of available long-term credit pursuant to these
credit facilities with banks which bear variable interest based on
LIBOR, on which no borrowings were outstanding at December 31, 2000.
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, 2000.
The aggregate future maturities of long-term and short-term debt
by year consist of the following at December 31, 2000 (in thousands):
2001 $ -
2002 55,000
2003 50,000
--------
$105,000
========
The carrying amount of the Company's long-term debt approximates
fair value due to the duration of the notes and their interest rates.
(4)--LEASES
The Company leases certain revenue equipment under operating
leases which expire through 2003. At December 31, 2000, the future
minimum lease payments under non-cancelable revenue equipment
operating leases are as follows (in thousands):
2001 $3,732
2002 3,219
2003 100
Rental expense under non-cancelable revenue equipment operating
leases (in thousands) was $3,185 in 2000, $596 in 1999, and $0 in
1998.
20
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(5)--INCOME TAXES
Income tax expense consists of the following (in thousands):
2000 1999 1998
------- ------- -------
Current
Federal $ 9,132 $11,787 $17,186
State 1,550 2,800 3,200
------- ------- -------
10,682 14,587 20,386
------- ------- -------
Deferred
Federal 16,001 19,112 12,378
State 2,750 3,088 2,322
------- ------- -------
18,751 22,200 14,700
------- ------- -------
Total income tax expense $29,433 $36,787 $35,086
======= ======= =======
The effective income tax rate differs from the federal corporate
tax rate of 35% in 2000, 1999, and 1998 as follows (in thousands):
2000 1999 1998
------- ------- -------
Tax at statutory rate $27,110 $33,879 $32,316
State income taxes, net of
federal tax benefits 2,795 3,827 3,589
Income tax credits (638) (691) (536)
Other, net 166 (228) (283)
------- ------- -------
$29,433 $36,787 $35,086
======= ======= =======
At December 31, deferred tax assets and liabilities consisted of
the following (in thousands):
2000 1999
-------- --------
Deferred tax assets:
Insurance and claims accruals $ 24,706 $ 22,715
Allowance for uncollectible accounts 1,425 874
Other 3,099 3,266
-------- --------
Gross deferred tax assets 29,230 26,855
-------- --------
Deferred tax liabilities:
Property and equipment 161,338 142,312
Prepaid expenses 4,431 5,982
Other 4,312 661
-------- --------
Gross deferred tax liabilities 170,081 148,955
-------- --------
Net deferred tax liability $140,851 $122,100
======== ========
These amounts (in thousands) are presented in the accompanying
Consolidated Balance Sheets as of December 31 as follows:
2000 1999
-------- --------
Current deferred tax asset $ 11,552 $ 8,500
Noncurrent deferred tax liability 152,403 130,600
-------- --------
Net deferred tax liability $140,851 $122,100
======== ========
21
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company believes its history of profitability and taxable
income and its utilization of tax planning sufficiently supports the
carrying amount of the deferred tax assets. Accordingly, the Company
has not recorded a valuation allowance as all deferred tax benefits
are more likely than not to be realized.
(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.
Options granted become exercisable in installments from six to
seventy-two months after the date of grant. The options are
exercisable over a period not to exceed ten years and one day from the
date of grant. The maximum number of shares of common stock that may
be optioned under the Stock Option Plan is 8,750,000 shares.
At December 31, 2000, 3,474,094 shares were available for
granting further options. At December 31, 2000, 1999, and 1998,
options for 843,689, 669,178, and 522,295 shares with weighted average
exercise prices of $13.08, $12.62, and $11.43 were exercisable,
respectively.
The following table summarizes Stock Option Plan activity for the
three years ended December 31, 2000:
Options Outstanding
-----------------------------
Weighted-Average
Shares Exercise Price
--------- ----------------
Balance, December 31, 1997 1,581,119 $12.95
Options granted 86,250 16.66
Options exercised (119,391) 11.18
Options canceled (22,998) 13.01
---------
Balance, December 31, 1998 1,524,980 13.30
Options granted 1,419,510 12.52
Options exercised (198,526) 11.02
Options canceled (20,001) 15.03
---------
Balance, December 31, 1999 2,725,963 13.05
Options granted 1,130,000 12.87
Options exercised (59,255) 10.90
Options canceled (206,770) 13.02
---------
Balance, December 31, 2000 3,589,938 13.03
=========
22
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following tables summarize information about stock options
outstanding and exercisable at December 31, 2000:
Options Outstanding
------------------------------
Weighted- Weighted-
Average Average
Range of Number Remaining Exercise
Exercise Prices Outstanding Contractual Life Price
--------------- ----------- ---------------- ---------
$10.46 to $13.25 2,932,375 8.0 years $12.31
$14.94 to $20.50 657,563 7.0 years 16.21
---------
3,589,938 7.9 years 13.03
=========
Options Exercisable
---------------------------
Weighted-
Average
Range of Number Exercise
Exercise Prices Exercisable Price
--------------- ----------- ---------
$10.46 to $13.25 562,980 $11.52
$14.94 to $20.50 280,709 16.20
-------
843,689 13.08
=======
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. The fair value of the options granted during 2000,
1999, and 1998 was estimated using the Black-Scholes option-pricing
model with the following assumptions: risk-free interest rate of 6.0
percent in 2000, 6.5 percent in 1999, and 5.5 percent in 1998;
dividend yield of 0.5 percent; expected life of 8.0 years in 2000, 7.0
years in 1999, and 5.5 years in 1998; and volatility of 35 percent in
2000 and 30 percent in 1999 and 1998. The weighted-average fair value
of options granted during 2000, 1999, and 1998 was $6.39, $5.56, and
$6.16 per share, respectively. The Company's pro forma net income and
earnings per share would have been as indicated below had the fair
value of option grants been charged to salaries, wages, and benefits:
2000 1999 1998
------- ------- -------
Net income (in thousands) As reported $48,023 $60,011 $57,246
Pro forma 45,735 59,170 56,327
Basic earnings per share As reported 1.02 1.27 1.20
Pro forma .97 1.25 1.18
Diluted earnings per share As reported 1.02 1.26 1.19
Pro forma .97 1.24 1.18
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 $117,393, $104,304, and
$100,045 for 2000, 1999, and 1998, respectively. Interest accrues on
23
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 at least 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 $1,527,502, $1,364,254, and $1,191,372 for 2000, 1999, and 1998,
respectively.
(7)--COMMITMENTS AND CONTINGENCIES
The Company has committed to approximately $9 million of net
capital expenditures, which is a small portion of its estimated 2001
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 statements of the Company.
(8)--SEGMENT INFORMATION
The Company operates in one reportable segment - Truckload
transportation services. The reportable Truckload segment consists of
five operating fleets that have been aggregated since they have
similar economic characteristics and meet the other aggregation
criteria of SFAS No. 131. The Medium- to Long-Haul Van fleet
transports a variety of consumer, non-durable products and other
commodities in truckload quantities over irregular routes using dry
van trailers. The Regional Short-Haul fleet provides comparable
truckload van service within five geographic regions. The Flatbed and
Temperature-Controlled fleets provide truckload services for products
with specialized trailers. The Dedicated Services fleet provides
truckload services required by a specific company, plant or
distribution center.
Operating revenues from external customers for the Company's
major service categories were as follows (in thousands):
2000 1999 1998
---------- ---------- --------
Truckload $1,148,651 $ 991,954 $821,596
Non-trucking 65,977 60,379 41,821
---------- ---------- --------
Total operating revenues $1,214,628 $1,052,333 $863,417
========== ========== ========
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 9% of the Company's revenues.
24
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
(9)--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share amounts)
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
2000:
Operating revenues $291,379 $307,242 $304,572 $311,435
Operating income 18,535 22,418 21,043 20,825
Net income 10,318 12,915 12,291 12,499
Diluted earnings per share .22 .27 .26 .26
1999:
Operating revenues $240,980 $260,646 $270,144 $280,563
Operating income 21,243 29,691 28,841 22,426
Net income 12,622 17,576 16,977 12,836
Diluted earnings per share .27 .37 .36 .27
25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
During the second quarter of 1999, the Company solicited and
received formal proposals for accounting and tax services from several
accounting firms. Effective June 10, 1999, the Company (a) engaged
KPMG LLP as independent accountants and (b) dismissed Arthur Andersen
LLP ("AA LLP") as independent accountants. The decision to change
accountants was approved by the Company's Board of Directors.
The reports of AA LLP for the past two fiscal years contained no
adverse opinion, disclaimer of opinion, or opinion that was qualified
or modified as to uncertainty, audit scope, or accounting principles.
During the Company's two most recent fiscal years and subsequent
interim periods preceding the effective date of the change in
accountants there were no:
1) disagreements between the Company and AA LLP on any matter
of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of AA LLP,
would have caused them to make reference to the subject
matter of the disagreements in their reports.
2) reportable events involving AA LLP that would have required
disclosure under Item 304(a)(1)(v) of Regulation S-K.
3) consultations between the Company and KPMG LLP regarding any
of the matters or events set forth in Item 304(a)(2)(i) and
(ii) of Regulation S-K.
PART III
Certain information required by Part III is omitted from this
report on Form 10-K in that the Company will file a definitive proxy
statement pursuant to Regulation 14A (Proxy Statement) not later than
120 days after the end of the fiscal year covered by this report on
Form 10-K, and certain information included therein is incorporated
herein by reference. Only those sections of the Proxy Statement which
specifically address the items set forth herein are incorporated by
reference. Such incorporation does not include the Compensation
Committee Report or the Performance Graph included in the Proxy
Statement.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by
reference to the Company's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by
reference to the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated herein by
reference to the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by
reference to the Company's Proxy Statement.
26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) Financial Statements and Schedules.
(1) Financial Statements: See Part II, Item 8 hereof.
Page
----
Report of Independent Public Accountants 12
Consolidated Statements of Income 13
Consolidated Balance Sheets 14
Consolidated Statements of Cash Flows 15
Consolidated Statements of Stockholders' Equity 16
Notes to Consolidated Financial Statements 17
(2) Financial Statement Schedules: The consolidated financial
statement schedule set forth under the following caption is
included herein. The page reference is to the consecutively
numbered pages of this report on Form 10-K.
Page
----
Schedule II - Valuation and Qualifying Accounts 29
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set
forth therein is included in the Consolidated Financial Statements
or Notes thereto.
(3) Exhibits: The response to this portion of Item 14 is
submitted as a separate section of this report on Form 10-K
(see Exhibit Index on page 30).
(b) Reports on Form 8-K:
A report on Form 8-K, filed October 18, 2000, regarding a news
release on October 17, 2000, announcing the Company's operating
revenues and earnings for the third quarter ended September 30, 2000.
27
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 19th day of March, 2001.
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 19, 2001
- ----------------------- Executive Officer and
Clarence L. Werner Director
/s/ Gary L. Werner Vice Chairman and Director March 19, 2001
- -----------------------
Gary L. Werner
/s/ Curtis G. Werner Vice Chairman - Corporate March 19, 2001
- ----------------------- Development and Director
Curtis G. Werner
/s/ Gregory L. Werner President, Chief Operating March 19, 2001
- ----------------------- Officer and Director
Gregory L. Werner
/s/ John J. Steele Vice President, Treasurer and March 19, 2001
- ----------------------- Chief Financial Officer
John J. Steele
/s/ James L. Johnson Vice President, Controller March 19, 2001
- ----------------------- and Secretary
James L. Johnson
/s/ Irving B. Epstein Director March 19, 2001
- -----------------------
Irving B. Epstein
/s/ Martin F. Thompson Director March 19, 2001
- -----------------------
Martin F. Thompson
/s/ Gerald H. Timmerman Director March 19, 2001
- -----------------------
Gerald H. Timmerman
/s/ Donald W. Rogert Director March 19, 2001
- -----------------------
Donald W. Rogert
/s/ Jeffrey G. Doll Director March 19, 2001
- -----------------------
Jeffrey G. Doll
28
SCHEDULE II
WERNER ENTERPRISES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Balance at Charged to Write-Off Balance at
Beginning of Costs and of Doubtful End of
Period Expenses Accounts Period
------------ ---------- ----------- ----------
Year ended December 31, 2000:
Allowance for doubtful accounts $3,236 $2,191 $1,433 $3,994
====== ====== ====== ======
Year ended December 31, 1999:
Allowance for doubtful accounts $2,933 $ 606 $ 303 $3,236
====== ====== ====== ======
Year ended December 31, 1998:
Allowance for doubtful accounts $3,126 $ 206 $ 399 $2,933
====== ====== ====== ======
29
EXHIBIT INDEX
Page Number or
Exhibit Incorporated by
Number Description 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 Exhibit 3(i) to the Company's report on
to Articles of Form 10-K for the year ended December 31,
Incorporation 1998
3(ii) Revised and Exhibit 3(ii) to the Company's report on
Amended By-Laws Form 10-K for the year ended December 31,
1994
10.1 Second Amended and Exhibit 10 to the Company's report on Form
Restated Stock Option 10-Q for the quarter ended June 30, 2000
Plan
10.2 Initial Subscription Exhibit 2.1 to the Company's report on Form
Agreement of 8-K filed July 17, 2000
Transplace.com, LLC,
dated April 19, 2000
10.3 Operating Agreement Exhibit 2.2 to the Company's report on Form
of Transplace.com, 8-K filed July 17, 2000
LLC, dated April 19,
2000
11 Statement Re: Filed herewith
Computation of Per
Share Earnings
21 Subsidiaries of Filed herewith
the Registrant
23.1 Consent of KPMG LLP Filed herewith
23.2 Consent of Arthur Filed herewith
Andersen LLP
99 Report of Independent Filed herewith
Public Accountants of
Arthur Andersen LLP
30