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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-14690
WERNER ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
NEBRASKA 47-0648386
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
14507 FRONTIER ROAD
POST OFFICE BOX 45308
OMAHA, NEBRASKA 68145-0308 (402) 895-6640
(Address of principal (Zip Code) (Registrant's telephone number,
executive offices) including area code)
_________________________________
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes _X_ No ___
As of April 30, 2003, 63,838,964 shares of the registrant's common
stock, par value $.01 per share, were outstanding.
INDEX TO FORM 10-Q
PAGE
PART I - FINANCIAL INFORMATION ----
Item 1. Financial Statements
Consolidated Statements of Income for the Three Months Ended
March 31, 2003 and 2002 3
Consolidated Condensed Balance Sheets as of March 31, 2003 and
December 31, 2002 4
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2003 and 2002 5
Notes to Consolidated Financial Statements as of March 31, 2003 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
Item 4. Controls and Procedures 14
PART II - OTHER INFORMATION
Items 1, 2, 3, 4, and 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K 14
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
The interim consolidated financial statements contained herein reflect
all adjustments which, in the opinion of management, are necessary for a
fair statement of the financial condition, results of operations, and cash
flows for the periods presented. The interim consolidated financial
statements have been prepared in accordance with the instructions to Form
10-Q and do not include all the information and footnotes required by
accounting principles generally accepted in the United States of America
for complete financial statements.
Operating results for the three-month period ended March 31, 2003, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2003. In the opinion of management, the information
set forth in the accompanying consolidated condensed balance sheets is
fairly stated in all material respects in relation to the consolidated
balance sheets from which it has been derived.
These interim consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the year
ended December 31, 2002.
2
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
(In thousands, except per share amounts) March 31
- -------------------------------------------------------------------------
2003 2002
- -------------------------------------------------------------------------
(Unaudited)
Operating revenues $347,208 $312,575
----------------------
Operating expenses:
Salaries, wages and benefits 123,127 115,502
Fuel 44,945 25,061
Supplies and maintenance 28,759 30,056
Taxes and licenses 25,720 23,882
Insurance and claims 19,141 11,606
Depreciation 32,721 29,202
Rent and purchased transportation 50,082 55,415
Communications and utilities 3,995 3,717
Other (265) 849
----------------------
Total operating expenses 328,225 295,290
----------------------
Operating income 18,983 17,285
----------------------
Other expense (income):
Interest expense 305 758
Interest income (274) (674)
Other 9 212
----------------------
Total other expense 40 296
----------------------
Income before income taxes 18,943 16,989
Income taxes 7,104 6,371
-----------------------
Net income $ 11,839 $ 10,618
======================
Average common shares outstanding 63,761 63,800
======================
Basic earnings per share $ .19 $ .17
======================
Diluted shares outstanding 65,139 65,310
======================
Diluted earnings per share $ .18 $ .16
======================
Dividends declared per share $ .020 $ .020
======================
3
WERNER ENTERPRISES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share amounts) March 31 December 31
- -------------------------------------------------------------------------
2003 2002
- -------------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 58,018 $ 29,885
Accounts receivable, trade, less allowance of
$4,803 and $4,459, respectively 136,878 131,889
Other receivables 13,652 10,335
Inventories and supplies 9,687 9,777
Prepaid taxes, licenses and permits 10,893 13,535
Income taxes receivable 6,240 9,811
Other current assets 13,183 14,317
------------------------
Total current assets 248,551 219,549
------------------------
Property and equipment 1,213,034 1,212,488
Less - accumulated depreciation 402,131 380,221
------------------------
Property and equipment, net 810,903 832,267
------------------------
Other non-current assets 10,731 11,062
------------------------
$1,070,185 $1,062,878
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,552 $ 50,546
Current portion of long-term debt 20,000 20,000
Insurance and claims accruals 50,889 47,358
Accrued payroll 20,256 18,374
Current deferred income taxes 17,710 17,710
Other current liabilities 12,561 11,885
------------------------
Total current liabilities 154,968 165,873
------------------------
Insurance and claims accruals, net of current
portion 53,301 47,801
Deferred income taxes 204,592 201,561
Stockholders' equity:
Common stock, $.01 par value, 200,000,000
shares authorized; 64,427,173 shares issued;
63,760,195 and 63,781,288 shares
outstanding, respectively 644 644
Paid-in capital 107,868 107,527
Retained earnings 558,031 547,467
Accumulated other comprehensive loss (303) (216)
Treasury stock, at cost; 666,978 and 645,885
shares, respectively (8,916) (7,779)
------------------------
Total stockholders' equity 657,324 647,643
------------------------
$1,070,185 $1,062,878
========================
4
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
(In thousands) March 31
- -------------------------------------------------------------------------
2003 2002
- -------------------------------------------------------------------------
(Unaudited)
Cash flows from operating activities:
Net income $11,839 $10,618
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 32,721 29,202
Deferred income taxes 3,031 2,719
Loss (gain) on disposal of property and
equipment (1,355) 181
Equity in loss of unconsolidated affiliate - 222
Tax benefit from exercise of stock options 359 918
Other long-term assets 28 192
Insurance claims accruals, net of current
portion 5,500 1,000
Changes in certain working capital items:
Accounts receivable, net (4,989) 3,316
Other current assets 4,120 394
Accounts payable (16,994) 3,595
Other current liabilities 6,002 4,186
---------------------
Net cash provided by operating activities 40,262 56,543
---------------------
Cash flows from investing activities:
Additions to property and equipment (20,738) (62,133)
Retirements of property and equipment 10,682 16,477
Decrease in notes receivable 357 271
---------------------
Net cash used in investing activities (9,699) (45,385)
---------------------
Cash flows from financing activities:
Dividends on common stock (1,275) (1,193)
Payment of stock split fractional shares - (12)
Repurchases of common stock (1,993) -
Stock options exercised 838 2,162
---------------------
Net cash provided by (used in) financing
activities (2,430) 957
---------------------
Net increase in cash and cash equivalents 28,133 12,115
Cash and cash equivalents, beginning of period 29,885 74,366
---------------------
Cash and cash equivalents, end of period $58,018 $86,481
=====================
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 305 $ 757
Income taxes $ 78 $ 4,904
Supplemental schedule of non-cash investing
activities:
Notes receivable issued upon sale of revenue
equipment $ 54 $ 49
5
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Comprehensive Income
Other than its net income, the Company's only other source of
comprehensive income (loss) is foreign currency translation adjustments.
Other comprehensive income (loss) from foreign currency translation
adjustments was ($87) and ($2) (in thousands) for the three-month periods
ended March 31, 2003 and 2002, respectively.
(2) Long-Term Debt
As of March 31, 2003, 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 the London Interbank Offered
Rate (LIBOR), on which no borrowings were outstanding. 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 March 31, 2003.
On April 22, 2003, the Company established a new bank credit facility
totaling $25 million which will expire on October 22, 2005. This new
credit facility is in addition to the credit facilities that existed at
March 31, 2003. The Company is in the process of finalizing a new two-year
bank credit facility totaling $50 million which will replace the $25
million credit facility available at March 31, 2003 that expires on August
31, 2004. These new bank credit facilities will be reduced by the $20.7
million in letters of credit the Company maintains.
(3) Commitments
As of March 31, 2003, the Company has commitments for net capital
expenditures of approximately $44 million.
(4) Earnings Per Share
A reconciliation of the numerator and denominator of basic and diluted
earnings per share is shown below. Common stock equivalents represent the
dilutive effect of outstanding stock options for all periods presented.
(in thousands, except per share
amounts)
Three Months Ended
March 31
-------------------------------
2003 2002
-------------------------------
Net income $ 11,839 $ 10,618
===============================
Average common shares outstanding 63,761 63,800
Common stock equivalents 1,378 1,510
-------------------------------
Diluted shares outstanding 65,139 65,310
===============================
Basic earnings per share $ .19 $ .17
===============================
Diluted earnings per share $ .18 $ .16
===============================
6
There were no options to purchase shares of common stock which were
outstanding during the periods indicated above, but excluded from the
computation of diluted earnings per share because the option purchase price
was greater than the average market price of the common shares.
(5) Stock Based Compensation
At March 31, 2003, the Company has a nonqualified stock option plan.
The Company did not grant any stock options during the three-month periods
ended March 31, 2003 and 2002. 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 all option
grants been charged to salaries, wages, and benefits in accordance with
SFAS No. 123, Accounting for Stock-Based Compensation:
(in thousands, except per share
amounts)
Three Months Ended
March 31
-------------------------------
2003 2002
-------------------------------
Net income, as reported $ 11,839 $ 10,618
Less: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects 629 862
-------------------------------
Net income, pro forma $ 11,210 $ 9,756
===============================
Earnings per share:
Basic - as reported $ 0.19 $ 0.17
===============================
Basic - pro forma $ 0.18 $ 0.15
===============================
Diluted - as reported $ 0.18 $ 0.16
===============================
Diluted - pro forma $ 0.17 $ 0.15
===============================
(6) Segment Information
The Company has one reportable segment - Truckload Transportation
Services. This segment consists of five operating fleets that have been
aggregated since they have similar economic characteristics and meet the
other aggregation criteria of SFAS No. 131. The Medium- to Long-Haul Van
fleet transports a variety of consumer, non-durable products and other
commodities in truckload quantities over irregular routes using dry van
trailers. The Regional Short-Haul fleet provides comparable truckload van
service within five geographic areas. The Flatbed and Temperature-
Controlled fleets provide truckload services for products with specialized
trailers. The Dedicated Services fleet provides truckload services
required by a specific company, plant, or distribution center.
The Company generates non-trucking revenues related to freight
brokerage, freight transportation management, 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
7
result, assets are not separately identifiable by segment. The Company has
no significant intersegment sales or expense transactions that would result
in adjustments necessary to eliminate amounts between the Company's
segments.
The following tables summarize the Company's segment information (in
thousands of dollars):
Revenues
--------
Three Months Ended
March 31
------------------
2003 2002
------------------
Truckload Transportation Services $325,081 $291,032
Other 22,127 21,543
------------------
Total $347,208 $312,575
==================
Operating Income
----------------
Three Months Ended
March 31
------------------
2003 2002
------------------
Truckload Transportation Services $18,563 $16,712
Other 420 573
------------------
Total $18,983 $17,285
==================
8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This report contains forward-looking statements which are based on
information currently available to the Company's management. Actual
results could differ materially from those anticipated in forward-looking
statements as a result of a number of factors, including, but not limited
to, those discussed in Item 7, "Management's Discussion and Analysis of
Results of Operations and Financial Condition", of the Company's Annual
Report on Form 10-K for the year ended December 31, 2002. The Company
assumes no obligation to update any forward-looking statement to the extent
it becomes aware that it will not be achieved for any reason.
Financial Condition:
During the three months ended March 31, 2003, the Company generated
cash flow from operations of $40.3 million, a 28.8% decrease ($16.3
million) in cash flow compared to the same three-month period a year ago.
The decrease in cash flow from operations is due primarily to the decrease
in accounts payable of $17.0 million from December 31, 2002 to March 31,
2003 which resulted from the payment in January 2003 of December 2002
revenue equipment purchases and having no payable for revenue equipment at
March 31, 2003. Generally, the Company has accounts payable for revenue
equipment purchases. Due to the engine issues discussed in the paragraph
below, the Company did not have accounts payable for revenue equipment as
of March 31, 2003. The cash flow from operations enabled the Company to
make net property additions, primarily revenue equipment, of $10.1 million,
repurchase common stock of $2.0 million, and pay common stock dividends of
$1.3 million. Based on the Company's strong financial position, management
foresees no significant barriers to obtaining sufficient financing, if
necessary.
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 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. To delay the business risk of buying new engines until adequate
testing is completed, the Company significantly increased the purchase of
trucks with pre-October engines. 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 order of new trucks
with pre-October engines from its truck manufacturers in January 2003. The
average age of the company truck fleet at March 31, 2003 is 1.3 years. The
Company expects its new truck purchases during second quarter 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 and the
Company's fleet growth plans.
The Company's debt to equity ratio at March 31, 2003 was 3.0%,
compared with 3.1% at December 31, 2002. The Company's only debt of $20.0
million matures in December 2003 and is expected to be paid in full on that
date. The Company's debt to total capitalization ratio (total
capitalization equals total debt plus total stockholders' equity) was 3.0%
at March 31, 2003 and December 31, 2002. As of March 31, 2003, the Company
has no equipment operating leases, and, therefore has no off-balance sheet
equipment debt. The Company maintains $20.7 million in letters of credit
as of March 31, 2003. These letters of credit are primarily required for
insurance policies. As of March 31, 2003, the Company has $45 million of
available credit pursuant to credit facilities, on which no borrowings were
outstanding.
9
Results of Operations:
The following table sets forth the percentage relationship of income
and expense items to operating revenues for the periods indicated.
Three Months Ended
March 31
2003 2002
------------------
Operating revenues 100.0% 100.0%
------------------
Operating expenses:
Salaries, wages and benefits 35.5 37.0
Fuel 12.9 8.0
Supplies and maintenance 8.3 9.6
Taxes and licenses 7.4 7.7
Insurance and claims 5.5 3.7
Depreciation 9.4 9.3
Rent and purchased transportation 14.4 17.7
Communications and utilities 1.2 1.2
Other (0.1) 0.3
------------------
Total operating expenses 94.5 94.5
------------------
Operating income 5.5 5.5
Net interest expense and other 0.0 0.1
------------------
Income before income taxes 5.5 5.4
Income taxes 2.1 2.0
------------------
Net income 3.4% 3.4%
==================
The following table sets forth certain industry data regarding the
freight revenues and operations of the Company.
Three Months
Ended
March 31 %
2003 2002 Change
-------------------------
Average monthly miles per tractor 9,908 10,087 (1.8%)
Average revenues per total mile (1) $1.247 $1.210 3.1%
Average revenues per loaded mile (1) $1.395 $1.345 3.7%
Average percentage of empty miles 10.59% 10.00% 5.9%
Average tractors in service 8,268 7,882 4.9%
Average revenues per truck per week (1) $2,852 $2,818 1.2%
Non-trucking revenues (in thousands) $22,127 $21,543 2.7%
Total tractors (at quarter end)
Company 7,275 6,725 8.2%
Owner-operator 1,000 1,175 (14.9%)
------- -------
Total tractors 8,275 7,900 4.7%
Total trailers (at quarter end) 21,040 19,935 5.5%
(1) Net of fuel surcharge revenues.
10
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31,
- ---------------------------------------------------------------------------
2002
- ----
Operating revenues increased 11.1% for the three months ended March
31, 2003, compared to the same period of the prior year, due in part to a
4.9% increase in the average number of tractors in service. Revenue per
total mile, excluding fuel surcharges, increased 3.1%, and revenue per
total mile, including fuel surcharges, increased 8.4% compared to first
quarter 2002. Fuel surcharges, which represent collections from customers
for the higher cost of fuel, increased from $2.1 million in first quarter
2002 to $18.6 million in first quarter 2003 due to higher average fuel
prices (see fuel explanation below). Excluding fuel surcharge revenues,
trucking revenues increased 6.1% for the three months ended March 31, 2003,
compared to the same period of the prior year. These increases were offset
by a 1.8% decrease in miles per truck compared to first quarter 2002.
Freight demand in January and much of February 2003 was not any better
than the weaker demand the Company experienced during the same period a
year ago. The normal seasonal freight pickup in March of 2003 was a bit
stronger than in March a year ago. The Company's empty mile percentage
increased from 10.0% in first quarter 2002 to 10.6% in first quarter 2003.
Operating expenses, expressed as a percentage of operating revenues,
were 94.5% for the three months ended March 31, 2003 and March 31, 2002.
Higher fuel prices increased the Company's operating ratio in first
quarter 2003 due to the effect of significantly higher fuel expense
and higher fuel surcharge revenues. Other expense items, when expressed as
a percentage of total revenue, appear lower in first quarter 2003 versus
first quarter 2002 because of the additional fuel surcharge revenue per
mile as well as the higher revenue per mile. Owner-operator miles as a
percentage of total miles were 13.3% in first quarter 2003 compared to
17.0% in first quarter 2002. Owner-operators are independent contractors
who supply their own tractor and driver and are responsible for their
operating expenses including fuel, supplies and maintenance, and fuel
taxes. Over the past year, it has been more difficult to attract and
retain owner-operator drivers due to the challenging operating conditions.
Salaries, wages and benefits decreased from 37.0% to 35.5% of revenues
due primarily to the effect of the increase in revenue per mile. On a cost
per mile basis, salaries, wages and benefits expense was about flat. As
mentioned above, higher fuel prices increased fuel surcharge revenues which
contributed to the decrease in expense as a percentage of revenue in first
quarter 2003. The higher cost of workers' compensation claims, higher
workers' compensation excess insurance premiums, and higher weekly state
workers' compensation payments offset this decrease. The market for
attracting company drivers has improved somewhat; however, 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 increased from 8.0% to 12.9% of revenues due to higher fuel
prices. Average diesel fuel prices during first quarter 2003 reached a
twenty-year high. Diesel prices, excluding fuel taxes, averaged 43 cents
per gallon, or 71% higher, in first quarter 2003 compared to first quarter
2002. This increased the Company's fuel cost by over seven cents per mile.
The Company's customer fuel surcharge reimbursement programs have
historically enabled the Company to recover most of the higher fuel prices
from its customers compared to normalized average fuel prices. These
surcharge programs, which generally adjust weekly based on fuel pricing
changes, continued to be in effect during first quarter 2003. However, when
fuel prices are increasing, the Company does not immediately recover the
price increase until the price reaches a higher surcharge price bracket.
After considering the amounts collected from customers through fuel
surcharge programs, net of reimbursement to owner-operators, there was a
$.04 per share negative impact on first quarter 2003 earnings per share
compared to first quarter 2002 earnings per share. Shortages of fuel,
increases in fuel prices, or rationing of petroleum products can have a
materially adverse effect on the operations and profitability of the
11
Company. The Company is unable to predict whether fuel price levels will
increase or decrease in the future or the extent to which fuel surcharges
will be collected from customers. As of March 31, 2003, the Company had no
derivative financial instruments to reduce its exposure to fuel price
fluctuations.
Supplies and maintenance decreased from 9.6% to 8.3% of revenues due
to less maintenance being performed over-the-road than at company
facilities, improved management of maintenance expenses, and a newer
company truck fleet.
Insurance and claims increased from 3.7% to 5.5% of revenues due
primarily to increased claims and increased cost per claim. The Company
has been self-insured and managed its own claims for liability, cargo, and
property damage for over ten years. The Company renewed its annual
liability insurance coverage for coverage in excess of $0.5 million per
claim effective August 1, 2002. The Company's premium rate for liability
coverage up to $3.0 million per claim is fixed through August 1, 2004,
while coverage levels above $3.0 million per claim were renewed effective
August 1, 2002 for a one year period. The Company assumed liability for
claims above $3.0 million and below $5.0 million per claim. Liability
claims in excess of $5.0 million per claim, if they occur, are covered
under premium-based policies with reputable insurance companies.
Rent and purchased transportation decreased from 17.7% to 14.4% of
revenues due in part to the termination of operating leases for company
trucks during fourth quarter 2002 and a reduction in owner-operator miles
as a percentage of total miles. On a per-mile basis, payments to owner-
operators increased in response to higher fuel prices. The Company
reimburses owner-operators for the higher cost of fuel based on fuel
surcharge reimbursements collected from customers. The Company has
experienced difficulty recruiting and retaining owner-operators because of
high fuel prices and other factors. This has resulted in a reduction of
the number of owner-operator tractors from 1,175 as of March 31, 2002, to
1,000 as of March 31, 2003.
Other operating expenses decreased from 0.3% to (0.1)% of revenues due
to the improvement in the used truck market. 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. In first quarter
2003, the Company realized gains of $1.4 million on sales of used trucks to
third parties through its Fleet Truck Sales retail network compared to
losses of $0.2 million in first quarter 2002.
Net interest expense and other decreased from 0.1% to 0.0% of
revenues. Interest expense decreased from 0.2% in first quarter 2002 to
0.1% in first quarter 2003 of revenues due to a reduction in the Company's
borrowings. Average debt outstanding in first quarter 2003 was $20.0
million versus $50.0 million in first quarter 2002. During first quarter
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. In
first quarter 2002, the Company recorded losses of approximately $0.2
million as its percentage share of estimated Transplace losses. 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%. Beginning January 1, 2003, the Company began accounting for its
investment on the cost method and no longer accrues its percentage share of
TPC's earnings or losses.
The Company's effective income tax rate (income taxes as a percentage
of income before income taxes) was 37.5% for the three-month periods ended
March 31, 2003 and 2002.
Regulations:
The Federal Motor Carrier Safety Administration (FMCSA) of the U.S.
Department of Transportation issued a final rule on April 24, 2003 that
made several changes to the regulations which govern truck drivers' hours
12
of service. For all non-local trucking companies, this is the most
significant change to the hours-of-service rules in over 60 years.
Previously, drivers were allowed to drive 10 hours after 8 hours off-duty.
The new rules will allow drivers to drive 11 hours after 10 hours off-duty.
In addition to this, drivers may not drive after 14 hours on-duty,
following 10 hours off-duty as opposed to 15 hours on-duty, following 8
hours off-duty. There have been no changes in the rules that limit a
driver to a maximum of 70 hours in eight consecutive days. A new rule will
allow a driver who takes at least 34 consecutive hours off-duty to restart
his or her on-duty cycle. The new rules are to be put into effect on
January 4, 2004. The Company is currently evaluating the new rules to
determine the effect they may have on the Company's operations.
Accounting Standards:
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 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.
Management has determined that adoption of this statement as of January 1,
2003 did not have any effect on the financial position, results of
operations and cash flows of the Company during the first quarter 2003 and
expects no significant effect on future periods.
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. Management has determined that adoption of this
statement as of January 1, 2003 did not have any effect on the financial
position, results of operations and cash flows of the Company during the
first quarter 2003 and expects no significant effect on future periods.
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. Management has determined that adoption of this
statement as of January 1, 2003 did not have any effect on the financial
position, results of operations and cash flows of the Company during the
first quarter 2003 and expects no significant effect on future periods.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to market risk from changes in commodity
prices.
Commodity Price Risk
The price and availability of diesel fuel are subject to fluctuations
due to changes in the level of global oil production, seasonality, weather,
and other market factors. Historically, the Company has been able to
recover a majority of fuel price increases from customers in the form of
fuel surcharges. The Company has implemented customer fuel surcharges
programs with most of its revenue base to offset most of the higher fuel
cost per gallon. The Company cannot predict the extent to which higher
fuel price levels will continue in the future or the extent to which fuel
surcharges could be collected to offset such increases. As of March 31,
2003, 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 first quarter 2003 and prior periods. To date, the Company
13
receives payment for freight services performed in Mexico and Canada
primarily in U.S. dollars to reduce foreign currency risk. Accordingly,
the Company is not currently subject to material foreign currency exchange
rate risks from the effects that exchange rate movements of foreign
currencies would have on the Company's future costs or on future cash
flows.
Item 4. Controls and Procedures.
Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation
of the Company's management, including the Company's Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures, as defined
in Exchange Act Rule 15d-14(c). Based upon that evaluation, the Company's
Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective in enabling the
Company to record, process, summarize and report information required to be
included in the Company's periodic SEC filings within the required time
period. There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal
controls subsequent to the date the Company carried out its evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 3(i)(A) Revised and Amended Articles of Incorporation
(Incorporated by reference to Exhibit 3 to Registration Statement
on Form S-1, Registration No. 33-5245)
Exhibit 3(i)(B) Articles of Amendment to Articles of Incorporation
(Incorporated by reference to Exhibit 3(i) to the Company's report
on Form 10-Q for the quarter ended May 31, 1994)
Exhibit 3(i)(C) Articles of Amendment to Articles of Incorporation
(Incorporated by reference to Exhibit 3(i) to the Company's report
on Form 10-K for the year ended December 31, 1998)
Exhibit 3(ii) Revised and Amended By-Laws (Incorporated by reference to
Exhibit 3(ii) to the Company's report on Form 10-K for the year
ended December 31, 1994)
Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
(i) A report on Form 8-K, filed January 29, 2003, regarding a news
release on January 22, 2003, announcing the Company's operating
revenues and earnings for the fourth quarter and year ended
December 31, 2002.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
WERNER ENTERPRISES, INC.
Date: May 9, 2003 By: /s/ John J. Steele
----------- ------------------------------
John J. Steele
Vice President, Treasurer and
Chief Financial Officer
Date: May 9, 2003 By: /s/ James L. Johnson
----------- ------------------------------
James L. Johnson
Vice President, Controller and
Corporate Secretary
15
CERTIFICATIONS
- --------------
I, Clarence L. Werner, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Werner
Enterprises, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 9, 2003
--------------
/s/ Clarence L. Werner
- ----------------------
Clarence L. Werner
Chairman and Chief Executive Officer
16
CERTIFICATIONS
- --------------
I, John J. Steele, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Werner
Enterprises, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 9, 2003
--------------
/s/ John J. Steele
- ----------------------
John J. Steele
Vice President, Treasurer and Chief Financial Officer
17