SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter ended Commission file number June 30, 1998 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) __________________________________________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] As of July 31, 1998, 47,796,584 shares of the registrant's common stock, par value $.01 per share, were outstanding.
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 and results of operations for the periods presented. They have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the three-month and six-month periods ended June 30, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. 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 latest annual report (which is incorporated by reference in the Form 10-K for the year ended December 31, 1997). Consolidated Statements of Income for the Three Months Ended June 30, 1998 and 1997 Page 3 Consolidated Statements of Income for the Six Months Ended June 30, 1998 and 1997 Page 4 Consolidated Condensed Balance Sheets as of June 30, 1998 and December 31, 1997 Page 5 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1997 Page 6 Notes to Consolidated Financial Statements as of June 30, 1998 Page 7 2
WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF INCOME Three Months Ended (Amounts in thousands, except per share data) June 30 - ------------------------------------------------------------------------- 1998 1997 - ------------------------------------------------------------------------- (Unaudited) Operating revenues $211,678 $193,635 --------------------- Operating expenses: Salaries, wages and benefits 79,679 70,635 Fuel 14,198 16,719 Supplies and maintenance 17,214 15,548 Taxes and licenses 16,679 15,208 Insurance and claims 5,978 4,901 Depreciation 20,372 17,976 Rent and purchased transportation 32,815 33,004 Communications and utilities 2,549 1,937 Other (2,848) (2,342) --------------------- Total operating expenses 186,636 173,586 --------------------- Operating income 25,042 20,049 --------------------- Other expense (income): Interest expense 1,238 588 Interest income (430) (299) Other 21 36 --------------------- Total other expense 829 325 --------------------- Income before income taxes 24,213 19,724 Income taxes 9,201 7,192 --------------------- Net income $ 15,012 $ 12,532 ===================== Average common shares outstanding (Note 1) 47,883 47,728 ===================== Earnings per share (Note 1) $ .31 $ .26 ===================== Diluted shares outstanding (Note 1) 48,185 47,928 ===================== Diluted earnings per share (Note 1) $ .31 $ .26 ===================== Dividends declared per share (Note 1) $ .024 $ .020 ===================== 3
WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF INCOME Six Months Ended (Amounts in thousands, except per share data) June 30 - ------------------------------------------------------------------------- 1998 1997 - ------------------------------------------------------------------------- (Unaudited) Operating revenues $411,385 $365,684 --------------------- Operating expenses: Salaries, wages and benefits 153,982 133,908 Fuel 28,896 33,984 Supplies and maintenance 34,723 30,493 Taxes and licenses 32,531 27,927 Insurance and claims 12,623 11,251 Depreciation 39,831 35,224 Rent and purchased transportation 66,192 60,652 Communications and utilities 5,108 4,121 Other (5,686) (3,378) --------------------- Total operating expenses 368,200 334,182 --------------------- Operating income 43,185 31,502 --------------------- Other expense (income): Interest expense 2,244 1,035 Interest income (850) (714) Other 41 65 --------------------- Total other expense 1,435 386 --------------------- Income before income taxes 41,750 31,116 Income taxes 15,865 11,135 --------------------- Net income $ 25,885 $ 19,981 ===================== Average common shares outstanding (Note 1) 47,852 47,608 ===================== Earnings per share (Note 1) $ .54 $ .42 ===================== Diluted shares outstanding (Note 1) 48,156 47,792 ===================== Diluted earnings per share (Note 1) $ .54 $ .42 ===================== Dividends declared per share (Note 1) $ .044 $ .040 ===================== 4
WERNER ENTERPRISES, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands) June 30 December 31 - ------------------------------------------------------------------------- 1998 1997 - ------------------------------------------------------------------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 20,111 $ 22,294 Accounts receivable, net 89,127 93,461 Prepaid taxes, licenses and permits 5,468 8,405 Other current assets 25,075 21,632 --------------------- Total current assets 139,781 145,792 --------------------- Property and equipment 755,851 698,099 Less - accumulated depreciation 188,930 176,253 --------------------- Property and equipment, net 566,921 521,846 --------------------- $706,702 $667,638 ===================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 26,265 $ 44,167 Insurance and claims accruals 21,988 22,161 Accrued payroll 14,142 9,116 Income taxes payable 3,930 6,983 Other current liabilities 12,350 9,364 --------------------- Total current liabilities 78,675 91,791 --------------------- Long-term debt 80,000 60,000 Insurance, claims and other long-term accruals 30,301 29,329 Deferred income taxes 97,233 91,400 Stockholders' equity 420,493 395,118 --------------------- $706,702 $667,638 ===================== 5
WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended (In thousands) June 30 - -------------------------------------------------------------------------- 1998 1997 - -------------------------------------------------------------------------- (Unaudited) Cash flows from operating activities: Net income $ 25,885 $ 19,981 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 39,831 35,224 Deferred income taxes 5,833 4,486 Gain on disposal of operating equipment (6,411) (3,700) Insurance, claims and other long-term accruals 972 (5) Tax benefit from exercise of stock options 364 1,299 Changes in certain working capital items: Accounts receivable, net 4,334 (20,189) Prepaid expenses and other current assets (506) 1,713 Accounts payable (17,902) 14,647 Other current liabilities 4,593 5,498 --------------------- Net cash provided by operating activities 56,993 58,954 --------------------- Cash flows from investing activities: Additions to property and equipment (122,038) (103,413) Proceeds from sales of property and equipment 43,543 20,707 --------------------- Net cash used in investing activities (78,495) (82,706) --------------------- Cash flows from financing activities: Proceeds from issuance of long-term debt 20,000 20,000 Dividends on common stock (1,916) (1,900) Stock options exercised 1,235 2,041 --------------------- Net cash provided by financing activities 19,319 20,141 --------------------- Net decrease in cash and cash equivalents (2,183) (3,611) Cash and cash equivalents, beginning of period 22,294 22,136 --------------------- Cash and cash equivalents, end of period $ 20,111 $ 18,525 ===================== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 2,156 $ 971 Income taxes 12,323 5,167 6
WERNER ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Common Stock Split On May 13, 1998, the Company issued shares for a five-for-four common stock split effected in the form of a twenty-five percent (25%) stock dividend to stockholders of record at the close of business on April 27, 1998. All references in the consolidated financial statements with regard to the number of shares of common stock and the per share amounts have been adjusted to reflect the effect of the stock split. (2) Commitments As of June 30, 1998, the Company has commitments for capital expenditures of approximately $58,000,000. 7
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, 1997. Financial Condition: During the six months ended June 30, 1998, the Company generated cash flow from operations of $57.0 million. Cash flow from operations decreased compared to the same period of the previous year due to a reduction in accounts payable resulting from the timing of payments for tractors and trailers. At December 31, 1997, most of the accounts payable of $44.2 million was for tractors and trailers received not yet paid. Accounts payable was $26.3 million at June 30, 1998. Accounts receivable collections improved during the six months ended June 30, 1998 as accounts receivable declined from $93.5 million to $89.1 million. The Company made long-term borrowings of $20.0 million, which, along with the cash flow from operations, enabled the Company to make net property additions, primarily revenue equipment, of $78.5 million, and pay common stock dividends of $1.9 million. If the Company continues to grow at its current rate (as described below), additional financing activities may occur. Based on the Company's strong financial position, management foresees no significant barriers to obtaining sufficient financing, if necessary, to continue with its growth plans. The Company's long-term debt to equity ratio at June 30, 1998 was 19.0%, compared with 15.2% at December 31, 1997. Results of Operations: Three Months Ended June 30, 1998 and 1997 - ----------------------------------------- Operating revenues increased 9% for the three months ended June 30, 1998, compared to the same period of the prior year, primarily due to a 10% increase in the average number of tractors in service. Revenue per mile, excluding fuel surcharges, increased 2% compared to second quarter of 1997 due partially to rate increases. These increases were partially offset by lower revenues from logistics transportation services. Operating expenses, expressed as a percentage of operating revenues, were 88.2% for the three months ended June 30, 1998, compared to 89.6% for the three months ended June 30, 1997. The Company's decrease in logistics transportation services contributed to a shift in costs from the rent and purchased transportation expense category to several other expense categories, as described below. Salaries, wages and benefits increased from 36.5% to 37.6% of revenues due to more experienced drivers and a decrease in logistics revenues. At times, there have been shortages of drivers in the trucking industry, particularly the medium-to-long haul segment. 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 were 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. 8
Fuel decreased from 8.6% to 6.7% of revenues, due mainly to significantly lower average fuel prices during the quarter compared to the same quarter of the prior year. Depreciation increased from 9.3% to 9.6% of revenues due primarily to the decrease in logistics revenues and an increase in the trailer to tractor ratio. The increase in the trailer to tractor ratio is the result of providing additional trailers to improve customer service and tractor productivity. A decrease in the average length of haul also contributed to the increased trailer to tractor ratio. Rent and purchased transportation decreased from 17.0% to 15.5% of revenues due primarily to the Company's decrease in logistics transportation services. The Company's effective income tax rate (income taxes as a percentage of income before income taxes) was 38% and 36.5% for the three month periods ended June 30, 1998 and 1997, respectively. The effective income tax rate for the 1997 period was lower than normal due to favorable settlement of income tax issues. Six Months Ended June 30, 1998 and 1997 - --------------------------------------- Operating revenues increased by 12% for the six months ended June 30, 1998, compared to the same period of the previous year, primarily due to a 12% increase in the average number of tractors. Revenue per mile, excluding fuel surcharges, increased 1% compared to the first six months of 1997 partially due to rate increases. These increases were partially offset by lower revenues from logistics transportation services. Operating expenses, expressed as a percentage of operating revenues, decreased to 89.5% for the six months ended June 30, 1998, compared to 91.4% for the same period of 1997. Salaries, wages and benefits increased from 36.6% to 37.4% of revenues due primarily to more experienced drivers and a decrease in logistics revenues. Fuel costs decreased from 9.3% to 7.0% of revenues due mainly to lower average fuel prices during the first six months of 1998. Taxes and licenses increased from 7.6% to 7.9% of revenues due primarily to the decreased revenues from logistics services and refunds and favorable development of state tax issues during the prior period. Rent and purchased transportation decreased from 16.6% to 16.1% of revenues due primarily to the Company's decrease in logistics transportation services. Other operating expenses changed from (.9%) to (1.4%) of revenues mainly due to an increase in gains on sales of revenue equipment to third parties resulting primarily from an increase in the number of units sold. The Company's effective income tax rate was 38.0% and 35.8% for the six month periods ended June 30, 1998 and 1997, respectively. The effective income tax rate for the 1997 period was lower than normal due to favorable settlement of income tax issues. 9
PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Stockholders of Werner Enterprises, Inc. was held on May 12, 1998 for the purpose of electing three directors for three- year terms and voting on the proposal described below. 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. Each of management's nominees for director as listed in the Proxy Statement was elected. The voting tabulation was as follows: Shares Voted Shares Voted "FOR" "ABSTAIN" ------------ ------------ Curtis G. Werner 35,087,456 1,238,704 Gerald H. Timmerman 35,090,248 1,235,912 Donald W. Rogert 35,112,800 1,213,360 The Company's proposal to amend the Articles of Incorporation and increase the number of authorized shares of common stock, par value of $.01, from 60,000,000 to 200,000,000 shares, as set forth in the Proxy Statement for Annual Meeting of Stockholders, May 12, 1998, was approved by the following vote: Shares Voted Shares Voted Shares Voted "FOR" "AGAINST" "ABSTAIN" ------------ ------------ ------------ 24,956,801 11,351,731 17,628 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit Incorporated Number Description by Reference to ------- ----------- --------------- 11 Statement Re: Computation of Per Share Earnings Filed herewith 27 June 30, 1998 Financial Data Schedule Filed herewith 27.1 Restated 1997 Financial Data Schedule for Interim Periods Filed herewith 27.2 Restated September 30, 1996 Financial Data Schedule Filed herewith (b) Reports on Form 8-K. A report on Form 8-K, filed April 17, 1998, regarding a news release on April 15, 1998, announcing the Company's operating revenues and earnings for the first quarter ended March 31, 1998. 10
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 13, 1998 By: /s/John J. Steele John J. Steele Vice President, Treasurer and Chief Financial Officer Date: August 13, 1998 By: /s/James L. Johnson James L. Johnson Corporate Secretary and Controller 11