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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[Mark one]
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
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 July 31, 2004, 79,250,571 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
June 30, 2004 and 2003 3
Consolidated Statements of Income for the Six Months Ended
June 30, 2004 and 2003 4
Consolidated Condensed Balance Sheets as of June 30, 2004 and
December 31, 2003 5
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2004 and 2003 6
Notes to Consolidated Financial Statements as of June 30, 2004 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Item 4. Controls and Procedures 19
PART II - OTHER INFORMATION
Items 1 and 3. Not Applicable
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
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 and six-month periods ended June
30, 2004, are not necessarily indicative of the results that may be
expected for the year ending December 31, 2004. 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, 2003.
2
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
(In thousands, except per share amounts) June 30
- ---------------------------------------------------------------------------
2004 2003
- ---------------------------------------------------------------------------
(Unaudited)
Operating revenues $ 411,115 $ 362,290
---------------------------
Operating expenses:
Salaries, wages and benefits 134,296 127,821
Fuel 50,105 37,188
Supplies and maintenance 34,802 29,709
Taxes and licenses 27,428 25,836
Insurance and claims 20,022 17,881
Depreciation 35,644 32,981
Rent and purchased transportation 71,201 54,961
Communications and utilities 4,450 3,980
Other (1,824) 357
---------------------------
Total operating expenses 376,124 330,714
---------------------------
Operating income 34,991 31,576
---------------------------
Other expense (income):
Interest expense 4 283
Interest income (551) (508)
Other 57 28
---------------------------
Total other expense (income) (490) (197)
---------------------------
Income before income taxes 35,481 31,773
Income taxes 13,861 11,914
---------------------------
Net income $ 21,620 $ 19,859
===========================
Average common shares outstanding 79,233 79,831
===========================
Basic earnings per share $ .27 $ .25
===========================
Diluted shares outstanding 80,891 81,680
===========================
Diluted earnings per share $ .27 $ .24
===========================
Dividends declared per share $ .035 $ .024
===========================
3
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended
(In thousands, except per share amounts) June 30
- ---------------------------------------------------------------------------
2004 2003
- ---------------------------------------------------------------------------
(Unaudited)
Operating revenues $ 797,395 $ 709,498
---------------------------
Operating expenses:
Salaries, wages and benefits 267,608 250,948
Fuel 95,857 82,133
Supplies and maintenance 67,696 58,468
Taxes and licenses 54,940 51,556
Insurance and claims 39,529 37,022
Depreciation 70,629 65,702
Rent and purchased transportation 134,351 105,043
Communications and utilities 8,998 7,975
Other (2,063) 92
---------------------------
Total operating expenses 737,545 658,939
---------------------------
Operating income 59,850 50,559
---------------------------
Other expense (income):
Interest expense 6 588
Interest income (1,086) (782)
Other 94 37
---------------------------
Total other expense (income) (986) (157)
---------------------------
Income before income taxes 60,836 50,716
Income taxes 23,648 19,018
---------------------------
Net income $ 37,188 $ 31,698
===========================
Average common shares outstanding 79,414 79,766
===========================
Basic earnings per share $ .47 $ .40
===========================
Diluted shares outstanding 81,116 81,561
===========================
Diluted earnings per share $ .46 $ .39
===========================
Dividends declared per share $ .06 $ .04
===========================
4
WERNER ENTERPRISES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share amounts) June 30 December 31
- ---------------------------------------------------------------------------
2004 2003
- ---------------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 138,264 $ 101,409
Accounts receivable, trade, less allowance of
$7,480 and $6,043, respectively 153,475 152,461
Other receivables 8,758 8,892
Inventories and supplies 8,754 9,877
Prepaid taxes, licenses and permits 7,957 14,957
Other current assets 18,557 17,691
--------------------------
Total current assets 335,765 305,287
--------------------------
Property and equipment 1,299,375 1,261,252
Less - accumulated depreciation 487,949 455,565
--------------------------
Property and equipment, net 811,426 805,687
--------------------------
Other non-current assets 10,448 10,553
--------------------------
$1,157,639 $1,121,527
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 43,152 $ 40,903
Insurance and claims accruals 58,706 55,201
Accrued payroll 17,758 15,828
Current deferred income taxes 15,513 15,151
Other current liabilities 15,679 15,392
--------------------------
Total current liabilities 150,808 142,475
--------------------------
Insurance and claims accruals, net of current
portion 78,301 71,301
Deferred income taxes 198,420 198,640
Stockholders' equity:
Common stock, $.01 par value, 200,000,000
shares authorized; 80,533,536 shares
issued; 79,170,167 and 79,714,271 shares
outstanding, respectively 805 805
Paid-in capital 108,931 108,706
Retained earnings 646,445 614,011
Accumulated other comprehensive loss (1,015) (837)
Treasury stock, at cost; 1,363,369 and
819,265 shares, respectively (25,056) (13,574)
--------------------------
Total stockholders' equity 730,110 709,111
--------------------------
$1,157,639 $1,121,527
==========================
5
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
(In thousands) June 30
- ---------------------------------------------------------------------------
2004 2003
- ---------------------------------------------------------------------------
(Unaudited)
Cash flows from operating activities:
Net income $ 37,188 $ 31,698
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 70,629 65,702
Deferred income taxes 142 (7,637)
Gain on disposal of property and equipment (5,396) (2,641)
Tax benefit from exercise of stock options 973 1,232
Other long-term assets 403 61
Insurance claims accruals, net of current
portion 7,000 8,500
Changes in certain working capital items:
Accounts receivable, net (1,014) (11,947)
Other current assets 7,391 12,705
Accounts payable 2,249 (11,281)
Other current liabilities 4,943 12,779
---------------------------
Net cash provided by operating activities 124,508 99,171
---------------------------
Cash flows from investing activities:
Additions to property and equipment (118,306) (48,194)
Retirements of property and equipment 45,282 23,754
Decrease in notes receivable 1,754 796
---------------------------
Net cash used in investing activities (71,270) (23,644)
---------------------------
Cash flows from financing activities:
Dividends on common stock (3,975) (2,551)
Repurchases of common stock (14,178) (3,997)
Stock options exercised 1,948 2,898
---------------------------
Net cash used in financing activities (16,205) (3,650)
---------------------------
Effect of exchange rate fluctuations on cash (178) 52
Net increase in cash and cash equivalents 36,855 71,929
Cash and cash equivalents, beginning of period 101,409 29,885
---------------------------
Cash and cash equivalents, end of period $ 138,264 $ 101,814
===========================
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 6 $ 588
Income taxes $ 24,632 $ 15,408
Supplemental schedule of non-cash investing
activities:
Notes receivable issued upon sale of revenue
equipment $ 2,052 $ 493
6
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 ($273) and $139 (in thousands) for the three-month periods
and ($178) and $52 (in thousands) for the six-month periods ended June 30,
2004 and 2003, respectively.
(2) Long-Term Debt
As of June 30, 2004, the Company has two credit facilities with banks
totaling $75 million which expire May 16, 2006 and October 22, 2005 and
bear variable interest based on the London Interbank Offered Rate (LIBOR),
on which no borrowings were outstanding. As of June 30, 2004, the credit
available pursuant to these bank credit facilities is reduced by $32.4
million in letters of credit the Company maintains. 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 total
funded debt to earnings before interest, income taxes, depreciation,
amortization and rentals payable (EBITDAR) as defined in the credit
facility. While the Company had no borrowings pursuant to these credit
facilities as of June 30, 2004, the Company was in compliance with these
covenants at June 30, 2004.
On May 16, 2004, the Company renewed the $50 million bank credit
facility and extended the maturity date from May 16, 2005 to May 16, 2006.
(3) Commitments
As of June 30, 2004, the Company has commitments for net capital
expenditures of approximately $133 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 Six Months Ended
June 30 June 30
---------------------- ----------------------
2004 2003 2004 2003
---------------------- ----------------------
Net income $ 21,620 $ 19,859 $ 37,188 $ 31,698
====================== ======================
Average common shares
outstanding 79,233 79,831 79,414 79,766
Common stock equivalents 1,658 1,849 1,702 1,795
---------------------- ----------------------
Diluted shares
outstanding 80,891 81,680 81,116 81,561
====================== ======================
Basic earnings per share $ .27 $ .25 $ .47 $ .40
====================== ======================
Diluted earnings per
share $ .27 $ .24 $ .46 $ .39
====================== ======================
7
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 June 30, 2004, the Company has a nonqualified stock option plan.
The Company granted 787,000 stock options during the three-month period
ended June 30, 2004. 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 Six Months Ended
June 30 June 30
---------------------- ----------------------
2004 2003 2004 2003
---------------------- ----------------------
Net income, as reported $ 21,620 $ 19,859 $ 37,188 $ 31,698
Less: Total stock-based
employee compensation
expense determined
under fair value based
method for all awards,
net of related tax
effects 557 629 911 1,258
---------------------- ----------------------
Net income, pro forma $ 21,063 $ 19,230 $ 36,277 $ 30,440
====================== ======================
Earnings per share:
Basic - as reported $ .27 $ .25 $ .47 $ .40
====================== ======================
Basic - pro forma $ .27 $ .24 $ .46 $ .38
====================== ======================
Diluted - as reported $ .27 $ .24 $ .46 $ .39
====================== ======================
Diluted - pro forma $ .26 $ .24 $ .45 $ .37
====================== ======================
At the May 11, 2004 Annual Meeting of Stockholders, the stockholders
approved an amendment to increase the maximum number of shares that may be
optioned or sold under the Stock Option Plan by 5,416,666 shares and an
amendment to increase the maximum aggregate number of options that may be
granted to any one person under the Plan by 1,000,000. The maximum number
of shares of common stock that may be optioned under the Stock Option Plan
has increased to 20,000,000 shares, and the maximum aggregate number of
options that may be granted to any one person has increased to 2,562,500
options.
(6) Segment Information
The Company has two reportable segments - Truckload Transportation
Services and Value Added Services. The Truckload Transportation 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
8
truckload services for products with specialized trailers. The Dedicated
Services fleet provides truckload services required by a specific company,
plant, or distribution center.
The Value Added Services segment, which generates the majority of the
Company's non-trucking revenues, provides freight brokerage, freight
transportation management, and intermodal services. Value Added Services
was identified as a new reportable segment as of June 30, 2004. The 2003
and 2004 amounts shown in the following table have been reclassified to
account for the change in composition of the Company's reportable segments.
The Company generates other revenue related to third-party equipment
maintenance, equipment leasing, 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
segment and, as a result, assets are not separately identifiable by
segment. The Company has no significant intersegment sales or expense
transactions that would result in adjustments necessary to eliminate
amounts between the Company's segments.
The following tables summarize the Company's segment information (in
thousands of dollars):
Revenues
--------
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
2004 2003 2004 2003
---------------------- ----------------------
Truckload Transportation
Services $ 369,564 $ 338,858 $ 720,224 $ 666,476
Value Added Services 38,986 21,148 72,353 38,708
Other 1,505 1,174 3,060 2,371
Corporate 1,060 1,110 1,758 1,943
---------------------- ----------------------
Total $ 411,115 $ 362,290 $ 797,395 $ 709,498
====================== ======================
Operating Income
----------------
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
2004 2003 2004 2003
---------------------- ----------------------
Truckload Transportation
Services $ 33,986 $ 31,538 $ 58,334 $ 50,047
Value Added Services 1,169 23 2,098 159
Other 574 122 1,249 533
Corporate (738) (107) (1,831) (180)
---------------------- ----------------------
Total $ 34,991 $ 31,576 $ 59,850 $ 50,559
====================== ======================
9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This report contains forward-looking statements which are based on
information currently available to the Company's management. Actual
results could differ materially from those anticipated in forward-looking
statements as a result of a number of factors, including, but not limited
to, those discussed in Item 7, "Management's Discussion and Analysis of
Results of Operations and Financial Condition", of the Company's Annual
Report on Form 10-K for the year ended December 31, 2003. 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.
Overview:
The Company operates in the truckload segment of the trucking
industry, with a focus on transporting consumer nondurable products that
ship more consistently throughout the year. Operating revenues consist of
trucking revenues generated by the Company's five trucking fleets
(medium/long-haul van, dedicated, regional short-haul, flatbed, and
temperature-controlled) and non-trucking revenues generated primarily by
the Company's Value Added Services division. The Company also records non-
trucking revenues for the Mexican portion of shipments delivered to or from
Mexico where it utilizes a third-party carrier, and for a few of its
dedicated accounts where the services of third-party carriers are used to
meet customer capacity requirements. Trucking revenues accounted for 89%
of total operating revenues in second quarter 2004, and non-trucking and
other operating revenues accounted for 11%.
Trucking services typically generate revenue on a per-mile basis.
Other sources of trucking revenue include fuel surcharges and accessorial
revenue such as stop charges, loading/unloading charges, and equipment
detention charges. Because fuel surcharge revenues fluctuate in response
to changes in the cost of fuel, these revenues are identified separately
within the operating statistics table and are excluded from the statistics
to provide a more meaningful comparison between periods. Non-trucking
revenues generated by a fleet whose operations are part of the Truckload
Transportation segment are included in non-trucking revenue in the
operating statistics table so that the revenue statistics in the table
reflect only the revenues generated by the Company's trucks. The key
statistics used to evaluate trucking revenues, excluding fuel surcharges,
are revenue per truck per week, the per-mile rates charged to customers,
the average monthly miles generated per tractor, the percentage of empty
miles, the average trip length, and the number of tractors in service.
General economic conditions, seasonal freight patterns in the trucking
industry, and industry capacity are key factors that impact these
statistics.
The primary industry measure used to evaluate the profitability of the
Company and its trucking operating fleets is the operating ratio (operating
expenses as a percentage of operating revenues). The most significant
variable expenses that impact the trucking operation are driver salaries
and benefits, payments to owner-operators (included in rent and purchased
transportation expense), fuel, fuel taxes (included in taxes and licenses
expense), supplies and maintenance, and insurance and claims. These
expenses generally vary based on the number of miles generated. As such,
the Company also evaluates these costs on a per-mile basis to adjust for
the possible distortion of the percentage of total operating revenues
caused by changes in fuel surcharge revenues and non-trucking revenues. As
discussed further in the comparison of operating results for second quarter
2004 to second quarter 2003, several industry-wide issues, including the
new hours of service regulations, a challenging driver recruiting market,
and rising fuel prices, could cause costs to increase in future periods.
The Company's main fixed costs include depreciation expense for tractors
and trailers, equipment licensing fees (included in taxes and licenses
expense), and the fixed component of insurance and claims expense
representing cargo and liability insurance premiums. These costs have been
affected by the new engine emission standards that became effective in
October 2002 and are increasing truck purchase costs and the increases in
insurance premiums over the last few years. The trucking operations
require substantial cash expenditures for tractors and trailers. The
Company has maintained a three-year replacement cycle for company-owned
10
tractors. These purchases are funded by net cash from operations, as the
Company repaid its last remaining debt in December 2003.
Non-trucking services provided by the Company, primarily through its
Value Added Services division, include freight brokerage, freight
transportation management, intermodal, and other services. Unlike the
Company's trucking operations, the non-trucking operations are less asset
intensive and are dependent upon information systems, qualified employees,
and the services of other third-party freight providers. For shipments
where a third-party provider is utilized to provide some or all of the
service and the Company is the primary obligor in regards to the delivery
of the shipment, establishes customer pricing separately from carrier rate
negotiations, generally has discretion in carrier selection, and/or has
credit risk on the shipment, the Company records revenue upon delivery for
the shipment for the dollar value of services billed by the Company to the
customer and records the costs of transportation paid by the Company to the
third-party provider as rent and purchased transportation expense. In the
absence of any of the conditions listed above, the Company records revenue
on a net basis. Other expenses include salaries and benefits and systems-
related depreciation. The Company evaluates the non-trucking operations by
reviewing the gross margin (non-trucking revenues less non-trucking rent
and purchased transportation expense) and the operating ratios. The
operating ratios for the non-trucking business are generally higher than
those of the trucking operations resulting in lower operating margins, but
the returns on assets are higher.
Financial Condition:
During the six months ended June 30, 2004, the Company generated cash
flow from operations of $124.5 million, a 25.5% increase ($25.3 million) in
cash flow compared to the same six-month period a year ago. The increase
in cash flow from operations is due primarily to the improvement in days
sales in accounts receivable and a $15.0 decrease in the accounts payable
for revenue equipment from December 2002 to June 2003 compared to a $0.2
million decrease in the accounts payable for revenue equipment from
December 2003 to June 2004. These changes were primarily the result of the
Company pre-buying tractors beginning in third quarter 2002 (as explained
in the next paragraph) which were paid by the end of first quarter 2003 and
purchasing fewer tractors during 2003 as a result of the pre-buy. These
changes in the accounts payable for revenue equipment resulted in an
increase in cash flow from operations between periods of $14.8 million.
The cash flow from operations enabled the Company to make net property
additions, primarily revenue equipment, of $73.0 million, repurchase common
stock of $14.2 million, and pay common stock dividends of $4.0 million.
Based on the Company's strong financial position, management foresees no
significant barriers to obtaining sufficient financing, if necessary.
Net cash used in investing activities for the six-month period ended
June 30, 2004 increased by $47.6 million from $23.6 million for the six-
month period ended June 30, 2003 to $71.3 million for the six-month period
ended June 30, 2004. The large increase was due primarily to the Company's
accelerated purchases of tractors with pre-October 2002 engines in the
latter part of 2002 and purchasing fewer tractors in 2003, including the
first six months. The Environmental Protection Agency (EPA) required all
truck engines manufactured after October 1, 2002 to comply with new engine
emission standards. In 2002, the Company purchased a significant number of
new trucks with engines manufactured prior to October 2002, in addition to
the normal number of new trucks required for the Company's three-year
replacement cycle. This pre-buy enabled the Company to delay the impact of
using trucks with new engines in its fleet by approximately one year and
provided for additional testing time. The last group of pre-buy trucks
were placed into service during the third quarter of 2003, resulting in
increased purchases in subsequent quarters. As of June 30, 2004,
approximately 23% of the company-owned truck fleet consisted of trucks with
new EPA-compliant engines compared to 10% at December 31, 2003. Company
data continues to indicate that the fuel mile per gallon (mpg) degradation
is a reduction of approximately 0.3 mpg to 0.5 mpg, or a 6% to 9% reduction
in fuel efficiency. Also, depreciation expense is increasing due to the
higher cost of the new engines. The average age of the Company's truck
11
fleet is 1.7 years at June 30, 2004. The Company anticipates the average
age of its truck fleet will decrease in the second half of 2004 and intends
to fund the new truck purchases through existing cash on hand and cash flow
from operations.
Management believes the Company's financial position at June 30, 2004
is strong. As of June 30, 2004, the Company had $138.3 million of cash and
cash equivalents, no debt, and $730.1 million of stockholders' equity. As
of June 30, 2004, the Company has no equipment operating leases, and,
therefore has no off-balance sheet equipment debt. The Company maintains
$32.4 million in letters of credit as of June 30, 2004. These letters of
credit are primarily required as security for insurance policies. As of
June 30, 2004, the Company has $75 million of credit pursuant to credit
facilities, on which no borrowings were outstanding. The credit available
under these facilities is reduced by the $32.4 million in letters of
credit.
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 Six Months Ended
June 30 June 30
----------------------------------------------
2004 2003 2004 2003
----------------------------------------------
Operating revenues 100.0% 100.0% 100.0% 100.0%
----------------------------------------------
Operating expenses:
Salaries, wages and
benefits 32.6 35.3 33.6 35.4
Fuel 12.2 10.3 12.0 11.6
Supplies and
maintenance 8.4 8.2 8.5 8.2
Taxes and licenses 6.7 7.1 6.9 7.3
Insurance and claims 4.9 4.9 5.0 5.2
Depreciation 8.7 9.1 8.9 9.3
Rent and purchased
transportation 17.3 15.2 16.8 14.8
Communications and
utilities 1.1 1.1 1.1 1.1
Other (0.4) 0.1 (0.3) 0.0
----------------------------------------------
Total operating
expenses 91.5 91.3 92.5 92.9
----------------------------------------------
Operating income 8.5 8.7 7.5 7.1
Net interest expense
(income) and other (0.1) (0.1) (0.1) (0.1)
----------------------------------------------
Income before income taxes 8.6 8.8 7.6 7.2
Income taxes 3.3 3.3 2.9 2.7
----------------------------------------------
Net income 5.3% 5.5% 4.7% 4.5%
==============================================
12
The following table sets forth certain industry data regarding the
freight revenues and operations of the Company for the periods indicated.
Three Months Ended Six Months Ended
June 30 % June 30 %
-------------------- --------------------
2004 2003 Change 2004 2003 Change
-------------------------------------------------------
Trucking revenues, net of
fuel surcharge (1) $341,966 $321,418 6.4% $671,699 $627,933 7.0%
Trucking fuel surcharge
revenues (1) 24,016 14,934 60.8% 41,987 33,500 25.3%
Non-trucking revenues (1) 42,639 23,854 78.7% 78,892 44,003 79.3%
Other operating revenues (1) 2,494 2,084 19.7% 4,817 4,062 18.6%
--------- --------- --------- ---------
Operating revenues (1) $411,115 $362,290 13.5% $797,395 $709,498 12.4%
========= ========= ========= =========
Average monthly miles per
tractor 10,254 10,249 0.0% 10,144 10,078 0.7%
Average revenues per total
mile (2) $1.318 $1.271 3.7% $1.309 $1.259 4.0%
Average revenues per loaded
mile (2) $1.482 $1.420 4.4% $1.476 $1.408 4.8%
Average percentage of empty
miles 11.03% 10.52% 4.8% 11.36% 10.55% 7.7%
Average trip length in
miles (loaded) 588 641 (8.3%) 584 652 (10.4%)
Average tractors in service 8,432 8,228 2.5% 8,434 8,248 2.3%
Average revenues per truck
per week (2) $3,119 $3,005 3.8% $3,063 $2,929 4.6%
Total tractors (at quarter
end)
Company 7,520 7,225 7,520 7,225
Owner-operator 930 925 930 925
--------- --------- --------- ---------
Total tractors 8,450 8,150 8,450 8,150
Total trailers (at quarter
end) 22,920 21,355 22,920 21,355
(1) Amounts in thousands.
(2) Net of fuel surcharge revenues.
Three Months Ended June 30, 2004 Compared to Three Months Ended June 30,
- ---------------------------------------------------------------------------
2003
- ----
Operating revenues increased 13.5% for the three months ended June 30,
2004, compared to the same period of the prior year. Excluding fuel
surcharge revenues, trucking revenues increased 6.4% due primarily to a
3.7% increase in revenue per total mile, excluding fuel surcharges, and a
2.5% increase in the average number of tractors in service. Revenue per
total mile, excluding fuel surcharges, increased due to customer rate
increases, an improvement in freight selection, and an 8.3% decrease in the
average loaded trip length due to growth in the Company's regional and
dedicated fleets. The Company grew its dedicated fleet by 850 trucks, from
almost one-quarter of the total truck fleet in second quarter 2003 to over
one-third of the total truck fleet in second quarter 2004. The majority of
the growth in the dedicated fleet was offset by a decrease in the Company's
medium-to-long haul van fleet. Dedicated fleet business tends to have
lower miles per trip, a higher empty mile percentage, a higher rate per
loaded mile, and lower miles per truck. The growth in dedicated business
had a corresponding effect on these same operating statistics, as reported
above, for the entire Company. Freight demand in second quarter 2004
continued to strengthen as truckload capacity tightened.
A substantial portion of the Company's freight is under contract with
customers and provides for annual pricing increases. Much of the Company's
non-dedicated fleet business renews in the latter part of third quarter and
fourth quarter. To recoup the significant cost increases in fuel, driver
pay, equipment, and insurance and to improve margins, the Company will be
seeking increased year-over-year improvement in its revenue per total mile
through freight rate increases. Management has continued to keep its truck
capacity commitments with its partner customers, rather than shifting truck
capacity to other non-partner customers that have freight available at
13
attractive rates in this improving freight market. The Company believes
that standing by its truck capacity commitments with partner customers is
in the best long-term interests of the Company.
On January 4, 2004, new hours of service (HOS) regulations became
effective for the trucking industry. The Company anticipated that the new
regulations could have an overall negative impact on our average miles per
tractor due to operational changes, primarily resulting from the new 14-
hour on-duty rule. However, for second quarter 2004 compared to second
quarter 2003, average miles per tractor remained essentially the same, even
after considering the 8.3% decline in average trip length. This is
attributable to the Company's extensive HOS planning and driver training,
effective utilization of its paperless log software, improved freight
demand, better throughput at customer shipping and receiving facilities,
and the new 34-hour restart driving rule. As discussed further in the
Regulations section, on July 16, 2004, a federal appeals court ruled in
favor of a lawsuit challenging the new hours of service regulations. The
court vacated the new rules in their entirety and remanded the matter to
the Federal Motor Carriers Safety Administration (FMCSA) for
reconsideration.
Fuel surcharge revenues, which represent collections from customers
for the higher cost of fuel, increased from $14.9 million in second quarter
2003 to $24.0 million in second quarter 2004 due to higher average fuel
prices in second quarter 2004 (see fuel explanation below).
Non-trucking revenues increased by 78.7% for the three months ended
June 30, 2004, compared to the same period of the prior year. Most of this
revenue growth came from the Company's brokerage group within Value Added
Services. Non-trucking revenue consists primarily of freight brokerage,
freight transportation management, intermodal, and other services. During
the latter part of 2003 and continuing into 2004, the Company expanded its
brokerage and intermodal service offerings by adding senior management and
developing new computer systems. During second quarter 2004, the Company
expanded to six regional brokerage offices and plans to expand to eight
offices by the end of third quarter. The following table details the non-
trucking revenue, related rent and purchased transportation expense, and
gross margin for the Value Added Services division:
Three Months Ended Six Months Ended
June 30 June 30
------------------- -------------------
Value Added Services (amounts in 000's) 2004 2003 2004 2003
- --------------------------------------- ------------------- -------------------
Revenues $ 38,986 $ 21,148 $ 72,353 $ 38,708
Rent and purchased transportation
expense 35,318 19,775 65,559 35,968
------------------- -------------------
Gross margin $ 3,668 $ 1,373 $ 6,794 $ 2,740
=================== ===================
Operating expenses, expressed as a percentage of operating revenues,
were 91.5% for the three months ended June 30, 2004, compared to 91.3% for
the three months ended June 30, 2003. Because the Company's non-trucking
business operates with a lower operating margin and a higher return on
assets than the trucking business, the substantial growth in the non-
trucking business in second quarter 2004 affected the Company's overall
operating ratio. The significant increase in fuel expense and related fuel
surcharge revenues also affected the operating ratio. If non-trucking rent
and purchased transportation expenses are offset against non-trucking
revenues and fuel surcharge revenues are offset against fuel expense, the
Company's operating ratio would be 160 basis points lower in second quarter
2004 and 100 basis points lower in second quarter 2003. Other expense
items, when expressed as a percentage of total revenues, are lower in
second quarter 2004 versus second quarter 2003 because of the additional
non-trucking revenue and trucking fuel surcharge revenue as well as the
higher revenue per mile. Owner-operator miles as a percentage of total
miles were 12.7% in second quarter 2004 compared to 12.9% in second quarter
2003. 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, attracting and retaining owner-operator drivers continued to be
difficult due to the challenging operating conditions.
14
Salaries, wages and benefits decreased from 35.3% to 32.6% of
revenues due primarily to the effect of the increases in non-trucking and
fuel surcharge revenues and revenue per mile. On a cost per total mile
basis, salaries, wages and benefits increased from 50.5 cents per mile to
51.8 cents per mile. The increase on a per- mile basis is primarily the
result of higher non-driver salaries, wages, and benefits related to the
non-trucking operations, higher driver pay per mile, and higher group
health insurance, offset by lower workers' compensation. As a result of
the new hours of service (HOS) regulations effective at the beginning of
2004, the Company increased driver pay in the non-dedicated fleets for
multiple stop shipments. Additional revenue from increased rates per stop
offset most of the increased driver pay. In addition, effective July 2003,
the Company changed its monthly mileage bonus pay program for Van solo
drivers. The monthly mileage bonus pay increased from $0.9 million in
second quarter 2003 to $1.4 million in second quarter 2004. The increase
in dedicated business as a percentage of total trucking business also
contributed to the increase in driver pay per mile as dedicated drivers are
usually compensated at a higher rate per mile due to the lower average
miles per truck.
The market for recruiting drivers remained extremely challenging in
second quarter 2004. In recent months, the market for recruiting
experienced drivers tightened. Despite this, the Company maintained its
recruiting numbers for experienced drivers, continued to have success
recruiting drivers from driver training schools, and saw a slight
improvement in driver turnover compared to a year ago. The Company
instituted an optional per diem reimbursement program for eligible company
drivers (approximately 52% of total non-student company drivers) beginning
in April 2004. This program increases a company driver's net pay per mile,
after taxes. As a result, salaries, wages, and benefits were slightly
lower, and the Company's effective income tax rate was higher beginning in
second quarter 2004 compared to first quarter 2004. The Company expects
the cost of the per diem program to be neutral, because the combined driver
pay rate per mile and per diem reimbursement under the per diem program is
about one cent per mile lower than mileage pay without per diem
reimbursement, which offsets the Company's increased income taxes caused by
the nondeductible portion of the per diem. The per diem program increases
driver satisfaction through higher net pay per mile.
Beginning August 1, 2004, the Company is increasing pay for Company
solo drivers in the medium-to-long haul Van division by two cents per mile.
The Company fully expects the support of its customers due to their
expressed desire for increased truck capacity. This pay increase will
affect approximately one quarter of the Company's existing drivers and is
intended to retain and attract more drivers to meet increasing customer
demand. 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 additional
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 10.3% to 12.2% of revenues due primarily to higher
fuel prices, partially offset by the effect of the increases in non-
trucking and fuel surcharge revenues and revenue per mile. Average fuel
prices in second quarter 2004 were 28 cents a gallon, or 33%, higher than
second quarter 2003. To lessen the effect of fluctuating fuel prices on
the Company's margins, the Company collects fuel surcharge revenues from
its customers. These surcharge programs, which automatically adjust weekly
through fuel surcharge price brackets, continued to be in effect during
second quarter 2004. The Company's fuel surcharge program recoups much of
the higher cost of fuel, except for miles not billable to customers, out of
route miles, and truck engine idling. Because collections of fuel
surcharges typically trail fuel price changes, the rapid price increases in
April and May 2004 caused a temporarily unfavorable effect of fuel prices
increasing more rapidly than fuel surcharge revenues. This effect is
expected to reverse if fuel prices fall. Fuel expense, after considering
the amounts collected from customers through fuel surcharge programs, net
of reimbursement to owner-operators, had a four-cent negative impact on
second quarter 2004 earnings per share compared to second quarter 2003
earnings per share. As previously disclosed by the Company, second quarter
2003 earnings were positively impacted by two cents per share due to the
temporarily favorable effect of higher fuel surcharge collections in a
15
declining fuel price market. Shortages of fuel, increases in fuel prices,
or rationing of petroleum products can have a materially adverse effect on
the operations and profitability of the Company. The Company is unable to
predict whether fuel price levels will continue to increase or decrease in
the future or the extent to which fuel surcharges will be collected from
customers. As of June 30, 2004, the Company had no derivative financial
instruments to reduce its exposure to fuel price fluctuations.
Diesel fuel prices for the month of July 2004 averaged 31 cents a
gallon, or 35%, higher than average fuel prices for third quarter 2003.
Assuming prices remain at these price levels for the remainder of third
quarter 2004, the effect of changing fuel prices on earnings for third
quarter 2004 compared to third quarter 2003 is expected to have a negative
impact of three cents per share. Using the same fuel price assumption,
earnings for fourth quarter 2004 compared to fourth quarter 2003 are
expected to be negatively impacted by three cents per share.
In the western United States (five western states in DOE PADD 5),
prices averaged 52 cents a gallon, or 59%, higher than second quarter 2003.
Approximately 10% of the Company's miles are in these western states. Most
shipper/carrier contracts use the DOE National Average fuel price to
determine the weekly fuel surcharge rate per mile. Since the Company's
trucks have historically yielded about six miles per gallon, before
considering the mpg degradation related to the new engines, each six-cent
per gallon increase in the cost of fuel increases the Company's cost per
mile by about one cent per mile. During second quarter 2004, management
met with its larger customers that have a significant number of miles in
these Western states to discuss the recent rapid increase in fuel pricing
in the West and negotiate changes to its fuel surcharge contracts for
certain of these customers. Most of these customers agreed to an increase
in fuel surcharges for miles in these western states.
Insurance and claims were flat as a percentage of revenue due to the
effect of the increases in non-trucking and fuel surcharge revenues and
revenue per mile, but increased on a per-mile basis due primarily to
negative development on existing claims. 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, 2003 for a one-year period.
For the policy year beginning August 2003, the Company's total
premiums for liability insurance increased by approximately $1.3 million.
This increase includes premiums for terrorism coverage. 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 $10.0
million. For the policy year beginning August 1, 2003, these annual
aggregate amounts total $13.5 million. For the policy year beginning
August 1, 2003, the Company is self-insured for claims in excess of $3.0
million and less than $5.0 million, subject to an annual maximum aggregate
of $6.0 million if several claims were to occur in this layer. For claims
in excess of $5.0 million and less than $10.0 million, the Company is
responsible for the first $5.0 million of claims. Liability claims in
excess of $10.0 million per claim, if they occur, are covered under
premium-based policies with reputable insurance companies to coverage
levels that management considers adequate. The Company's primary liability
insurance policies for coverage up to $10.0 million per claim renew on
August 1, 2004.
Effective August 1, 2004, the self-insured retention will increase to
$2.0 million per claim with an annual aggregate of $3.0 million for claims
between $2.0 million and $3.0 million, and the Company will be fully
insured (i.e., no aggregate) for claims between $3.0 million to $5.0
million. The increased self-insured retention from $500,000 to $2.0
million is due to changes in the trucking insurance market and is similar
to increased claim retention levels experienced by other truckload
carriers. The Company maintains liability insurance coverage with
reputable insurance carriers substantially in excess of the self-insured
retention amount. The Company expects its liability insurance premiums for
16
the policy year beginning August 1, 2004 to be approximately the same as
the previous policy year.
Rent and purchased transportation increased from 15.2% to 17.3% of
revenues due primarily to the increase in non-trucking revenues and the
corresponding increase in purchased transportation expense related to this
business, as described above. Rent and purchased transportation also
includes payments to owner-operators. On a per-mile basis, payments to
owner-operators increased due to higher reimbursements to owner-operators
for fuel resulting from higher fuel prices. The Company experienced
difficulty recruiting and retaining owner-operators for over two years
because of challenging operating conditions.
Other operating expenses were 0.1% of revenues in second quarter 2003
and (0.4)% in second quarter 2004. Gains on sales of revenue equipment
increased due to the Company selling over two and one-half times as many
used trucks in second quarter 2004 compared to second quarter 2003. The
Company's goal is to sell most of its used trucks through its 16-store
Fleet Truck Sales network rather than rely on trading used trucks to
original equipment manufacturers. Gains from trading trucks to original
equipment manufacturers for new trucks lower the depreciable cost of the
new trucks and therefore reduce depreciation. As the Company continues to
sell more of its used trucks rather than trade trucks to original equipment
manufacturers, depreciation expense is expected to increase, and gains on
sales of equipment are also expected to increase.
The Company's effective income tax rate (income taxes as a percentage
of income before income taxes) increased from 37.5% for the three-month
period ended June 30, 2003 to 39.1% for the three-month period ended June
30, 2004 due to an increase in non-deductible expenses for tax purposes
related to the implementation of a per diem pay program for student drivers
in fourth quarter 2003 and a per diem pay program for eligible company
drivers in April 2004.
Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003
- -------------------------------------------------------------------------
Operating revenues increased by 12.4% for the six months ended June
30, 2004, compared to the same period of the previous year. Excluding fuel
surcharge revenues, trucking revenues increased 7.0% due primarily to a
4.0% increase in revenue per total mile excluding fuel surcharges, a 2.3%
increase in the average number of tractors in service, and a 0.7% increase
in miles per truck. Non-trucking revenues increased by $34.9 million
(79.3%), and fuel surcharge revenues increased by $8.5 million (25.3%).
Operating expenses, expressed as a percentage of operating revenues,
were 92.5% for the six months ended June 30, 2004, compared to 92.9% for
the same period of the previous year. The Company's overall operating
ratio was negatively affected to a greater extent in the first six months
of 2004 compared to the first six months of 2003 by higher non-trucking
revenues and higher fuel surcharge revenues. Other expense items, when
expressed as a percentage of total revenue, appear lower in the first six
months of 2004 versus the first six months of 2003 because of the
additional non-trucking and fuel surcharge revenues as well as the higher
revenue per mile.
Salaries, wages and benefits decreased from 35.4% to 33.6% of revenues
due primarily to the effect of the increases in non-trucking and fuel
surcharge revenues and revenue per mile. Salaries increased on a per-mile
basis due to higher non-driver salaries, wages and benefits related to the
non-trucking operations and higher driver accessorial and bonus pay. Fuel
increased from 11.6% to 12.0% of revenues due to higher fuel prices,
partially offset by the effect of the revenue increases described above.
Average fuel prices for the first six months of 2004 were 13 cents a
gallon, or 13%, higher than the first six months of 2003. Rent and
purchased transportation increased from 14.8% to 16.8% of revenues related
to the increase in non-trucking revenues and the corresponding increase in
purchased transportation expense related to this business. Other operating
expenses decreased from 0.0% to (0.3)% of revenues due to the Company
selling more used trucks to third parties and recognizing additional gains.
17
The Company's effective income tax rate was 37.5% for the six months ended
June 30, 2003. The rate increased to 38.5% for first quarter 2004 and to
39.1% for second quarter 2004 related to the implementation of per diem pay
programs for student drivers and eligible company drivers.
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
of service (HOS). The new rules became effective on January 4, 2004.
Beginning October 2003, Werner Enterprises started testing the HOS with its
drivers using its proprietary Paperless Log System software, modified for
the new HOS rules. This testing, combined with a comprehensive driver-
training program, helped to prepare the Company for the HOS changes.
Effective January 2004, the Company increased its accessorial charges to
customers for multiple stop shipments and its rates for tractor detention.
Werner also raised its driver pay for multiple stop shipments and
unanticipated delays.
On April 13, 2004, oral arguments were heard before the United States
Circuit Court of Appeals for the District of Columbia on a lawsuit filed by
Public Citizen challenging the revised hours-of-service regulations that
went into effect on January 4, 2004. On July 16, 2004, the United States
Circuit Court of Appeals for the District of Columbia vacated the new hours
of service rules in their entirety and remanded the matter to the FMCSA for
reconsideration. The current rules will remain in effect for at least 45
days while the Department of Transportation reviews the decision and
considers its next step. At this point the FMCSA has not indicated what
rule changes will be made, if any, once the court's ruling becomes
effective. Any changes in the current rules governing hours of service
could impact the Company's operations.
Accounting Standards:
The Financial Accounting Standards Board (FASB) issued an exposure
draft on March 31, 2004 addressing accounting for share-based payments.
The objective of this proposed statement is to make one accounting standard
available for share-based payments that would require a company to
recognize in its financial statements the cost of employee services
received in exchange for valuable equity instruments issued, and
liabilities incurred, to employees in share-based payment transactions
(e.g., stock options). For public entities, the proposed statement would
be applied prospectively for awards that are granted, modified, or settled
in fiscal years beginning after December 15, 2004. Additionally, public
entities would apply the provisions of the proposed statement in
recognizing compensation cost for any portion of awards granted or modified
after December 15, 1994, that is not yet vested at the date the standard is
adopted. If the final statement is issued as proposed, management
anticipates that adopting the new statement will have a negative impact of
approximately two cents per share for the year ending December 31, 2005,
representing the expense to be recognized for the unvested portion of
awards which were granted prior to January 1, 2005.
18
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 June 30,
2004, 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 second quarter 2004 and prior periods. To date, the Company
receives payment for freight services performed in Mexico and Canada
primarily in U.S. dollars to reduce foreign currency risk. Accordingly,
the Company is not currently subject to material foreign currency exchange
rate risks from the effects that exchange rate movements of foreign
currencies would have on the Company's future costs or on future cash
flows.
Item 4. Controls and Procedures.
As of the end of the period covered by 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-15(e). 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 changes in the Company's internal controls over
financial reporting that occurred during the Company's most recent fiscal
quarter that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.
19
PART II
OTHER INFORMATION
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities.
On December 29, 1997, the Company announced that its Board of
Directors had authorized the Company to repurchase up to 4,166,666 shares
of its common stock. On November 24, 2003, the Company announced that its
Board of Directors approved an increase to its authorization for common
stock repurchases of 3,965,838 shares for a total of 8,132,504 shares. As
of June 30, 2004, the Company had purchased 3,933,704 shares pursuant to
this authorization and had 4,198,800 shares remaining available for
repurchase. The Company may purchase shares from time to time depending on
market, economic, and other factors. The authorization will continue until
withdrawn by the Board of Directors.
The following tables summarize the Company's common stock repurchases
during the second quarter of 2004 made pursuant to this authorization. No
shares were purchased during the quarter other than through this program.
Issuer Purchases of Equity Securities
Maximum Number
(or Approximate
Total Number of Dollar Value) of
Shares (or Units) Shares (or Units) that
Total Number of Purchased as Part of May Yet Be
Shares (or Units) Average Price Paid Publicly Announced Purchased Under the
Period Purchased per Share (or Unit) Plans or Programs Plans or Programs
----------------------------------------------------------------------------------------
April 1-30, 2004 - - - 4,458,400
May 1-31, 2004 259,600 $18.2371 259,600 4,198,800
June 1-30, 2004 - - - 4,198,800
------------------ ------------------
Total 259,600 $18.2371 259,600 4,198,800
================== ==================
20
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders of Werner Enterprises, Inc. was
held on May 11, 2004 for the purpose of electing three directors for three-
year terms, voting on two proposed amendments to the Company's Stock Option
Plan (the "Plan"), and considering a stockholder proposal regarding board
inclusiveness. Proxies for the meeting were solicited pursuant to Section
14(a) of the Securities Exchange Act of 1934, and there was no solicitation
in opposition to management's nominees. Of the 79,269,963 shares entitled
to vote, stockholders representing 77,168,557 shares (97.3%) were present
in person or by proxy.
On April 30, 2004, Mr. Curtis G. Werner, one of the three directors
standing for election, tendered his resignation as an officer and director
of the Company effective immediately and did not stand for re-election.
The Company's Board of Directors (the "Board") amended the Company's By-
Laws on April 30, 2004 to change the number of directors on the Board from
nine to eight. Each of management's two remaining nominees for director as
listed in the proxy statement was elected. The voting tabulation was as
follows:
Shares Shares
Voted Voted
"FOR" "ABSTAIN"
---------- ----------
Gerald H. Timmerman 71,569,565 5,598,992
Kenneth M. Bird 71,643,480 5,525,077
The stockholders approved the amendment to the Company's Stock Option
Plan to increase the number of shares that may be optioned or sold under
the Plan from 14,583,334 to 20,000,000. The voting tabulation was as
follows:
Shares Shares Shares
Voted Voted Voted
"FOR" "AGAINST" "ABSTAIN"
---------- ---------- ----------
Stock Option Plan Amendment 61,989,378 15,133,026 46,151
The stockholders also approved the amendment to the Company's Stock
Option Plan to increase the maximum aggregate number of shares that may be
granted to any one person from 1,562,500 to 2,562,500. The voting
tabulation was as follows:
Shares Shares Shares
Voted Voted Voted
"FOR" "AGAINST" "ABSTAIN"
---------- ---------- ----------
Stock Option Plan Amendment 64,611,399 12,510,506 46,650
The stockholders voted against the stockholder proposal regarding
board inclusiveness. The voting tabulation was as follows:
Shares Shares Shares
Voted Voted Voted
"FOR" "AGAINST" "ABSTAIN"
---------- ---------- ----------
Board Inclusiveness 5,596,711 63,251,693 1,850,478
21
Item 5. Other Information
On May 11, 2004 the Company's Board of Directors amended the Company's
By-Laws to clarify the date by which the Nominating Committee shall submit
names to the Board of Directors. Under the Company's amended By-Laws, the
Nominating Committee shall submit names to the Board Secretary no later
than 75 days before the annual meeting. Under the previous provisions, the
deadline for stockholder nominations was ten days prior to the date of the
annual meeting. The revised and restated by-laws are filed as an exhibit
to this Form 10-Q.
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 Restated By-Laws
Exhibit 10.1 Amended and Restated Stock Option Plan
Exhibit 31.1 Rule 13a-14(a)/15d-14(a) Certification
Exhibit 31.2 Rule 13a-14(a)/15d-14(a) Certification
Exhibit 32.1 Section 1350 Certification
Exhibit 32.2 Section 1350 Certification
(b) Reports on Form 8-K.
(i) A report on Form 8-K, filed April 19, 2004, regarding a news
release on April 15, 2004, announcing the Company's operating
revenues and earnings for the first quarter ended March 31, 2004.
22
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: August 2, 2004 By: /s/ John J. Steele
-------------- ------------------------------
John J. Steele
Vice President, Treasurer and
Chief Financial Officer
Date: August 2, 2004 By: /s/ James L. Johnson
-------------- ------------------------------
James L. Johnson
Vice President, Controller and
Corporate Secretary