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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 Identification No.)
incorporation or organization)
14507 FRONTIER ROAD
POST OFFICE BOX 45308
OMAHA, NEBRASKA 68145-0308 (402) 895-6640
(Address of principal (Zip Code)(Registrant's telephone number,
executive offices) including area code)
_________________________________
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
As of October 31, 2002, 63,733,918 shares of the registrant's common
stock, par value $.01 per share, were outstanding.
INDEX TO FORM 10-Q
PAGE
PART I - FINANCIAL INFORMATION ----
Item 1 - Financial Statements
Consolidated Statements of Income for the Three Months Ended
September 30, 2002 and 2001 3
Consolidated Statements of Income for the Nine Months Ended
September 30, 2002 and 2001 4
Consolidated Condensed Balance Sheets as of September 30, 2002
and December 31, 2001 5
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2002 and 2001 6
Notes to Consolidated Financial Statements as of September 30,
2002 7
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 14
Item 4 - Controls and Procedures 15
PART II - OTHER INFORMATION
Items 1, 2, 3, 4, and 5 - Not Applicable
Item 6 - Exhibits and Reports on Form 8-K 15
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
The interim consolidated financial statements contained herein reflect
all adjustments which, in the opinion of management, are necessary for a
fair statement of the financial condition, results of operations, and cash
flows for the periods presented. They have been prepared in accordance
with the instructions to Form 10-Q and do not include all the information
and footnotes required by accounting principles generally accepted in the
United States of America for complete financial statements.
Operating results for the three-month and nine-month periods ended
September 30, 2002, are not necessarily indicative of the results that may
be expected for the year ending December 31, 2002. In the opinion of
management, the information set forth in the accompanying consolidated
condensed balance sheets is fairly stated in all material respects in
relation to the consolidated balance sheets from which it has been derived.
These interim consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the year
ended December 31, 2001.
2
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
(In thousands, except per share amounts) September 30
- -------------------------------------------------------------------------
2002 2001
- -------------------------------------------------------------------------
(Unaudited)
Operating revenues $336,096 $322,618
----------------------
Operating expenses:
Salaries, wages and benefits 120,303 115,020
Fuel 32,321 33,560
Supplies and maintenance 28,798 31,723
Taxes and licenses 24,348 23,529
Insurance and claims 13,233 9,866
Depreciation 30,632 29,005
Rent and purchased transportation 55,285 54,935
Communications and utilities 3,610 3,277
Other 410 1,082
----------------------
Total operating expenses 308,940 301,997
----------------------
Operating income 27,156 20,621
----------------------
Other expense (income):
Interest expense 757 775
Interest income (628) (585)
Other 156 506
----------------------
Total other expense 285 696
----------------------
Income before income taxes 26,871 19,925
Income taxes 10,076 7,472
----------------------
Net income $ 16,795 $ 12,453
======================
Average common shares outstanding 63,725 63,335
======================
Basic earnings per share $ .26 $ .20
======================
Diluted shares outstanding 65,128 64,353
======================
Diluted earnings per share $ .26 $ .19
======================
Dividends declared per share $ .020 $ .019
======================
3
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended
(In thousands, except per share amounts) September 30
- -------------------------------------------------------------------------
2002 2001
- -------------------------------------------------------------------------
(Unaudited)
Operating revenues $989,076 $949,972
----------------------
Operating expenses:
Salaries, wages and benefits 358,222 338,956
Fuel 87,783 104,338
Supplies and maintenance 89,966 87,942
Taxes and licenses 72,953 69,799
Insurance and claims 37,632 31,518
Depreciation 89,355 87,108
Rent and purchased transportation 168,552 160,452
Communications and utilities 10,971 10,587
Other 2,063 2,659
----------------------
Total operating expenses 917,497 893,359
----------------------
Operating income 71,579 56,613
----------------------
Other expense (income):
Interest expense 2,316 3,015
Interest income (1,904) (2,033)
Other 787 1,232
----------------------
Total other expense 1,199 2,214
----------------------
Income before income taxes 70,380 54,399
Income taxes 26,392 20,400
----------------------
Net income $ 43,988 $ 33,999
======================
Average common shares outstanding 63,776 63,044
======================
Basic earnings per share $ .69 $ .54
======================
Diluted shares outstanding 65,209 63,946
======================
Diluted earnings per share $ .67 $ .53
======================
Dividends declared per share $ .060 $ .057
======================
4
WERNER ENTERPRISES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands) September 30 December 31
- -------------------------------------------------------------------------
2002 2001
- -------------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 91,739 $ 74,366
Accounts receivable, trade, less allowance of
$5,489 and $4,966, respectively 126,725 121,354
Other receivables 9,058 8,527
Inventories and supplies 9,763 8,432
Prepaid taxes, licenses and permits 3,702 12,333
Other current assets 16,640 11,055
------------------------
Total current assets 257,627 236,067
------------------------
Property and equipment 1,157,894 1,069,605
Less - accumulated depreciation 378,098 354,122
------------------------
Property and equipment, net 779,796 715,483
------------------------
Other non-current assets 13,300 12,464
------------------------
$1,050,723 $ 964,014
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 46,533 $ 33,188
Current portion of long-term debt 30,000 30,000
Insurance and claims accruals 46,497 40,254
Accrued payroll 20,340 15,008
Current deferred income taxes 20,473 20,473
Other current liabilities 17,009 13,334
------------------------
Total current liabilities 180,852 152,257
------------------------
Long-term debt, net of current portion 20,000 20,000
Insurance and claims accruals, net of current
portion 45,801 38,801
Deferred income taxes 174,168 162,907
Stockholders' equity:
Common stock, $.01 par value, 200,000,000
shares authorized; 64,427,780 shares issued;
63,680,423 and 63,636,823 shares
outstanding, respectively 644 644
Paid-in capital 107,004 106,058
Retained earnings 531,103 490,942
Accumulated other comprehensive loss (101) (43)
Treasury stock, at cost; 747,357 and 790,957
shares, respectively (8,748) (7,552)
------------------------
Total stockholders' equity 629,902 590,049
------------------------
$1,050,723 $ 964,014
========================
5
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
(In thousands) September 30
- -------------------------------------------------------------------------
2002 2001
- -------------------------------------------------------------------------
(Unaudited)
Cash flows from operating activities:
Net income $ 43,988 $ 33,999
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 89,355 87,108
Deferred income taxes 11,261 32,273
(Gain) loss on disposal of property and
equipment (567) 565
Equity in loss of unconsolidated affiliate 763 1,110
Tax benefit from exercise of stock options 1,032 1,508
Other long-term assets 580 1,117
Insurance and claims accruals, net of current
portion 7,000 3,000
Changes in certain working capital items:
Accounts receivable, net (5,371) (5,227)
Prepaid expenses and other current assets 1,184 12,273
Accounts payable 13,345 5,660
Other current liabilities 15,222 10,424
----------------------
Net cash provided by operating activities 177,792 183,810
----------------------
Cash flows from investing activities:
Additions to property and equipment (201,972) (130,936)
Retirements of property and equipment 48,473 29,004
(Increase) decrease in notes receivable (1,892) 665
----------------------
Net cash used in investing activities (155,391) (101,267)
----------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt - 5,000
Repayments of long-term debt - (60,000)
Dividends on common stock (3,746) (3,546)
Payment of stock split fractional shares (12) -
Repurchases of common stock (3,766) -
Stock options exercised 2,496 6,158
----------------------
Net cash used in financing activities (5,028) (52,388)
----------------------
Net increase in cash and cash equivalents 17,373 30,155
Cash and cash equivalents, beginning of period 74,366 25,485
----------------------
Cash and cash equivalents, end of period $ 91,739 $ 55,640
======================
Supplemental disclosures of cash flow
information:
Cash paid (received) during the period for:
Interest $ 2,043 $ 3,556
Income taxes $ 10,483 $(15,787)
Supplemental schedule of non-cash investing
activities:
Notes receivable issued upon sale of revenue
equipment $ 1,197 $ 205
Notes receivable cancelled upon turn in of
revenue equipment $ (910) $ -
6
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Investment in Unconsolidated Affiliate
Effective June 30, 2000, the Company contributed its non-asset based
logistics business to Transplace (TPC), in exchange for an equity interest
in TPC of approximately 15%. TPC is a joint venture of five large
transportation companies - Covenant Transport, Inc.; J. B. Hunt Transport
Services, Inc.; Swift Transportation Co., Inc.; U. S. Xpress Enterprises,
Inc.; and Werner Enterprises, Inc. Accordingly, the Company is accounting
for its investment in TPC using the equity method. Management believes
this method is appropriate because the Company has the ability to exercise
significant influence over operating and financial policies of TPC through
its representation on the TPC board of directors. At September 30, 2002,
the investment in unconsolidated affiliate (in thousands), which is
included in other non-current assets, is $2,897 (which includes a $5,000
cash investment in TPC less $2,103, which represents the Company's 15%
equity in the loss from operations of unconsolidated affiliate since June
30, 2000). The Company is not responsible for the debt of Transplace.
(2) Comprehensive Income
Other than its net income, the Company's only other source of
comprehensive income (loss) is foreign currency translation adjustments.
Other comprehensive income (loss) from foreign currency translation
adjustments was ($58) and ($11) (in thousands) for the nine-month periods
ended September 30, 2002 and 2001, respectively.
(3) Commitments
As of September 30, 2002, the Company has commitments for net capital
expenditures of approximately $100 million.
7
(4) Earnings Per Share
A reconciliation of the numerator and denominator of basic and diluted
earnings per share is shown below. Common stock equivalents represent the
dilutive effect of outstanding stock options for all periods presented.
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- ---------------------
2002 2001 2002 2001
--------------------- ---------------------
Net income $ 16,795 $ 12,453 $ 43,988 $ 33,999
===================== =====================
Average common shares
outstanding 63,725 63,335 63,776 63,044
Common stock equivalents 1,403 1,018 1,433 902
--------------------- ---------------------
Diluted shares
outstanding 65,128 64,353 65,209 63,946
===================== =====================
Basic earnings per share $ .26 $ .20 $ .69 $ .54
===================== =====================
Diluted earnings per
share $ .26 $ .19 $ .67 $ .53
===================== =====================
Options to purchase shares of common stock which were outstanding
during the periods indicated above, but were excluded from the computation
of diluted earnings per share because the option purchase price was greater
than the average market price of the common shares, were:
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- ---------------------
2002 2001 2002 2001
--------------------- ---------------------
Number of shares
under option - - - 3,333
Range of option
purchase prices - - - $15.38
(5) Segment Information
The Company has one reportable segment - Truckload Transportation
Services. This 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 areas. The Flatbed and Temperature-
Controlled fleets provide truckload services for products with specialized
trailers. The Dedicated Services fleet provides truckload services
required by a specific company, plant, or distribution center.
The Company generates non-trucking revenues related to freight
transportation management, third-party equipment maintenance, and other
business activities. None of these operations meet the quantitative
8
threshold reporting requirements of SFAS No. 131. As a result, these
operations are grouped in "Other" in the table below. The Company does not
prepare separate balance sheets by segments and, as a result, assets are
not separately identifiable by segment. The Company has no significant
intersegment sales or expense transactions that would result in adjustments
necessary to eliminate amounts between the Company's segments.
The following tables summarize the Company's segment information (in
thousands of dollars):
Revenues
--------
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- ---------------------
2002 2001 2002 2001
--------------------- ---------------------
Truckload Transportation
Services $310,304 $302,839 $917,768 $896,062
Other 25,792 19,779 71,308 53,910
--------------------- ---------------------
Total $336,096 $322,618 $989,076 $949,972
===================== =====================
Operating Income
----------------
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- ---------------------
2002 2001 2002 2001
--------------------- ---------------------
Truckload Transportation
Services $26,847 $20,494 $70,446 $55,998
Other 309 127 1,133 615
--------------------- ---------------------
Total $27,156 $20,621 $71,579 $56,613
===================== =====================
9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This report contains forward-looking statements which are based on
information currently available to the Company's management. Actual
results could differ materially from those anticipated in forward-looking
statements as a result of a number of factors, including, but not limited
to, those discussed in Item 7, "Management's Discussion and Analysis of
Results of Operations and Financial Condition", of the Company's Annual
Report on Form 10-K for the year ended December 31, 2001. The Company
assumes no obligation to update any forward-looking statement to the extent
it becomes aware that it will not be achieved for any reason.
Financial Condition:
During the nine months ended September 30, 2002, the Company generated
cash flow from operations of $177.8 million, a 10.8% increase ($17.4
million) compared to the same nine-month period a year ago, excluding the
$23.4 million refund of income taxes received in first quarter 2001 which
resulted from the implementation of certain tax strategies. Including the
income tax refund, cash flow from operations was $183.8 million for the
nine months ended September 30, 2001. The cash flow from operations
enabled the Company to make net property additions, primarily new tractors,
of $153.5 million, repurchase common stock of $3.8 million, and pay common
stock dividends of $3.7 million.
Effective October 1, 2002, newly manufactured truck engines must be
compliant with the engine emission standards mandated by the Environmental
Protection Agency (EPA), or be subject to a fine imposed by the EPA. All
truck engines manufactured prior to October 1, 2002 are not subject to
these emission standards. Management's analysis led to significant
concerns about the reliability, fuel efficiency, cost and warranties of the
new engines. There has been insufficient time to test a significant sample
of the new engines for use in the Company's fleet. The Company has already
reduced the average age of its already-young company truck fleet from 1.5
years as of December 2001 to 1.2 years as of September 2002. The Company
expects to take delivery of new trucks with pre-October engines during
fourth quarter 2002. This is expected to further reduce the average age of
the company truck fleet to about 1.0 years as of December 2002. Truck
purchases in 2003 will be dependent on the results of the Company's further
testing and analysis of the new engines, including both the EGR engine
manufactured by Detroit Diesel and the ACERT engine manufactured by
Caterpillar. To the extent the Company purchases fewer new trucks in 2003,
it would likely have fewer used trucks to sell. This could result in the
Company recognizing less gains on sale of equipment in 2003.
The Company's cash position as of September 2002 was $91.7 million.
The Company expects its cash balance will decrease in fourth quarter 2002
due to the scheduled $30 million repayment of debt in November 2002 and net
property additions, including the purchase of new trucks with pre-October
2002 engines in fourth quarter 2002, of approximately $80 million to $85
million. The Company intends to fund the new truck purchases and debt
repayment in fourth quarter 2002 through existing cash on hand and cash
flow from operations. As a result of the fourth quarter 2002 truck
purchases, capital expenditures in the first part of 2003 are expected to
be lower, and the Company expects to generate free cash flow (cash flow
from operations less capital expenditures) in the first part of 2003.
The Company's debt to equity ratio at September 30, 2002 was 7.9%,
compared with 8.5% at December 31, 2001. The Company's debt to total
capitalization ratio (total capitalization equals total debt plus total
stockholders' equity) was 7.4% at September 30, 2002 compared to 7.8% at
December 31, 2001. As of September 30, 2002, the Company has no equipment
operating leases, and, therefore has no off-balance sheet equipment debt.
Based on the Company's strong financial position, management foresees
no significant barriers to obtaining sufficient financing, if necessary.
10
Results of Operations:
The following table sets forth the percentage relationship of income
and expense items to operating revenues for the periods indicated.
Three Months Ended Nine Months Ended
September 30 September 30
2002 2001 2002 2001
--------------------------------------------
Operating revenues 100.0% 100.0% 100.0% 100.0%
--------------------------------------------
Operating expenses:
Salaries, wages and
benefits 35.8 35.7 36.2 35.7
Fuel 9.6 10.4 8.9 11.0
Supplies and
maintenance 8.6 9.8 9.1 9.2
Taxes and licenses 7.3 7.3 7.4 7.3
Insurance and claims 3.9 3.1 3.8 3.3
Depreciation 9.1 9.0 9.0 9.2
Rent and purchased
transportation 16.4 17.0 17.1 16.9
Communications and
utilities 1.1 1.0 1.1 1.1
Other 0.1 0.3 0.2 0.3
--------------------------------------------
Total operating
expenses 91.9 93.6 92.8 94.0
--------------------------------------------
Operating income 8.1 6.4 7.2 6.0
Net interest expense and other 0.1 0.2 0.1 0.3
--------------------------------------------
Income before income taxes 8.0 6.2 7.1 5.7
Income taxes 3.0 2.3 2.7 2.1
--------------------------------------------
Net income 5.0% 3.9% 4.4% 3.6%
============================================
The following table sets forth certain industry data regarding the
freight revenues and operations of the Company.
Three Months Ended Nine Months Ended
--------------------------------------------------
September 30 % September 30 %
2002 2001 Change 2002 2001 Change
--------------------------------------------------
Average monthly miles per
tractor 10,283 10,347 (0.6%) 10,308 10,316 (0.1%)
Average revenues per total
mile (1) $1.242 $1.212 2.5% $1.227 $1.202 2.1%
Average revenues per loaded
mile (1) $1.372 $1.341 2.3% $1.357 $1.336 1.6%
Average percentage of empty
miles 9.52% 9.62% (1.0%) 9.60% 10.02% (4.2%)
Average tractors in service 7,885 7,735 1.9% 7,914 7,676 3.1%
Average revenues per truck
per week (1) $2,947 $2,894 1.8% $2,919 $2,861 2.0%
Non-trucking revenues (in
thousands) $25,792 $19,779 30.4% $71,308 $53,910 32.3%
Total tractors (at quarter
end)
Company 6,900 6,615 6,900 6,615
Owner-operator 1,050 1,135 1,050 1,135
------- ------- ------- -------
Total tractors 7,950 7,750 7,950 7,750
Total trailers (at quarter
end) 20,200 19,800 20,200 19,800
(1) Net of fuel surcharge revenues.
11
Three Months Ended September 30, 2002 Compared to Three Months Ended
- ---------------------------------------------------------------------------
September 30, 2001
- ------------------
Operating revenues increased 4.2% for the three months ended September
30, 2002, compared to the same period of the prior year, due in part to a
1.9% increase in the average number of tractors in service. Revenues also
increased due to an improvement in the rate per total mile of three cents a
mile, or 2.5%, compared to the same quarter a year ago. A better economy
and tightening truck capacity contributed to the improvement. Over the
past several months, we have been meeting with customers to explain the
current state of the truckload industry. Both truckload industry and
Company margins, while improving, are below acceptable levels for the
investment and risk of operating in this industry. We are actively
negotiating rate increases. Fuel surcharge revenues, which represent
collections from customers for the higher cost of fuel, decreased from
$11.8 million in third quarter 2001 to $8.2 million in third quarter 2002
due to lower average fuel prices (see fuel explanation below). Excluding
fuel surcharge revenues, trucking revenues increased 3.8% for the three
months ended September 30, 2002, compared to the same period of the prior
year. Revenue from non-trucking transportation and other services
increased by $6.0 million, most of which was due to growth with existing
customers.
Operating expenses, expressed as a percentage of operating revenues,
were 91.9% for the three months ended September 30, 2002, compared to 93.6%
for the three months ended September 30, 2001. Owner-operator miles as a
percentage of total miles were 14.7% in third quarter 2002 compared to
16.3% in third quarter 2001. Owner-operators are independent contractors
who supply their own tractor and driver and are responsible for their
operating expenses including fuel, supplies and maintenance, and fuel
taxes. Over the past year, it has been more difficult to attract and
retain owner-operator drivers due to the challenging operating conditions.
During third quarter 2002, the Company had approximately 85 fewer in-
service owner-operator trucks compared to third quarter 2001. The majority
of this decrease was due to a planned reduction in business with a specific
customer in second quarter 2002 that accounted for a decrease of 56 owner-
operator trucks and a reduction in trucks with another large owner-operator
fleet.
Salaries, wages and benefits increased from 35.7% to 35.8% of revenues
due in part to an increase in the frequency and cost of workers'
compensation claims, higher weekly state workers' compensation payment
rates, and an increase in workers' compensation excess insurance premiums.
The Company renewed its workers' compensation insurance coverage, and for
the policy year beginning April 2002, the Company increased its self-
insurance retention from $0.5 million to $1.0 million per claim and has
premium-based coverage with a reputable insurance company for claims above
this amount. The Company's premiums for this coverage increased by
approximately $1.3 million over the premiums from the prior policy year.
In addition, the Company added about 100 employees in its maintenance
department to reduce the higher cost of over-the-road repairs. The market
for attracting and retaining company drivers is becoming more challenging,
and the Company anticipates that the competition for qualified drivers will
be high and cannot predict whether it will experience shortages in the
future. If such a shortage was to occur and increases in driver pay rates
became necessary to attract and retain drivers, the Company's results of
operations would be negatively impacted to the extent that corresponding
freight rate increases were not obtained.
Fuel decreased from 10.4% to 9.6% of revenues due to lower fuel
prices. Average diesel fuel prices were higher than historical levels, but
were five cents per gallon lower in third quarter 2002 compared to third
quarter 2001. While fuel prices increased during third quarter 2002 due to
pending concerns in the Middle East, fuel prices in third quarter 2001
began to decrease toward the end of the quarter. Fuel prices have begun
falling again since the end of third quarter 2002, but as of November 12,
2002, are still ten cents per gallon higher than the fuel prices of
November 12, 2001. The Company's customer fuel surcharge reimbursement
programs have historically enabled the Company to recover most of the
higher fuel prices from its customers compared to normalized average fuel
prices. These surcharge programs, which generally adjust weekly based on
12
fuel pricing changes, continued to be in effect during third quarter 2002.
After considering the amounts collected from customers through fuel
surcharge programs, net of reimbursement to owner-operators, there was a
less than $.01 per share negative impact on third quarter 2002 earnings per
share compared to third quarter 2001 earnings per share. 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. The Company is unable to predict whether fuel price levels will
increase or decrease in the future or the extent to which fuel surcharges
will be collected from customers. As of September 30, 2002, the Company had
no derivative financial instruments to reduce its exposure to fuel price
fluctuations.
Supplies and maintenance decreased from 9.8% to 8.6% of revenues due
to (1) less maintenance being performed at a higher cost over-the-road
versus being performed at company facilities and (2) improved management of
maintenance expenses. The increase in the amount of maintenance being
performed at company facilities required the hiring of additional
maintenance personnel. See the previous discussion of the increase in
salaries, wages and benefits.
Insurance and claims increased from 3.1% to 3.9% of revenues due to
higher excess insurance retention levels and less favorable claims
experience in third quarter 2002. Insurance premiums in the liability
insurance market have increased significantly for many truckload carriers.
The Company has been self-insured and managed its own claims for liability,
cargo, and property damage for over ten years. The Company renewed
its annual liability insurance coverage for coverage in excess of $0.5
million per claim effective August 1, 2002. The Company's premium rate
for liability coverage up to $3.0 million per claim is fixed through
August 1, 2004, while coverage levels above $3.0 million per claim were
renewed effective August 1, 2002. For the policy year beginning August
2002, the Company's total premiums for liability insurance remained almost
the same as the prior policy year while the Company assumed liability for
claims above $3.0 million and below $5.0 million per claim. Liability
claims in excess of $5.0 million per claim, if they occur, are covered
under premium-based policies with reputable insurance companies.
Rent and purchased transportation decreased from 17.0% to 16.4% of
revenues due to a reduction in owner-operators and a decrease in payments
to owner-operators for fuel reimbursement due to lower fuel costs. The
Company reimburses owner-operators for the higher cost of fuel based on
fuel surcharge reimbursements collected from customers. This decrease was
offset by an increase in purchased transportation for non-trucking
services.
Other operating expenses decreased from 0.3% to 0.1% of revenues due
to improved pricing in the used truck market. Because of truckload carrier
concerns with new truck engines and lower industry production of new
trucks, the resale value of the Company's premium used trucks has improved.
In third quarter 2002 the Company realized gains of $0.6 million on sales
of used trucks to third parties through its Fleet Truck Sales retail
network compared to losses of $0.1 million in third quarter 2001.
The Company's effective income tax rate (income taxes as a percentage
of income before income taxes) was 37.5% for the three-month periods ended
September 30, 2002 and 2001.
Nine Months Ended September 30, 2002 Compared to Nine Months Ended
- ---------------------------------------------------------------------------
September 30, 2001
- ------------------
Operating revenues increased by 4.1% for the nine months ended
September 30, 2002, compared to the same period of the previous year,
primarily due to a 3.1% increase in the average number of tractors in
service. Revenue per total mile, excluding fuel surcharges, increased
2.1%. Fuel surcharge revenues decreased from $39.4 million to $16.9
million due to lower average fuel prices of approximately 16 cents per
gallon. Excluding fuel surcharge revenues, trucking revenues increased
5.2% for the nine months ended September 30, 2002,
13
compared to the same period of the prior year. Revenue from non-
trucking transportation and other services increased by $17.4 million.
Operating expenses, expressed as a percentage of operating revenues,
were 92.8% for the nine months ended September 30, 2002, compared to 94.0%
for the same period of the previous year.
Salaries, wages and benefits increased from 35.7% to 36.2% of
revenues, due to the Company increasing employees in its maintenance
department to reduce the higher cost of over-the-road repairs, a higher
percentage of company drivers as compared to owner-operators, and an
increase in workers' compensation expense due to higher workers'
compensation excess insurance premiums and higher weekly state workers'
compensation payment rates. Fuel decreased from 11.0% to 8.9% of revenues
due to lower fuel prices. Insurance and claims increased from 3.3% to 3.8%
of revenues primarily due to higher excess insurance premiums and less
favorable claims experience. Rent and purchased transportation increased
from 16.9% to 17.1% primarily due to an increase in purchased
transportation relating to non-trucking operations, offset by a decrease in
payments to owner-operators for fuel reimbursement, and a reduction in the
number of owner-operators.
Accounting Standards:
During June 2001, the Financial Accounting Standards Board (FASB)
issued SFAS No. 143, Accounting for Asset Retirement Obligations. This
Statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS 143 requires an enterprise to
record the fair value of an asset retirement obligation as a liability in
the period in which it incurs a legal obligation associated with the
retirement of a tangible long-lived asset. SFAS 143 is effective for
fiscal years beginning after June 15, 2002. As of September 30, 2002,
management believes that SFAS 143 will have no significant effect on the
financial position, results of operations, and cash flows of the Company.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statement No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. The provisions of this statement related to the
rescission of Statement No. 4 shall be applied in fiscal years beginning
after May 15, 2002. As of September 30, 2002, management believes that
SFAS 145 will have no significant effect on the financial position, results
of operations, and cash flows of the Company.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. The provisions of this
statement are effective for exit or disposal activities that are initiated
after December 31, 2002. As of September 30, 2002, management believes
that SFAS 146 will have no significant effect on the financial position,
results of operations, and cash flows of the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to market risk from changes in commodity
prices.
14
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 surcharge revenues. The Company has implemented customer fuel
surcharge programs with most of its revenue base to offset most of the
higher fuel cost per gallon. The Company cannot predict the extent to
which higher fuel price levels may occur in the future or the extent to
which fuel surcharges could be collected to offset such increases. As of
September 30, 2002, the Company had no derivative financial instruments to
reduce its exposure to fuel price fluctuations.
The Company conducts business in Mexico and Canada. Foreign currency
transaction gains and losses were not material to the Company's results of
operations for third quarter 2002 and prior periods. The Company receives
payment for freight services performed in Mexico and Canada primarily in
U.S. dollars to reduce foreign currency risk. Accordingly, the Company is
not currently subject to material foreign currency exchange rate risks from
the effects that exchange rate movements of foreign currencies would have
on the Company's future costs or on future cash flows.
Item 4. Controls and Procedures.
Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation
of the Company's management, including the Company's Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures, as defined
in Exchange Act Rule 15d-14(c). Based upon that evaluation, the Company's
Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective in enabling the
Company to record, process, summarize and report information required to be
included in the Company's periodic SEC filings within the required time
period. There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal
controls subsequent to the date the Company carried out its evaluation.
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
(i) A report on Form 8-K, filed July 22, 2002, regarding a news release
on July 16, 2002, announcing the Company's operating revenues and
earnings for the second quarter ended June 30, 2002.
(ii) A report on Form 8-K, filed August 6, 2002, providing the sworn
statements of the Principal Executive Officer and the Principal
Financial Officer required under Section 21(a)(1) of the Securities
Exchange Act of 1934.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
WERNER ENTERPRISES, INC.
Date: November 13, 2002 By: /s/ John J. Steele
----------------- -----------------------------
John J. Steele
Vice President, Treasurer and
Chief Financial Officer
Date: November 13, 2002 By: /s/ James L. Johnson
----------------- -----------------------------
James L. Johnson
Vice President, Controller and
Corporate Secretary
16
CERTIFICATIONS
- --------------
I, Clarence L. Werner, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Werner
Enterprises, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 13, 2002
-----------------
/s/ Clarence L. Werner
- ------------------------
Clarence L. Werner
Chairman and Chief Executive Officer
17
CERTIFICATIONS
- --------------
I, John J. Steele, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Werner
Enterprises, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 13, 2002
-----------------
/s/ John J. Steele
- ------------------------
John J. Steele
Vice President, Treasurer, and Chief Financial Officer
18