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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, 2002
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.
[ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes X No
--- ---
The aggregate market value of the registrant's $.01 par value common
stock held by nonaffiliates of the registrant as of January 31, 2003, was
approximately $707 million (based upon $18.29 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 January 31, 2003, 63,756,037 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 13, 2003, 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 6
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition 8
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk 17
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 34
PART III
Item 10. Directors and Executive Officers of the Registrant 34
Item 11. Executive Compensation 34
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters 34
Item 13. Certain Relationships and Related Transactions 35
Item 14. Controls and Procedures 35
PART IV
Item 15. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 35
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 as well
as providing logistics services. Werner is one of 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 2002 with a fleet of 8,200 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 (DOT) 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 retail store merchandise, consumer products,
manufactured products, and grocery products. The Company's emphasis is
to transport consumer nondurable products that ship more consistently
throughout the year.
Marketing and Operations
Werner's business philosophy is to provide superior on-time service
to its customers at a competitive 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 developed 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, Mexico, and Canada; regional), or conversion of their
private fleet to Werner (dedicated).
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 2002, the Company's largest 5, 10, 25, and 50 customers
comprised 24%, 33%, 47%, and 59% of the Company's revenues, respectively.
The Company's largest customer, Dollar General, accounted for 9% of the
Company's revenues in 2002. By industry group, the Company's top 50
customers consist of 54% retail and consumer products, 22%
manufacturing/industrial, 21% grocery products, and 3% logistics and
other.
Virtually all of Werner's company and owner-operator tractors are
equipped with satellite communications devices manufactured by Qualcomm
that enable the Company and drivers to conduct two-way communication
using standardized and freeform messages. This satellite technology,
installed in all trucks beginning in 1992, 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) software which preplans shipments that can be swapped by drivers
enroute to meet driver home time needs, without compromising on-time
delivery requirements, (2) automated "possible late load" tracking which
informs the operations department of trucks that may be operating behind
schedule, thereby allowing the Company to take preventive measures to
avoid a late delivery, (3) the Company's proprietary Paperless Log System
to electronically preplan the assignment of shipments to drivers based on
real-time available driving hours and to automatically keep track of
truck movement and drivers' hours of service, and (4) automated engine
diagnostics to continually monitor mechanical fault tolerances. In June
1998, Werner Enterprises became the first, and only, trucking company in
the United States to receive authorization from the Federal Highway
Administration, under a continuing 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-97-2350) on May 2, 2000, that
proposed 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. In late 2000,
Congress instructed the FMCSA to revise the proposed regulations. In
December 2002, the FMCSA announced that they had completed revisions to
the hours-of-service proposal which have now been forwarded to the Office
of Management and Budget for review. That review process normally takes
one to three months, but can be longer depending on the complexity of the
issues involved. As of the date of this filing, the specific provisions
of the FMCSA proposal have not been made public.
On June 30, 2000, the Company, along with five other large
transportation companies, contributed their logistics business units into
a transportation logistics company, Transplace. The Company invested $5
million in cash and received an approximate 15% equity stake in
Transplace. The Company transferred logistics business representing
about 4% of total revenues for the six months ended June 30, 2000, to
Transplace. For the two and one half years ended December 31, 2002, the
Company recorded its approximate 15% ownership investment in Transplace
using the equity method of accounting and accrued its percentage share of
Transplace's cumulative losses as other non-operating expense. On
December 31, 2002, the Company sold a portion of its ownership interest
in Transplace, reducing the Company's ownership stake in Transplace from
15% to 5%. The Company realized earnings of one cent per share during
fourth quarter 2002, representing the Company's gain on sale of a portion
of its ownership in Transplace, net of losses recorded on its investment
in Transplace during the quarter. The Company relinquished its seat on
the Transplace Board of Directors, and Transplace agreed to release the
Company from certain restrictions on competition within the
transportation logistics marketplace. The Company is not responsible for
the debt of Transplace.
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, 2002, the Company employed 9,596 drivers, 686
mechanics and maintenance personnel, 1,334 office personnel for the
trucking operation, and 186 personnel for the non-trucking operations.
The Company also had 1,020 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. For company drivers, the rate per mile
increases with the drivers' length of service. Additional compensation
2
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).
At times, there are shortages of drivers in the trucking industry.
In prior years, the number of qualified drivers in the industry was
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. Although the
market for attracting drivers improved during 2002 due to a higher
domestic unemployment rate and other factors, 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
November 2002 bankruptcy filing by Student Finance Corp., a principal
source of loans for students enrolled in driving schools, may limit the
number of new drivers entering the industry.
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 several factors
including high fuel prices, tightening of equipment financing standards,
and declining truck values for older used trucks.
Revenue Equipment
As of December 31, 2002, Werner operated 7,180 company tractors and
had contracts for 1,020 tractors owned by owner-operators. Approximately
77% of the company tractors are manufactured by Freightliner, a
subsidiary of DaimlerChrysler. Most of the remaining company tractors are
manufactured by Peterbilt, a division of PACCAR. 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. Owner-operator tractors are inspected prior to
acceptance by the Company for compliance with operational and safety
requirements of the Company and the DOT. These tractors are then
periodically inspected, similar to company tractors, to monitor continued
compliance.
The Company operated 20,880 trailers at December 31, 2002: 19,243
dry vans; 702 flatbeds; 869 temperature-controlled; and 66 other
specialized trailers. Most of the Company's trailers are manufactured by
Wabash National Corporation. As of December 31, 2002, 98% of the
Company's fleet of dry van trailers consisted of 53-foot trailers, and
98% consisted of aluminum plate or composite (duraplate) trailers. Other
trailer lengths such as 48-foot and 57-foot are also provided by the
Company to meet the specialized needs of customers.
Effective October 1, 2002, all newly manufactured truck engines must
comply with the engine emission standards mandated by the Environmental
Protection Agency (EPA). All truck engines manufactured prior to October
1, 2002 are not subject to these new standards. For the first time in
the Company's history, there was inadequate time prior to implementation
for the engine manufacturers to provide a sufficient sample of new
engines for testing. The Company is testing three types of EPA-compliant
engines. During 2002 Werner significantly increased the purchase of
trucks with pre-October 2002 engines to delay the business risk of buying
new engines until adequate testing is completed. This reduced the
average age of the company truck fleet from 1.5 years at December 31,
2001 to 1.2 years as of December 31, 2002. The Company received its
remaining deliveries of new trucks with pre-October engines from its
truck manufacturers in January 2003. As a result, the Company expects
its new truck purchases during the rest of the first half of 2003 will be
minimal. Truck purchases in the second half of 2003 will depend on the
Company's ongoing testing and evaluation of the new engines.
3
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.
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. Diesel fuel prices began to
decrease in the fourth quarter of 2001 but by second quarter of 2002 had
increased again to higher price levels. Due to pending concerns in the
Middle East and other factors, fuel prices continued to increase
throughout the second half of 2002 and increased further in the first
part of 2003. The Company's customer fuel surcharge reimbursement
programs have historically enabled the Company to recover from its
customers much of the higher fuel prices compared to normalized average
fuel prices. These fuel surcharges, which automatically adjust from week
to week depending on the cost of fuel, enable the Company to recoup much
of the higher cost of fuel when prices increase except for miles not
billable to customers, out-of-route miles, and truck engine idling.
Conversely, when fuel prices decrease, fuel surcharges decrease. The
Company cannot predict whether high fuel prices will continue to increase
or will decrease in the future or the extent to which fuel surcharges
will be collected to offset such increases. As of December 31, 2002, 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 most 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 DOT and the Federal
and Provincial Transportation Departments in Canada. 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 has
authority to carry freight on an intrastate basis in 43 states. The
Federal Aviation Administration Authorization Act of 1994 (the FAAA Act)
amended sections of the Interstate 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 intrastate commerce 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 does not believe that compliance with these regulations has a
material effect on its capital expenditures, earnings, and competitive
position.
President Bush is considering implementing provisions of the North
American Free Trade Agreement (NAFTA), which could result in increased
competition between U.S. and Mexican carriers for truckload services
between these two countries. The Company believes it is one of the five
largest truckload carriers that has international freight shipments to
and from the United States and Mexico.
4
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 approximately $400 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 much lesser degree.
Competition for the freight transported by the Company is based
primarily on service and efficiency and, to some degree, on freight rates
alone. Few other truckload carriers have greater financial resources,
own more equipment, or carry a larger volume of freight than the Company.
The Company is one of the five largest carriers in the truckload
transportation industry.
Industry-wide truck capacity in the truckload sector is being
limited due to a number of factors. There are continuing cost issues and
concerns with the new EPA-compliant diesel engines. Trucking company
failures in the last three years are continuing at a pace much higher
than the previous fifteen years. Some truckload carriers are having
extreme difficulty obtaining adequate trucking insurance coverage at
a reasonable price. Equipment lenders have tightened their credit
policies for truck financing. Many truckload carriers, including Werner,
have slowed their fleet growth plans, and some have downsized their
fleets to improve their operating margins and returns.
Internet Web Site
The Company maintains a web site where additional information
concerning its business can be found. The address of that web site is
www.werner.com. The Company makes available free of charge on its
Internet web site its annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act
as soon as reasonably practicable after it electronically files or
furnishes such materials to the SEC.
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 197 acres, 147 of which are held for
future expansion. The Company's 286,000 square-foot headquarters office
building includes a 5,000 square-foot computer center, drivers' lounge
areas, a drivers' orientation section, a cafeteria, and a Company store.
The Company is currently constructing an approximate 6,000 square-foot
addition to its existing computer center, which it expects to complete in
second quarter 2003. 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 were converted into a driver training facility in
2001. The Company owns all of its corporate headquarters facilities.
The Company's headquarters facilities have suitable space available to
accommodate planned expansion needs for the next 3 to 5 years.
The Company and its subsidiaries own a 22,000 square-foot terminal
in Springfield, Ohio, a 33,000 square-foot facility near Denver, a 20,000
square-foot facility near Los Angeles, a 43,000 square-foot terminal near
Atlanta, a 77,000 square-foot terminal in Dallas (including 26,000 square
feet of tractor shop facilities added in 2002), a 32,000 square-foot
terminal in Phoenix, and a 16,000 square-foot international terminal in
5
Laredo, Texas. The Company leases terminal facilities in Allentown,
Pennsylvania and in Indianapolis, Indiana. All eight locations include
office and maintenance space.
The Company also owns a 73,000 square-foot disaster recovery and
warehouse facility in another area of Omaha. The disaster recovery site
is equipped with back-up telephones, workstations, and networking
hardware and software, which is designed to allow the Company to quickly
transfer its critical functions from the main headquarters with minimal
interruption in service and communications with its customers and
drivers. It also has 50% ownership in a 125,000 square-foot warehouse
located near the Company's headquarters. Additionally, the Company leases
several small sales offices and trailer parking yards in various
locations throughout the country, owns a 96-room motel located near the
Company's headquarters, and owns four low-income housing apartment
complexes.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its
business, primarily involving claims for personal injury, property
damage, and workers' compensation incurred in the transportation of
freight. The Company has maintained a self-insurance program with a
qualified department of Risk Management professionals since 1988. These
employees manage the Company's property damage, cargo, liability, and
workers' compensation claims. The Company has assumed liability for
claims up to $500,000, plus administrative expenses, for each occurrence
involving personal injury or property damage. The Company is also
responsible for varying annual aggregate amounts of liability for claims
above $500,000 and below $4,000,000. For the policy year ending August
1, 2003, these annual aggregate amounts total $2,500,000. The Company
has also assumed liability for claims above $3,000,000 and below
$5,000,000 for the policy year ending August 1, 2003. The Company
maintains insurance, which covers liability in excess of this amount to
coverage levels that management considers adequate. The Company's
liability insurance policy for coverage ranging from $500,000 per claim
to $3,000,000 per claim renews on August 1, 2004. 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 2002, no matters were submitted to a
vote of security holders.
6
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, 2001,
through December 31, 2002.
Dividends
Declared Per
High Low Common Share
------ ------ ------------
2002
Quarter ended:
March 31 $22.18 $17.72 $.020
June 30 21.75 16.70 .020
September 30 21.30 17.35 .020
December 31 22.76 17.31 .020
2001
Quarter ended:
March 31 $14.91 $11.34 $.019
June 30 18.87 11.67 .019
September 30 17.93 11.94 .019
December 31 20.48 12.07 .019
As of February 18, 2003, the Company's common stock was held by 227
stockholders of record and approximately 5,800 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.
Common Stock Split
On February 11, 2002, the Company announced that its Board of
Directors declared a four-for-three split of the Company's common stock
effected in the form of a 33 1/3 percent stock dividend. The stock
dividend was paid on March 14, 2002, to stockholders of record at the
close of business on February 25, 2002. No fractional shares of common
stock were issued in connection with the stock split. Stockholders
entitled to fractional shares received a proportional cash payment based
on the closing price of a share of common stock on February 25, 2002.
7
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.
(In thousands, except per share amounts) 2002 2001 2000 1999 1998
- --------------------------------------------------------------------------------------------------
Operating revenues $1,341,456 $1,270,519 $1,214,628 $1,052,333 $863,417
Net income 61,627 47,744 48,023 60,011 57,246
Earnings per share 0.94 0.74 0.76 0.94 0.90
Cash flow from operations* 226,271 226,920 170,147 131,977 137,940
Cash dividends declared per share .080 .075 .075 .075 .070
Return on average stockholders' equity 10.0% 8.5% 9.3% 12.8% 13.7%
Operating ratio 92.6% 93.8% 93.2% 90.3% 88.9%
Book value per share 10.15 9.27 8.55 7.86 6.98
Total assets 1,062,878 964,014 927,207 896,879 769,196
Total debt (current and long-term) 20,000 50,000 105,000 145,000 100,000
Stockholders' equity 647,643 590,049 536,084 494,772 440,588
* Cash flow from operations for 2001 includes a $23.4 million refund
which resulted from the implementation of certain tax strategies.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Critical Accounting Policies
The Company's success depends on its ability to efficiently manage
its resources in the delivery of truckload transportation and logistics
services to its customers. Resource requirements vary with customer
demand, which may be subject to seasonal or general economic conditions.
The Company's ability to adapt to changes in customer transportation
requirements is a key element in efficiently deploying resources and in
making capital investments in tractors and trailers. Although the
Company's business volume is not highly concentrated, the Company may
also be affected by the financial failure of its customers or a loss of a
customer's business from time-to-time.
The Company's greatest resource requirements include qualified
drivers, tractors, trailers, and related costs of operating its equipment
(such as fuel and related fuel taxes, driver pay, insurance, and supplies
and maintenance). The Company has historically been successful
mitigating its risk to increases in fuel prices by recovering additional
fuel surcharges from its customers. The Company's financial results are
also affected by availability of qualified drivers and the market for new
and used trucks. Because the Company is self-insured for cargo, personal
injury, and property damage claims on its trucks and for workers'
compensation benefits for its employees (supplemented by premium-based
coverage above certain dollar levels), financial results may also be
affected by driver safety, medical costs, the weather, the legal and
regulatory environment, and the costs of insurance coverage to protect
against catastrophic losses.
The most significant accounting policies and estimates that affect
our financial statements include the following:
* Selections of estimated useful lives and salvage values for
purposes of depreciating tractors and trailers. Depreciable lives
of tractors and trailers range from 5 to 12 years. Estimates of
salvage value at the expected date of trade-in or sale (for
example, three years for tractors) are based on the expected
market values of equipment at the time of disposal.
* Estimates of accrued liabilities for insurance and claims for
liability and physical damage losses and workers' compensation.
The insurance and claims accruals (current and long-term) are
recorded at the estimated ultimate payment amounts and are based
8
upon individual case estimates, including negative development,
and estimates of incurred-but-not-reported losses based upon past
experience.
Management periodically re-evaluates these estimates as events and
circumstances change. Together with the effects of the matters discussed
above, these factors may significantly impact the Company's results of
operations from period-to-period.
Results of Operations
The following table sets forth the percentage relationship of income
and expense items to operating revenues for the years indicated.
2002 2001 2000
------ ------ ------
Operating revenues 100.0% 100.0% 100.0%
------ ------ ------
Operating expenses
Salaries, wages and benefits 36.3 36.0 35.4
Fuel 9.3 10.3 11.3
Supplies and maintenance 8.9 9.3 8.5
Taxes and licenses 7.4 7.4 7.3
Insurance and claims 3.8 3.3 2.8
Depreciation 9.1 9.2 9.0
Rent and purchased transportation 16.6 16.9 17.9
Communications and utilities 1.1 1.1 1.2
Other 0.1 0.3 (0.2)
------ ------ ------
Total operating expenses 92.6 93.8 93.2
------ ------ ------
Operating income 7.4 6.2 6.8
Net interest expense and other 0.0 0.2 0.4
------ ------ ------
Income before income taxes 7.4 6.0 6.4
Income taxes 2.8 2.2 2.4
------ ------ ------
Net income 4.6% 3.8% 4.0%
====== ====== ======
9
The following table sets forth certain industry data regarding the
freight revenues and operations of the Company.
2002 2001 2000 1999 1998
------- ------- ------- ------- -------
Operating ratio 92.6% 93.8% 93.2% 90.3% 88.9%
Average revenues per tractor per week (1) $2,932 $2,874 $2,889 $2,813 $2,783
Average annual miles per tractor 123,480 123,660 125,568 125,856 126,492
Average total miles per trip (loaded
and empty) 746 744 746 734 760
Average revenues per total mile (1) $1.235 $1.208 $1.197 $1.162 $1.144
Average revenues per loaded mile (1) $1.366 $1.342 $1.328 $1.287 $1.265
Average percentage of empty miles 9.6% 10.0% 9.9% 9.7% 9.6%
Non-trucking revenues (in thousands) $97,130 $74,001 $65,977 $60,379 $41,821
Average tractors in service 7,971 7,698 7,303 6,769 5,662
Total tractors (at year end):
Company 7,180 6,640 6,300 5,895 5,220
Owner-operator 1,020 1,135 1,175 1,230 930
------- ------- ------- ------- -------
Total tractors 8,200 7,775 7,475 7,125 6,150
======= ======= ======= ======= =======
Total trailers (at year end) 20,880 19,775 19,770 18,900 16,350
======= ======= ======= ======= =======
(1) Net of fuel surcharge revenues.
2002 Compared to 2001
- ---------------------
Operating revenues increased 5.6% over 2001, due primarily to a 3.5%
increase in the average number of tractors in service. Revenue per total
mile, excluding fuel surcharges, increased 2.2% primarily due to customer
rate increases and better freight mix. A better freight market and
tightening truck capacity contributed to the improvement, compared to the
weaker freight market of 2001. Over the past several months, the Company
has been meeting with customers to explain the current state of the
truckload industry. Both truckload industry and Company margins, while
improving, are below levels management considers acceptable for the
investment and risk of operating in this industry. The Company is
actively negotiating rate increases. Revenue per total mile, including
fuel surcharges, increased 0.6% compared to 2001. Fuel surcharges, which
represent collections from customers for the higher cost of fuel,
decreased from $46.2 million in 2001 to $29.1 million in 2002 due to
lower average fuel prices during 2002 (see fuel explanation below).
Excluding fuel surcharge revenues, trucking revenues increased 5.6% over
2001. Revenue from non-trucking services increased $23.1 million compared
to 2001.
Freight demand began to improve in mid-April of 2002 as compared to
the same date in 2001, and continued to be consistently better for the
last eight and one half months of 2002 compared to the corresponding
period in 2001. The Company's empty mile percentage decreased from 10.0%
to 9.6%. The Company believes much of the improvement was achieved by
execution of the Company's plan of limited fleet growth and maintenance
of a diversified freight base that emphasizes consumer nondurable goods.
The Company's operating ratio (operating expenses expressed as a
percentage of operating revenues) improved from 93.8% in 2001 to 92.6% in
2002. Conversely, the Company's operating margin improved 19% from 6.2%
in 2001 to 7.4% in 2002.
Owner-operator miles as a percentage of total miles were 15.4% in
2002 compared to 16.6% in 2001. This decrease contributed to a shift in
costs from the rent and purchased transportation expense category as
described on the following pages. Owner-operators are independent
contractors who supply their own tractor and driver and are responsible
for their operating expenses including fuel, supplies and maintenance,
10
and fuel taxes. Over the past year, it has been more difficult to
attract and retain owner-operator drivers due to challenging operating
conditions.
Salaries, wages and benefits increased from 36.0% to 36.3% of
revenues due in part to an increase in the cost of workers' compensation
claims, higher workers' compensation excess insurance premiums, and
higher weekly state workers' compensation payments. 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 reduced 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 (which are
reflected in Supplies and Maintenance expenses). These increases were
partially offset by an improvement in health insurance expense. The
market for attracting and retaining company drivers continues to be
challenging. The Company anticipates that the competition for qualified
drivers will continue to be high and cannot predict whether it will
experience shortages in the future. If such a shortage 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 10.3% to 9.3% of revenues due to lower fuel
prices. The average price per gallon of diesel fuel, excluding fuel
taxes, was approximately $.07 per gallon, or 9%, lower in 2002 versus
2001. However, as diesel fuel prices gradually declined during fourth
quarter 2001, prices rose during fourth quarter 2002 and averaged about
$.20 per gallon, or 33%, higher. Fuel prices in January and February 2003
were about 45 cents per gallon, or 79%, higher than the same period a
year ago. The Company's customer fuel surcharge reimbursement programs
have historically enabled the Company to recover from its customers much
of the higher fuel prices compared to normalized average fuel prices.
These fuel surcharges, which automatically adjust from week to week
depending on the cost of fuel, enable the Company to recoup a significant
portion of the higher cost of fuel when prices increase. Conversely,
when fuel prices decrease, fuel surcharges decrease. After considering
the amounts collected from customers through fuel surcharge programs, net
of Company reimbursements to owner-operators, 2002 earnings per share
decreased by approximately $.03 compared to 2001, including a $.04
per share decrease occurring in fourth quarter 2002. 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 prices will
continue to increase or will decrease in the future or the extent to
which fuel surcharges will be collected from customers. As of December
31, 2002, the Company had no derivative financial instruments to reduce
its exposure to fuel price fluctuations.
Supplies and maintenance decreased from 9.3% to 8.9% of revenues due
to improved management of maintenance expenses, including performing more
maintenance at company facilities versus higher-cost over-the-road
maintenance. The increase in the amount of maintenance being performed
at company facilities required the hiring of additional maintenance
personnel, resulting in a slight shift in expenses from the supplies and
maintenance expense category to salaries, wages and benefits (see
salaries, wages and benefits explanation above).
Insurance and claims increased from 3.3% to 3.8% of revenues due to
less favorable claims experience in 2002 and higher excess insurance
premiums. Insurance premiums in the liability insurance market have
increased significantly for many truckload carriers. For fifteen years,
the Company has been self-insured and managed virtually all of its
liability, cargo, and property damage claims with qualified Risk
Department professionals. 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 from $0.5 million to $3.0 million per claim is fixed through
August 1, 2004, while coverage levels above $3.0 million per claim will
be renewed effective August 1, 2003. For the policy year beginning
August 1, 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.
11
Rent and purchased transportation expense decreased from 16.9% to
16.6% of revenues due to a decrease in payments to owner-operators (9.8%
of revenues in 2002 compared to 11.0% in 2001), offset by an increase in
purchased transportation for non-trucking services. The decrease in
payments to owner-operators resulted from the decrease in owner-operator
miles as a percentage of total Company miles as discussed previously and
lower fuel surcharge reimbursements paid to owner-operators due to lower
average fuel prices. The Company has experienced difficulty recruiting
and retaining owner-operators because of challenging operating
conditions. This has resulted in a reduction in the number of owner-
operator tractors from 1,135 as of December 31, 2001, to 1,020 as of
December 31, 2002. The Company reimburses owner-operators for the higher
cost of fuel based on fuel surcharge reimbursements collected from
customers.
Other operating expenses decreased from 0.3% to 0.1% of revenues due
primarily to an increase in the resale value of the Company's used
trucks. 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 2002, the Company traded
about half of its used trucks and sold about half of its used trucks and
realized gains of $2.3 million. In 2001, the Company traded about two-
thirds of its used trucks and sold about one-third to third parties. In
2001, due to a lower average sale price per truck, the Company realized
losses of $0.7 million. For trucks traded, the excess of the trade price
over the net book value of the trucks reduces the cost basis of new
trucks, and therefore results in lower depreciation expense over the life
of the asset. Other operating expenses also include bad debt expenses
and professional service fees.
Net interest expense and other decreased from 0.2% to 0.0% of
revenues due primarily to the Company's gain on sale of a portion of its
ownership in Transplace in fourth quarter 2002. On December 31, 2002,
the Company finalized the sale, which reduced the Company's ownership
stake in Transplace from 15% to 5%. Werner relinquished its seat on the
Transplace Board of Directors. Transplace agreed to release Werner from
certain restrictions on competition within the transportation logistics
marketplace. The Company's gain on sale of a portion of its ownership in
Transplace, net of losses recorded on its investment in Transplace, is
recorded as non-operating income in the Company's income statement.
Interest expense decreased to 0.2% from 0.3% of revenues due to a
reduction in the Company's borrowings. Average debt outstanding in 2002
was $35.0 million versus $77.5 million in 2001.
The Company's effective income tax rate (income taxes as a
percentage of income before income taxes) was 37.5% in 2002 and 2001,
respectively, as described in Note 5 of the Notes to Consolidated
Financial Statements under Item 8 of this Form 10-K. The Company expects
the 37.5% income tax rate to be the tax rate in effect for 2003.
2001 Compared to 2000
- ---------------------
Operating revenues increased 4.6% over 2000, due primarily to a 5.4%
increase in the average number of tractors in service. Revenue per total
mile, excluding fuel surcharges, increased 0.9% primarily due to customer
rate increases, and revenue per total mile, including fuel surcharges,
increased 0.3% compared to 2000. Fuel surcharges, which represent
collections from customers for the higher cost of fuel, decreased from
$51.4 million in 2000 to $46.2 million in 2001 due to lower average fuel
prices (see fuel explanation below). Excluding fuel surcharge revenues,
trucking revenues increased 4.8% over 2000. Revenue from non-trucking
transportation services increased $8.0 million compared to 2000.
Freight demand during 2001 was soft due to a weaker U.S. economy as
compared to 2000. However, the Company developed its freight base and
utilized its proprietary technology so that it experienced only a 1.5%
decrease in its average annual miles per tractor. The Company's empty
mile percentage increased slightly, by one-tenth of one percentage point
(from 9.9% to 10.0%).
The Company's operating ratio (operating expenses expressed as a
percentage of operating revenues) increased from 93.2% in 2000 to 93.8%
in 2001. The decrease in owner-operator miles as a percentage of total
miles (16.6% in 2001 compared to 18.6% in 2000) contributed to a shift
in costs from the rent and purchased transportation expense category as
described below.
12
Salaries, wages and benefits increased from 35.4% to 36.0% of
revenues due in part to a higher percentage of company drivers as
compared to owner-operators and an increase in the number of drivers in
training. Workers' compensation and health insurance expense increased
due to rising medical costs and higher weekly state workers' compensation
payment rates. These increases were partially offset by an improvement
in the tractor to non-driver employee ratio, which lowered non-driver
labor costs per mile.
Fuel decreased from 11.3% to 10.3% of revenues due to lower fuel
prices, principally in the fourth quarter of 2001. The average price per
gallon of diesel fuel, excluding fuel taxes, was approximately $.11 per
gallon lower in 2001 versus 2000. The average price per gallon in fourth
quarter 2001 was approximately $.17 per gallon lower than the average
price for the year of 2001 and was about the same as the average
historical fuel price levels over the past ten years. After considering
the amounts collected from customers through fuel surcharge programs, net
of reimbursements to owner-operators, 2001 earnings per share increased
by approximately $.07 over 2000 due to lower fuel costs. As of December
31, 2001, the Company had no derivative financial instruments to reduce
its exposure to fuel price fluctuations.
Supplies and maintenance increased from 8.5% to 9.3% of revenues due
to a higher percentage of company drivers compared to owner-operators
during 2001 and more maintenance services performed over-the-road than at
Company facilities.
Insurance and claims increased from 2.8% to 3.3% of revenues due to
unfavorable claims experience in 2001 and higher excess insurance
premiums. As a result of the Company's self-insurance program for
liability, cargo, and property damage claims, higher liability insurance
rates have had a less significant effect on the Company, impacting the
Company only for catastrophic claim coverage. The Company renewed its
annual catastrophic liability insurance coverage effective August 1,
2001, and the effect of the increase in premiums was less than 10% of the
Company's total annual insurance and claims expense.
Rent and purchased transportation expense decreased from 17.9% to
16.9% of revenues because of a decrease in payments to owner-operators
(11.0% of revenue in 2001 compared to 12.6% in 2000), offset by an
increase in purchased transportation relating to remaining non-trucking
operations following the transfer of most of the Company's logistics
business to Transplace. The decrease in payments to owner-operators
resulted from the decrease in owner-operator miles as a percentage of
total Company miles as discussed above. The Company has experienced
difficulty recruiting and retaining owner-operators because of high fuel
prices, a weak used truck pricing market, and other factors. This has
resulted in a reduction in the number of owner-operator tractors from
1,175 as of December 31, 2000, to 1,135 as of December 31, 2001.
Other operating expenses changed from a credit of (0.2)% to an
expense of 0.3% of revenues due in part to a weak market for the sale of
used trucks. Record levels of trucks manufactured during 1999 and 2000,
an increased supply of used trucks caused in part by trucking company
business failures, and slower fleet growth by many carriers have all
contributed to a decline in the market value of used trucks. During
2001, the Company traded about two-thirds of its used trucks and sold
about one-third to third parties. For trucks traded, the excess of the
trade price over the net book value of the trucks reduced the cost basis
of new trucks. In 2000, the Company traded half of its used trucks and
sold half of its used trucks to third parties through its Fleet Truck
Sales retail network and realized gains of $5.1 million. In 2001, due to
a lower average sale price per truck, the Company realized losses of $0.7
million. The Company renegotiated its trade agreements with its primary
truck manufacturer in June 2001 and continued to expand its nationwide
retail truck sales network in response to the weak used truck market.
Other operating expenses were also impacted by increasing the allowance
for uncollectible receivables for the Company's maximum credit exposure
related to the fourth quarter 2001 Enron bankruptcy of approximately $1.2
million. This receivable was written off during 2002.
Net interest expense and other decreased from 0.4% to 0.2% of
revenues due to lower interest expense, offset partially by the Company's
share of Transplace operating losses. Interest expense decreased from
0.7% to 0.3% of revenues due to a reduction in the Company's borrowings.
Average debt outstanding in 2001 was $77.5 million versus $125.0 million
in 2000. In 2001, the Company recorded a loss of approximately $1.7
13
million as its percentage share of estimated Transplace losses versus a
gain of approximately $0.3 million in 2000.
The Company's effective income tax rate (income taxes as a
percentage of income before income taxes) was 37.5% and 38.0% in 2001 and
2000, respectively, as described in Note 5 of the Notes to Consolidated
Financial Statements under Item 8 of this Form 10-K. The effective
income tax rate for the 2001 period decreased due to the implementation
of certain tax strategies
Liquidity and Capital Resources
Net cash provided by operating activities was $226.3 million in
2002, $226.9 million in 2001, and $170.1 million in 2000. Excluding the
$23.4 million refund of income taxes received in first quarter 2001,
which resulted from the implementation of certain tax strategies, cash
flow from operations increased $22.8 million in 2002 over 2001, or 11.2%.
This increase was the result of higher net income ($13.9 million),
increased deferred taxes due to growth of the company truck fleet ($16.8
million), offset by an increase in cash used for working capital items
($10.0 million). 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 $235.5 million in 2002,
$126.9 million in 2001, and $113.2 million in 2000. The 86% increase
($108.6 million) from 2002 to 2001 was due primarily to the Company's
accelerated purchases of tractors with pre-October 2002 engines. The
engine emission standards that became effective October 1, 2002 did not
allow the Company sufficient time to test a significant sample of the new
engines. This prompted the Company to purchase a large number of trucks
with pre-October 2002 engines, which are not subject to the new engine
emission standards. Net capital expenditures in 2002, 2001, and 2000
were $237.8 million, $126.2 million, and $108.5 million, respectively.
The capital expenditures in 2002, 2001, and 2000 were financed primarily
with cash on hand and cash provided by operations. As a result of the
accelerated truck purchases in 2002, capital expenditures in the first
half 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 half of 2003. Truck purchases in the second
half of 2003 will depend on the Company's ongoing testing and evaluation
of the new engines.
As of December 31, 2002, the Company has committed to approximately
$20.1 million of net capital expenditures.
Net financing activities used $35.2 million in 2002, $51.1 million
in 2001, and $46.8 million in 2000. In 2002, 2001, and 2000 the Company
made net repayments of debt of $30.0 million, $55.0 million, and $40.0
million, respectively. The Company paid dividends of $5.0 million in 2002
and $4.7 million in 2001 and 2000. Financing activities also included
common stock repurchases of $3.8 million in 2002 and $2.8 million in
2000. From time to time, the Company has repurchased, 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 3,333,333 shares. As of
December 31, 2002, the Company had purchased 1,918,401 shares pursuant to
this authorization and has 1,414,932 shares remaining available for
repurchase.
Management believes the Company's financial position at December 31,
2002 is strong. As of December 31, 2002, the Company had $29.9 million
of cash and cash equivalents, $20.0 million of debt, and $647.6 million
of stockholders' equity. As of December 31, 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.
14
Contractual Obligations and Commercial Commitments
The following table sets forth the Company's contractual obligations
and commercial commitments as of December 31, 2002.
Payments Due by Period
(in millions)
Contractual Obligations Total Less than 1 year 1-3 years 4-5 years After 5 years
- ----------------------- ----- ---------------- --------- --------- -------------
Long-term debt $20.0 $20.0 $- $- $-
----- ---------------- --------- --------- -------------
Total contractual
cash obligations $20.0 $20.0 $- $- $-
===== ================ ========= ========= =============
Amount of Commitment Expiration Per Period
(in millions)
Other Commercial Total Amounts
Commitments Committed Less than 1 year 1-3 years 4-5 years Over 5 years
- ---------------- ------------- ---------------- --------- --------- ------------
Unused lines of credit $45.0 $20.0 $25.0 $- $-
Standby letters of credit 20.7 20.7 - - -
Other commercial commitments 20.1 20.1 - - -
------------- ---------------- --------- --------- ------------
Total commercial commitments $85.8 $60.8 $25.0 $- $-
============= ================ ========= ========= ============
The unused lines of credit are available to the Company in the event
the Company needs financing for the growth of its fleet. With the
Company's strong financial position, the Company expects it could obtain
additional financing, if necessary, at favorable terms. The standby
letters of credit are primarily required for insurance policies. The
other commercial commitments relate to committed equipment expenditures.
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.
Forward Looking Statements and Risk Factors
This discussion and analysis contains historical and forward-looking
information. The forward-looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The Company believes the assumptions underlying these forward-
looking statements are reasonable based on information currently
available, however any of the assumptions could be inaccurate, and
therefore, actual results may differ materially from those anticipated in
the forward-looking statements as a result of certain risks and
uncertainties. Those risks include, but are not limited to, the
following:
The Company's business is modestly seasonal with peak freight demand
occurring generally in the months of September, October, and November.
During the winter months, the Company's freight volumes are typically
lower as some customers have lower shipment levels after the Christmas
holiday season. The Company's operating expenses have historically been
higher in winter months primarily due 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 by seeking additional freight from certain
customers during traditionally slower shipping periods. Bad weather,
15
holidays, and the number of business days during the period can also
affect revenue, since revenue is directly related to available working
days of shippers.
The trucking industry is highly competitive and includes thousands
of trucking companies. The Company estimates the ten largest truckload
carriers have less than ten percent of the approximate $150 billion
market targeted by the Company. This competition could limit the
Company's growth opportunities and reduce its profitability. The Company
competes primarily with other truckload carriers. Railroads, less-than-
truckload carriers, and private carriers also provide competition, but to
a much 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.
The Company is sensitive to changes in overall economic conditions
that impact customer shipping volumes. The general slowdown in the
economy during 2001 had a negative effect on freight volumes for
truckload carriers, including the Company. During 2002, freight demand
for the Company during the last nine months was consistently better than
the weaker demand during 2001. As the unemployment rate increased during
2001 and 2002, driver availability improved for the Company and the
industry. Fuel prices increased beginning in fourth quarter 1999 and were
high through 2000 and 2001 before decreasing in the latter part of 2001.
Due to pending concerns in the Middle East and other factors, fuel prices
began to rise in the second quarter of 2002, continued to increase
throughout the second half of 2002, and increased further in the first
part of 2003. Shortages of fuel, increases in fuel prices, or rationing
of petroleum products can have a materially adverse impact on the
operations and profitability of the Company. To the extent that the
Company cannot recover the higher cost of fuel through customer fuel
surcharges, the Company's results would be negatively impacted. Future
economic conditions that may affect the Company include employment
levels, business conditions, fuel and energy costs, interest rates, and
tax rates.
The Company is regulated by the DOT and the Federal and Provincial
Transportation Departments in Canada. This regulatory authority
establishes broad powers, generally governing activities such as
authorization to engage in motor carrier operations, safety, financial
reporting, and other matters. The Company may become subject to new or
more comprehensive regulations relating to fuel emissions, driver hours
of service, or other issues mandated by the DOT, EPA, or the Federal and
Provincial Transportation Departments in Canada. For example, new engine
emissions standards became effective for truck engine manufacturers in
October 2002. These new engines have only recently been available for
testing.
At times, there have been shortages of drivers in the trucking
industry. Although the market for attracting company drivers improved
during 2001 and 2002 due to the higher domestic unemployment rate and
other factors, the Company anticipates that the competition for company
drivers will continue to be high. During 2001 and continuing into 2002,
it became more difficult to recruit and retain owner-operator drivers due
to the weak used truck pricing market and higher fuel prices for most of
the year. The Company anticipates that the competition for company
drivers and owner-operator drivers will continue to be high and cannot
predict whether it will experience shortages in the future.
The Company is highly dependent on the services of key personnel
including Clarence L. Werner and other executive officers. Although the
Company believes it has an experienced and highly qualified management
group, the loss of the services of these executive officers could have a
material adverse impact on the Company and its future profitability.
The Company is dependent on its vendors and suppliers. The Company
believes it has good relationships with its vendors and that it is
generally able to obtain attractive pricing and other terms from vendors
and suppliers. If the Company fails to maintain good relationships with
its vendors and suppliers or if its vendors and suppliers experience
significant financial problems, the Company could face difficulty in
obtaining needed goods and services because of interruptions of
production or for other reasons, which could adversely affect the
Company's business.
The efficient operation of the Company's business is highly
dependent on its information systems. Much of the Company's software has
been developed internally or by adapting purchased software applications
to the Company's needs. The Company has purchased redundant computer
16
hardware systems and has its own off-site disaster recovery facility
approximately ten miles from the Company's offices to use in the event of
a disaster. The Company has taken these steps to reduce the risk of
disruption to its business operation if a disaster were to occur.
The Company self-insures for liability resulting from cargo loss,
personal injury, and property damage as well as workers' compensation.
This is supplemented by premium insurance with licensed insurance
companies above the Company's self-insurance level for each type of
coverage. To the extent that the Company was to experience a significant
increase in the number of claims or the cost per claim, the Company's
operating results would be negatively affected.
Effective October 1, 2002, all newly manufactured truck engines must
comply with the engine emission standards mandated by the Environmental
Protection Agency (EPA). All truck engines manufactured prior to October
1, 2002 are not subject to these new standards. For the first time in
the Company's history, there was inadequate time prior to implementation
for the engine manufacturers to provide a sufficient sample of new
engines for testing. The Company is testing three types of EPA-compliant
engines. Most of these engines became available for testing during
fourth quarter 2002 and the first part of 2003. These new engines may
cause tractor costs to increase, may result in decreased fuel efficiency,
may have higher maintenance costs, and may have a shorter engine life.
During 2002 Werner significantly increased the purchase of trucks with
pre-October 2002 engines to delay the business risk of buying new engines
until adequate testing is completed. This reduced the average age of
the company truck fleet from 1.5 years at December 31, 2001 to 1.2 years
as of December 31, 2002. The Company received its remaining deliveries
of new trucks with pre-October engines from its truck manufacturers in
January 2003. The Company expects its new truck purchases during the
rest of the first half of 2003 will be minimal. Truck purchases in the
second half of 2003 will depend on the Company's ongoing testing and
evaluation of the new engines.
Because of truckload carrier concerns with new truck engines and
lower industry production of new trucks over the last three years, the
resale value of Werner's premium used trucks has improved from the
historically low values of 2001. Gains on sales of equipment are
reflected as a reduction of other operating expenses in the Company's
income statement and amounted to a gain of $2.3 million in 2002 compared
to a loss of $0.7 million in 2001, or an improvement of $.03 per share.
The Company expects its used truck pricing may remain better than
2001 for the near future. However, to the extent the Company purchases
fewer new trucks in 2003, it may have fewer used trucks to sell in 2003.
The extent of the Company's sales of used trucks in 2003 will depend on
the ongoing testing of the new engines, freight demand, driver
availability, and used truck pricing.
Caution should be taken not to place undue reliance on forward-
looking statements made herein, since the statements speak only as of the
date they are made. The Company undertakes no obligation to publicly
release any revisions to any forward-looking statements contained herein
to reflect events or circumstances after the date of this report or to
reflect the occurrence of unanticipated events.
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's only outstanding debt at December 31, 2002, was $20
million of fixed rate debt. Interest rates on the Company's unused credit
facilities are based on the London Interbank Offered Rate (LIBOR).
Increases in interest rates could impact the Company's annual interest
expense on future borrowings.
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
17
customers in the form of fuel surcharges. The Company cannot predict the
extent to which high fuel price levels will continue in the future or the
extent to which fuel surcharges could be collected to offset such
increases. As of December 31, 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 2002 and prior years. 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. To date, the
Company receives payment for freight services performed in Mexico and
Canada primarily in U.S. dollars to reduce foreign currency risk.
18
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, 2002 and
2001, and the related consolidated statements of income, stockholders'
equity and comprehensive income, and cash flows for each of the years in
the three-year period ended December 31, 2002. In connection with our
audits of the consolidated financial statements, we have also audited the
financial statement schedule for each of the years in the three-year
period ended December 31, 2002, listed in Item 15(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 audits.
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 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, 2002 and
2001, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 2002, 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 set forth therein.
KPMG LLP
Omaha, Nebraska
January 22, 2003
19
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
2002 2001 2000
---------- ---------- ----------
Operating revenues $1,341,456 $1,270,519 $1,214,628
---------- ---------- ----------
Operating expenses:
Salaries, wages and benefits 486,315 457,433 429,825
Fuel 125,189 131,498 137,620
Supplies and maintenance 119,972 117,882 102,784
Taxes and licenses 98,741 93,628 89,126
Insurance and claims 51,192 41,946 34,147
Depreciation 121,702 116,043 109,107
Rent and purchased transportation 222,571 214,336 216,917
Communications and utilities 14,808 14,365 14,454
Other 1,512 4,059 (2,173)
---------- ---------- ----------
Total operating expenses 1,242,002 1,191,190 1,131,807
---------- ---------- ----------
Operating income 99,454 79,329 82,821
---------- ---------- ----------
Other expense (income):
Interest expense 2,857 3,775 8,169
Interest income (2,340) (2,628) (2,650)
Other 333 1,791 (154)
---------- ---------- ----------
Total other expense 850 2,938 5,365
---------- ---------- ----------
Income before income taxes 98,604 76,391 77,456
Income taxes 36,977 28,647 29,433
---------- ---------- ----------
Net income $ 61,627 $ 47,744 $ 48,023
========== ========== ==========
Average common shares outstanding 63,764 63,147 62,748
========== ========== ==========
Basic earnings per share $ 0.97 $ 0.76 $ 0.77
========== ========== ==========
Diluted shares outstanding 65,217 64,147 63,010
========== ========== ==========
Diluted earnings per share $ 0.94 $ 0.74 $ 0.76
========== ========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
20
WERNER ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
December 31
----------------------
2002 2001
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 29,885 $ 74,366
Accounts receivable, trade, less allowance
of $4,459 and $4,966, respectively 131,889 121,354
Other receivables 10,335 8,527
Inventories and supplies 9,777 8,432
Prepaid taxes, licenses, and permits 13,535 12,333
Income taxes receivable 9,811 -
Other current assets 14,317 11,055
---------- ----------
Total current assets 219,549 236,067
---------- ----------
Property and equipment, at cost:
Land 19,357 19,357
Buildings and improvements 89,231 79,704
Revenue equipment 996,694 854,603
Service equipment and other 107,206 115,941
---------- ----------
Total property and equipment 1,212,488 1,069,605
Less - accumulated depreciation 380,221 354,122
---------- ----------
Property and equipment, net 832,267 715,483
---------- ----------
Other non-current assets 11,062 12,464
---------- ----------
$1,062,878 $ 964,014
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 50,546 $ 33,188
Current portion of long-term debt 20,000 30,000
Insurance and claims accruals 47,358 40,254
Accrued payroll 18,374 15,008
Current deferred income taxes 17,710 20,473
Other current liabilities 11,885 13,334
---------- ----------
Total current liabilities 165,873 152,257
---------- ----------
Long-term debt, net of current portion - 20,000
Deferred income taxes 201,561 162,907
Insurance and claims accruals, net of
current portion 47,801 38,801
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 200,000,000
shares authorized; 64,427,173 shares
issued; 63,781,288 and 63,636,216
shares outstanding, respectively 644 644
Paid-in capital 107,527 106,058
Retained earnings 547,467 490,942
Accumulated other comprehensive loss (216) (43)
Treasury stock, at cost; 645,885
and 790,957 shares, respectively (7,779) (7,552)
---------- ----------
Total stockholders' equity 647,643 590,049
---------- ----------
$1,062,878 $ 964,014
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
21
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
2002 2001 2000
---------- ---------- ----------
Cash flows from operating activities:
Net income $ 61,627 $ 47,744 $ 48,023
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 121,702 116,043 109,107
Deferred income taxes 35,891 42,529 18,751
(Gain) loss on disposal of
operating equipment (2,257) 740 (5,055)
Gain on sale of
unconsolidated affiliate (1,809) - -
Equity in loss (income) of
unconsolidated affiliate 2,105 1,664 (324)
Tax benefit from exercise
of stock options 1,450 2,384 130
Other long-term assets 248 938 (2,888)
Insurance, claims and other
long-term accruals 9,000 6,500 2,000
Changes in certain working
capital items:
Accounts receivable, net (10,535) 2,164 3,693
Prepaid expenses and other
current assets (17,428) 5,875 (8,474)
Accounts payable 17,358 2,478 (4,976)
Accrued and other current
liabilities 8,919 (2,139) 10,160
---------- ---------- ----------
Net cash provided by
operating activities 226,271 226,920 170,147
---------- ---------- ----------
Cash flows from investing activities:
Additions to property and
equipment (309,672) (170,862) (169,113)
Retirements of property and
equipment 71,882 44,710 60,608
Sale of (investment in)
unconsolidated affiliate 3,364 - (5,000)
(Increase) decrease in notes
receivable (1,099) (750) 287
---------- ---------- ----------
Net cash used in investing
activities (235,525) (126,902) (113,218)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of
long-term debt 10,000 5,000 10,000
Repayments of long-term debt (40,000) (60,000) (25,000)
Repayments of short-term debt - - (25,000)
Dividends on common stock (5,019) (4,728) (4,710)
Payment of stock split
fractional shares (12) - -
Repurchases of common stock (3,766) - (2,759)
Stock options exercised 3,570 8,591 657
---------- ---------- ----------
Net cash used in financing
activities (35,227) (51,137) (46,812)
---------- ---------- ----------
Net (decrease) increase in cash and
cash equivalents: (44,481) 48,881 10,117
Cash and cash equivalents,
beginning of year 74,366 25,485 15,368
---------- ---------- ----------
Cash and cash equivalents,
end of year $ 29,885 $ 74,366 $ 25,485
========== ========== ==========
Supplemental disclosures of cash
flow information:
Cash paid (received) during
year for:
Interest $ 3,080 $ 4,315 $ 7,876
Income taxes 10,422 (9,540) 3,916
Supplemental disclosures of
non-cash investing activities:
Notes receivable issued upon
sale of revenue equipment $ 2,686 $ 238 $ 4,707
Notes receivable canceled upon
return of revenue equipment (1,279) - -
Warehouse assets contributed
to LLC - 1,446 -
The accompanying notes are an integral part of these consolidated
financial statements.
22
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(In thousands, except share amounts)
Accumulated
Other Total
Common Paid-In Retained Comprehensive Treasury Stockholders'
Stock Capital Earnings Loss Stock Equity
------ -------- -------- ------------- --------- ------------
BALANCE, December 31, 1999 $644 $105,723 $404,625 $ - $(16,220) $494,772
Purchases of 300,268 shares
of common stock - - - - (2,759) (2,759)
Dividends on common stock
($.075 per share) - - (4,705) - - (4,705)
Exercise of stock options,
79,007 shares, including
tax benefits - (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 644 105,683 447,943 (34) (18,152) 536,084
Dividends on common stock
($.075 per share) - - (4,745) - - (4,745)
Exercise of stock options,
917,770 shares, including
tax benefits - 375 - - 10,600 10,975
Comprehensive income (loss):
Net income - - 47,744 - - 47,744
Foreign currency translation
adjustments - - - (9) - (9)
------ -------- -------- ------------- --------- ------------
Total comprehensive income - - 47,744 (9) - 47,735
------ -------- -------- ------------- --------- ------------
BALANCE, December 31, 2001 644 106,058 490,942 (43) (7,552) 590,049
Purchases of 213,700 shares
of common stock - - - - (3,766) (3,766)
Dividends on common stock
($.080 per share) - - (5,102) - - (5,102)
Payment of stock split
fractional shares - (12) - - - (12)
Exercise of stock options,
358,806 shares, including
tax benefits - 1,481 - - 3,539 5,020
Comprehensive income:
Net income - - 61,627 - - 61,627
Foreign currency translation
adjustments - - - (173) - (173)
------ -------- -------- ------------- --------- ------------
Total comprehensive income - - 61,627 (173) - 61,454
------ -------- -------- ------------- --------- ------------
BALANCE, December 31, 2002 $644 $107,527 $547,467 $(216) $ (7,779) $647,643
====== ======== ======== ============= ========= ============
The accompanying notes are an integral part of these consolidated
financial statements.
23
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
and logistics company operating under the jurisdiction of the U.S.
Department of Transportation, the Federal and Provincial Transportation
Departments in Canada, 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. The largest single customer generated 9% of revenues for
2002.
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. Through December 31, 2002,
the Company recorded its investment in Transplace using the equity method
of accounting (see Note 2).
Use of Management Estimates
The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States of
America 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 12 years
for revenue equipment, and 3 to 10 years for service and other equipment.
24
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 insurance and claims 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 insurance
and claims accruals are recorded at the estimated ultimate payment
amounts and are based upon individual case estimates and estimates of
incurred-but-not-reported losses based upon past experience.
The Company has been responsible for liability claims up to
$500,000, plus administrative expenses, for each occurrence involving
personal injury or property damage since August 1, 1992. The Company is
also responsible for varying annual aggregate amounts of liability for
claims above $500,000 and below $4,000,000. For the policy year ending
August 1, 2003, these annual aggregate amounts total $2,500,000. The
Company has also assumed liability for claims above $3,000,000 and below
$5,000,000 for the policy year ending August 1, 2003. Liability in
excess of these risk retention levels is assumed by the insurance
carriers in amounts which management considers adequate. The Company's
premium rate for liability coverage up to $3,000,000 per claim is fixed
through August 1, 2004, while coverage levels above $3,000,000 per claim
will be renewed effective August 1, 2003.
The Company has assumed responsibility for workers' compensation,
maintains a $22,000,000 bond, and has obtained insurance for individual
claims above $1,000,000.
Under these insurance arrangements, the Company maintains
$20,600,000 in letters of credit, as of December 31, 2002.
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. Foreign currency translation adjustments reflect the
changes in foreign currency exchange rates applicable to the net assets
of the Mexican operations for the years ended December 31, 2002, 2001,
and 2000, and of the Canadian operations for the years ended December 31,
2002 and 2001. The amounts of such translation adjustments were not
significant for all years presented (see the Consolidated Statements of
Stockholders' Equity and Comprehensive Income).
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
25
periods presented. There are no differences in the numerator of the
Company's computations of basic and diluted EPS for any period presented.
Stock Based Compensation
At December 31, 2002, the Company has a nonqualified stock option
plan, as described more fully in Note 6. The Company applies the
intrinsic value based method of Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees, and related
interpretations in accounting for its stock option plan. No stock-based
employee compensation cost is reflected in net income, as all options
granted under the plan had an exercise price equal to the market value of
the underlying common stock on the date of grant. 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 in accordance with SFAS No. 123, Accounting for
Stock-Based Compensation:
Year Ended December 31
-----------------------------
2002 2001 2000
------- ------- -------
Net income (in thousands),
as reported $61,627 $47,744 $48,023
Less: Total stock-based
employee compensation
expense determined under
fair value based method for
all awards, net of related
tax effects 3,456 3,155 2,288
------- ------- -------
Pro forma net income $58,171 $44,589 $45,735
======= ======= =======
Earnings per share:
Basic - as reported $ 0.97 $ 0.76 $ 0.77
======= ======= =======
Basic - pro forma $ 0.91 $ 0.71 $ 0.73
======= ======= =======
Diluted - as reported $ 0.94 $ 0.74 $ 0.76
======= ======= =======
Diluted - pro forma $ 0.89 $ 0.70 $ 0.73
======= ======= =======
Comprehensive Income
Comprehensive income consists of net income and other comprehensive
income (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 years ended
December 31, 2002, 2001, and 2000, comprehensive income consists of net
income and foreign currency translation adjustments.
Accounting Standards
On July 20, 2001, the Financial Accounting Standards Board (FASB)
issued SFAS No. 141 (SFAS 141), Business Combinations and No. 142 (SFAS
142), Goodwill and Other Intangible Assets. As of December 31, 2002, the
Company has no goodwill or other intangible assets. SFAS 141 requires
all business combinations initiated after June 30, 2001 to be accounted
for using the purchase method. SFAS 142 replaces the requirement to
amortize intangible assets with indefinite lives and goodwill with a
requirement for an annual impairment test. SFAS 142 also requires an
evaluation of intangible assets and their useful lives and a transitional
impairment test for goodwill and certain intangible assets upon adoption.
After transition, the impairment tests will be performed annually. SFAS
142 is effective for fiscal years beginning after December 15, 2001, as
of the beginning of the year. Management has determined that adoption of
these two statements as of January 1, 2002 did not have any effect on the
financial position, results of operations, or cash flows of the Company
during 2002.
During June 2001, the FASB issued SFAS No. 143 (SFAS 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
26
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 December 31, 2002, management
believes that SFAS 143 will have no significant effect on the financial
position, results of operations, and cash flows of the Company.
On October 3, 2001, the FASB issued SFAS No. 144 (SFAS 144),
Accounting for the Impairment or Disposal of Long-Lived Assets, which
addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. While SFAS 144 supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, it retains many of the fundamental provisions
of that Statement. SFAS 144 is effective for fiscal years beginning
after December 31, 2001. Management has determined that adoption of this
statement as of January 1, 2002 did not have any effect on the financial
position, results of operations, and cash flows of the Company during
2002.
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 December 31, 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 December 31, 2002, management
believes that SFAS 146 will have no significant effect on the financial
position, results of operations, and cash flows of the Company.
During December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure-an Amendment of FASB
Statement No. 123, which provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-
based employee compensation and requires prominent disclosures in both
annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used
on reported results. SFAS No. 148 is effective for fiscal years ending
after December 15, 2002. Management has determined that adoption of the
disclosure provisions of this statement did not have any effect on the
financial position, results of operations, or cash flows of the Company
during 2002 and expects no significant effect on future periods.
(2) 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 six
large transportation companies - Covenant Transport, Inc.; J.B. Hunt
Transport Services, Inc.; M.S. Carriers, Inc.; Swift Transportation Co.,
Inc.; Xpress Holdings, Inc.; and Werner Enterprises, Inc. Through
December 31, 2002, the Company accounted for its investment in TPC using
the equity method. Management believes this method was appropriate
because the Company had the ability to exercise significant influence
over operating and financial policies of TPC through its representation
on the TPC board of directors. On December 31, 2002, the Company sold a
portion of its ownership interest in TPC, reducing the Company's
ownership stake in TPC from 15% to 5%. The Company relinquished its seat
on the TPC Board of Directors, and TPC agreed to release the Company from
certain restrictions on competition within the transportation logistics
marketplace. The Company realized net losses of less than one cent per
share during 2002, consisting of the Company's gain on sale of a portion
of its ownership in TPC in fourth quarter 2002, net of the Company's
equity in net losses of TPC during the year. These items are recorded as
non-operating expense in the Company's Consolidated Statements of Income.
Beginning January 1, 2003, the Company will begin accounting for its
investment on the cost method and no longer accrue its percentage share
of TPC's earnings or losses. The Company is not responsible for the debt
of Transplace.
In October 2000, the Company provided funds (in thousands) of $3,200
to TPC in the form of a short-term note with an interest rate of eight
percent per annum. The Company recorded interest income on the note from
TPC (in thousands) of approximately $26 and $61 during 2001 and 2000,
respectively. The note was repaid in full in February 2001.
27
The Company and TPC enter into transactions with each other for
certain of their purchased transportation needs. The Company recorded
operating revenue (in thousands) from TPC of approximately $25,000,
$30,600, and $15,500 in 2002, 2001, and 2000, respectively, and recorded
purchased transportation expense to TPC of approximately $13,300,
$10,500, and $1,500 during 2002, 2001, and 2000, respectively.
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 (in thousands) was
approximately $123, $407, and $518 during 2002, 2001, and 2000,
respectively. The allocations for rent are recorded in the Consolidated
Statements of Income as miscellaneous revenue, and the remaining amounts
are recorded as a reduction of the respective operating expenses. The
Company expects to stop providing these services in 2003.
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.
(3) LONG-TERM DEBT
Long-term debt consists of the following at December 31 (in
thousands):
2002 2001
------- -------
6.55% Series A Senior Notes, due November 2002 $ - $20,000
6.02% Series B Senior Notes, due November 2002 - 10,000
5.52% Series C Senior Notes, due December 2003 20,000 20,000
------- -------
20,000 50,000
Less current portion 20,000 30,000
------- -------
Long-term debt, net $ - $20,000
======= =======
As of December 31, 2002, the Company has $45 million of available
credit pursuant to credit facilities with banks expiring May 18, 2003 and
August 31, 2004 which bear variable interest based on LIBOR, on which no
borrowings were outstanding at December 31, 2002. The Company is in the
process of establishing a new two-year credit facility (or facilities)
expected to become effective prior to the expiration of the May 2003
facility. 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, 2002.
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) NOTES RECEIVABLE
Notes receivable are included in other current assets and other non-
current assets in the Consolidated Balance Sheets. At December 31, notes
receivable consisted of the following (in thousands):
2002 2001
------ ------
Owner-operator notes receivable $3,890 $3,926
TDR Transportes, S.A. de C.V. 3,600 -
Warehouse One, LLC 1,602 1,659
------ ------
9,092 5,585
Less current portion 1,179 177
------ ------
Notes receivable - non-current $7,913 $5,408
====== ======
28
The Company provides financing to some independent contractors who
want to become owner-operators by purchasing a tractor from the Company
and leasing their truck to the Company. At December 31, 2002 and 2001,
the Company had 112 and 90 notes receivable (in thousands) totaling
$3,890 and $3,926, respectively, from these owner-operators. Included in
these amounts are notes from Pegasus Enterprises, LLC totaling $1,303 and
$300 at December 31, 2002 and 2001, respectively. Pegasus Enterprises is
owned by the brother and sister-in-law of the Chairman and Chief
Executive Officer. The Company maintains a first security interest in
the tractor until the owner-operator has paid the note balance in full.
During 2002, the Company loaned $3,600 (in thousands) to TDR
Transportes, S.A. de C.V. (TDR), a truckload carrier in the Republic of
Mexico. The loan has a nine-year term with principal payable at the end
of the term, is subject to acceleration if certain conditions are met,
bears interest at a rate of five percent per annum which is payable
quarterly, contains certain financial and other covenants, and is
collateralized by the assets of TDR. As of December 31, 2002, the
company had a receivable for interest on this note of $119. The Company
and TDR transact business with each other for certain of their purchased
transportation needs. During 2002, the Company recorded operating
revenues from TDR of approximately $416 and recorded purchased
transportation expense to TDR of approximately $1,087.
The Company has a 50% ownership interest in a 125,000 square-foot
warehouse (Warehouse One, LLC) located near the Company's headquarters.
The Company has a note receivable from the owner of the other 50%
interest in the warehouse with a principal balance (in thousands) of
$1,602 and $1,659 as of December 31, 2002 and 2001, respectively. The
note bears interest at a variable rate based on the prime rate and is
adjusted annually. The note is secured by the borrower's 50% ownership
interest in the warehouse. The Company's 50% ownership interest in the
warehouse of $1,401 and $1,446 as of December 31, 2002 and 2001,
respectively, is included in other non-current assets.
(5) INCOME TAXES
Income tax expense consists of the following (in thousands):
2002 2001 2000
------- -------- -------
Current
Federal $ 959 $(12,194) $ 9,132
State 127 (1,688) 1,550
------- -------- -------
1,086 (13,882) 10,682
------- -------- -------
Deferred
Federal 31,692 37,358 16,001
State 4,199 5,171 2,750
------- -------- -------
35,891 42,529 18,751
------- -------- -------
Total income tax expense $36,977 $ 28,647 $29,433
======= ======== =======
The effective income tax rate differs from the federal corporate
tax rate of 35% in 2002, 2001, and 2000 as follows (in thousands):
2002 2001 2000
------- ------- -------
Tax at statutory rate $34,511 $26,737 $27,110
State income taxes,
net of federal tax
benefits 2,812 2,264 2,795
Income tax credits (638) (638) (638)
Other, net 292 284 166
------- ------- -------
$36,977 $28,647 $29,433
======= ======= =======
29
At December 31, deferred tax assets and liabilities consisted of the
following (in thousands):
2002 2001
-------- --------
Deferred tax assets:
Insurance and claims accruals $ 34,094 $ 27,016
Allowance for uncollectible accounts 3,184 1,752
Other 3,358 3,579
-------- --------
Gross deferred tax assets 40,636 32,347
-------- --------
Deferred tax liabilities:
Property and equipment 211,135 166,818
Prepaid expenses 38,763 38,286
Other 10,009 10,623
-------- --------
Gross deferred tax liabilities 259,907 215,727
-------- --------
Net deferred tax liability $219,271 $183,380
======== ========
These amounts (in thousands) are presented in the accompanying
Consolidated Balance Sheets as of December 31 as follows:
2002 2001
-------- --------
Current deferred tax liability $ 17,710 $ 20,473
Noncurrent deferred tax liability 201,561 162,907
-------- --------
Net deferred tax liability $219,271 $183,380
======== ========
(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 11,666,667 shares.
At December 31, 2002, 3,232,166 shares were available for granting
additional options. At December 31, 2002, 2001, and 2000, options for
1,278,875, 828,851, and 1,124,919 shares with weighted average exercise
prices of $10.22, $10.31, and $9.81 were exercisable, respectively.
30
The following table summarizes Stock Option Plan activity for the
three years ended December 31, 2002:
Options Outstanding
---------------------------
Weighted-Average
Shares Exercise Price
---------------------------
Balance, December 31, 1999 3,634,617 $ 9.79
Options granted 1,506,667 9.65
Options exercised (79,007) 8.17
Options canceled (275,693) 9.77
---------
Balance, December 31, 2000 4,786,584 9.77
Options granted 1,598,000 12.22
Options exercised (917,770) 9.36
Options canceled (95,553) 9.60
---------
Balance, December 31, 2001 5,371,261 10.57
Options granted 6,666 17.43
Options exercised (358,806) 9.95
Options canceled (109,153) 9.34
---------
Balance, December 31, 2002 4,909,968 10.65
=========
The following table summarizes information about stock options
outstanding and exercisable at December 31, 2002:
Options Outstanding Options Exercisable
----------------------------------- ----------------------------
Weighted-Average Weighted-Average Weighted-Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
------------------------------------------------------------------------------------------------
$ 7.85 to $ 9.94 2,735,899 7.1 years $ 9.41 860,275 $ 9.30
$11.20 to $12.22 2,100,906 7.9 years 12.16 374,491 12.00
$13.03 to $17.43 73,163 6.1 years 13.66 44,109 13.17
--------- ---------
4,909,968 7.4 years 10.65 1,278,875 10.22
========= =========
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 2002, 2001, and 2000 was estimated using
the Black-Scholes option-pricing model with the following assumptions:
risk-free interest rate of 4.0 percent in 2002, 5.0 percent in 2001, and
6.0 percent in 2000; dividend yield of 0.4 percent in 2002 and 2001, and
0.5 percent in 2000; expected life of 7.0 years in 2002, and 8.0 years in
2001 and 2000; and volatility of 38 percent in 2002 and 2001, and 35
percent in 2000. The weighted-average fair value of options granted
during 2002, 2001, and 2000 was $7.85, $6.13, and $4.79 per share,
respectively. The table in Note 1 illustrates the effect on net income
and earnings per share had the fair value of option grants been charged
to salaries, wages, and benefits expense in the Consolidated Statements
of Income.
31
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 (in
thousands) were $106, $108, and $117 for 2002, 2001, and 2000,
respectively. Interest accrues on Purchase Plan contributions at a rate
of 5.25%. The broker's commissions and administrative charges related to
purchases of common stock under the Purchase Plan are paid by the
Company.
401(k) Retirement Savings Plan
The Company has an Employees' 401(k) Retirement Savings Plan (the
401(k) Plan). Employees are eligible to participate in the 401(k) Plan if
they have been continuously employed with the Company or its subsidiaries
for six months or more. The Company matches a portion of the amount each
employee contributes to the 401(k) Plan. It is the Company's intention,
but not its obligation, that the Company's total annual contribution for
employees will equal 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 (in thousands) of $1,599,
$1,574, and $1,528 for 2002, 2001, and 2000, respectively.
(7) COMMITMENTS AND CONTINGENCIES
The Company has committed to approximately $20 million of net
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 consolidated financial statements of the Company.
(8) 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, nondurable products and other
commodities in truckload quantities over irregular routes using dry van
trailers. The Dedicated Services fleet provides truckload services
required for a specific company, their plant, or their distribution
center. 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 Company generates non-trucking revenues related to freight
transportation management, freight brokerage, third-party equipment
maintenance, and other business activities. None of these operations meet
the quantitative 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.
32
The following tables summarize the Company's segment information (in
thousands):
Revenues
--------
2002 2001 2000
---------- ---------- ----------
Truckload Transportation Services $1,244,326 $1,196,518 $1,148,651
Other Non-trucking 97,130 74,001 65,977
---------- ---------- ----------
Total $1,341,456 $1,270,519 $1,214,628
========== ========== ==========
Operating Income
----------------
2002 2001 2000
------- ------- -------
Truckload Transportation Services $98,058 $78,807 $83,773
Other Non-trucking 1,396 522 (952)
------- ------- -------
Total $99,454 $79,329 $82,821
======= ======= =======
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.
(9) COMMON STOCK SPLIT
On February 11, 2002, the Company announced that its Board of
Directors declared a four-for-three split of the Company's common stock
effected in the form of a 33 1/3 percent stock dividend. The stock
dividend was paid on March 14, 2002, to stockholders of record at the
close of business on February 25, 2002. No fractional shares of common
stock were issued in connection with the stock split. Stockholders
entitled to fractional shares received a proportional cash payment based
on the closing price of a share of common stock on February 25, 2002.
All share and per-share information included in the accompanying
consolidated financial statements for all periods presented have been
adjusted to retroactively reflect the stock split.
(10) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share amounts)
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
2002:
Operating revenues $312,575 $340,405 $336,096 $352,380
Operating income 17,285 27,138 27,156 27,875
Net income 10,618 16,575 16,795 17,639
Basic earnings per share 0.17 0.26 0.26 0.28
Diluted earnings per share 0.16 0.25 0.26 0.27
2001:
Operating revenues $304,577 $322,777 $322,618 $320,547
Operating income 16,059 19,933 20,621 22,716
Net income 9,455 12,091 12,453 13,745
Basic earnings per share 0.15 0.19 0.20 0.22
Diluted earnings per share 0.15 0.19 0.19 0.21
33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No reports on Form 8-K have been filed within the twenty-four months
prior to December 31, 2002, involving a change of accountants or
disagreements on accounting and financial disclosure.
PART III
Certain information required by Part III is omitted from this report
on Form 10-K in that the Company will file a definitive proxy statement
pursuant to Regulation 14A (Proxy Statement) not later than 120 days
after the end of the fiscal year covered by this report on Form 10-K, and
certain information included therein is incorporated herein by reference.
Only those sections of the Proxy Statement which specifically address the
items set forth herein are incorporated by reference. Such incorporation
does not include the Compensation Committee Report or the Performance
Graph included in the Proxy Statement.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by
reference to the Company's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by
reference to the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information required by this Item, with the exception of the
equity compensation plan information presented below, is incorporated
herein by reference to the Company's Proxy Statement.
Equity Compensation Plan Information
The following table summarizes, as of December 31, 2002, information
about compensation plans under which equity securities of the Company are
authorized for issuance:
Number of Securities
Remaining Available for
Future Issuance under
Number of Securities to Weighted-Average Equity Compensation
be Issued upon Exercise Exercise Price of Plans (Excluding
of Outstanding Options, Outstanding Options, Securities Reflected in
Warrants and Rights Warrants and Rights Column (a))
Plan Category (a) (b) (c)
- ------------------- ----------------------- ------------------- ------------------------
Equity compensation
plans approved by
security holders 4,909,968 $10.65 3,232,166
34
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by
reference to the Company's Proxy Statement.
ITEM 14. 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, including any corrective actions with regard
to significant deficiencies and material weaknesses.
PART IV
ITEM 15. 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 19
Consolidated Statements of Income 20
Consolidated Balance Sheets 21
Consolidated Statements of Cash Flows 22
Consolidated Statements of Stockholders' Equity
and Comprehensive Income 23
Notes to Consolidated Financial Statements 24
(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 39
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 15 is submitted
as a separate section of this report on Form 10-K (see Exhibit Index on
page 40).
(b) Reports on Form 8-K:
A report on Form 8-K, filed October 22, 2002, regarding a news
release on October 15, 2002, announcing the Company's operating revenues
and earnings for the third quarter ended September 30, 2002.
A report on Form 8-K, filed November 15, 2002, regarding a news
release on November 15, 2002, announcing the Company's joint agreement to
sell a portion of Werner Enterprises' ownership interest in Transplace to
J.B. Hunt Transport Services, Inc.
35
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 28th day of February, 2003.
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 February 28, 2003
- ------------------------ Executive Officer and Director
Clarence L. Werner
/s/ Gary L. Werner Vice Chairman and February 28, 2003
- ------------------------ Director
Gary L. Werner
/s/ Curtis G. Werner Vice Chairman - Corporate February 28, 2003
- ------------------------ Development and Director
Curtis G. Werner
/s/ Gregory L. Werner President, Chief Operating February 28, 2003
- ------------------------ Officer and Director
Gregory L. Werner
/s/ John J. Steele Vice President, Treasurer and February 28, 2003
- ------------------------ Chief Financial Officer
John J. Steele
/s/ James L. Johnson Vice President, Controller February 28, 2003
- ------------------------ and Corporate Secretary
James L. Johnson
/s/ Jeffrey G. Doll Lead Director February 28, 2003
- ------------------------
Jeffrey G. Doll
/s/ Irving B. Epstein Director February 28, 2003
- ------------------------
Irving B. Epstein
/s/ Gerald H. Timmerman Director February 28, 2003
- ------------------------
Gerald H. Timmerman
/s/ Michael L. Steinbach Director February 28, 2003
- ------------------------
Michael L. Steinbach
/s/ Kenneth M. Bird Director February 28, 2003
- ------------------------
Kenneth M. Bird
36
CERTIFICATIONS
I, Clarence L. Werner, certify that:
1. I have reviewed this annual report on Form 10-K of Werner Enterprises,
Inc.;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 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 annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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 functions):
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 annual report whether 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: February 28, 2003
-----------------------
/s/ Clarence L. Werner
- ------------------------------
Clarence L. Werner
Chairman and Chief Executive Officer
37
CERTIFICATIONS
I, John J. Steele, certify that:
1. I have reviewed this annual report on Form 10-K of Werner Enterprises,
Inc.;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 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 annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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 functions):
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 annual report whether 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: February 28, 2003
-----------------------
/s/ John J. Steele
- ------------------------------
John J. Steele
Vice President, Treasurer and Chief Financial Officer
38
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, 2002:
Allowance for doubtful accounts $4,966 $1,175 $1,682 $4,459
====== ====== ====== ======
Year ended December 31, 2001:
Allowance for doubtful accounts $3,994 $2,057 $1,085 $4,966
====== ====== ====== ======
Year ended December 31, 2000:
Allowance for doubtful accounts $3,236 $2,191 $1,433 $3,994
====== ====== ====== ======
See independent auditors' report.
39
EXHIBIT INDEX
Exhibit Page Number or Incorporated by
Number Description Reference to
------- ----------- ------------------------------
3(i)(A) Revised and Amended Exhibit 3 to Registration Statement
Articles of on Form S-1, Registration No. 33-5245
Incorporation
3(i)(B) Articles of Amendment to Exhibit 3(i) to the Company's
Articles of report on Form 10-Q for the quarter
Incorporation ended May 31, 1994
3(i)(C) Articles of Amendment to Exhibit 3(i) to the Company's report
Articles of on Form 10-K for the year
Incorporation ended December 31, 1998
3(ii) Revised and Amended Exhibit 3(ii) to the Company's report
By-Laws on Form 10-K for the year
ended December 31, 1994
10.1 Amended and Restated Exhibit 4.3 to Registration Statement
Stock Option Plan on Form S-8, Registration No.
333-103467
10.2 Initial Subscription Exhibit 2.1 to the Company's report
Agreement of on Form 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
of Transplace.com, LLC, on Form 8-K filed July 17, 2000
dated April 19, 2000
11 Statement Re: Computation Filed herewith
of Per Share Earnings
21 Subsidiaries of the Filed herewith
Registrant
23.1 Consent of KPMG LLP Filed herewith
99.1 Certification Pursuant to Filed herewith
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the
Sarbanes-Oxley Act
of 2002
99.2 Certification Pursuant to Filed herewith
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the
Sarbanes-Oxley Act
of 2002
40