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 September 30, 1999 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 October 31, 1999, 47,505,836 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 the nine-month periods ended September 30, 1999, are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. 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, 1998). Consolidated Statements of Income for the Three Months Ended September 30, 1999 and 1998 Page 3 Consolidated Statements of Income for the Nine Months Ended September 30, 1999 and 1998 Page 4 Consolidated Condensed Balance Sheets as of September 30, 1999 and December 31, 1998 Page 5 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1999 and 1998 Page 6 Notes to Consolidated Financial Statements as of September 30, 1999 Page 7 2
WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF INCOME <TABLE> <CAPTION> Three Months Ended (In thousands) September 30 - ------------------------------------------------------------------------ 1999 1998 - ------------------------------------------------------------------------ (Unaudited) <S> <C> <C> Operating revenues $ 270,144 $ 219,715 ----------------------- Operating expenses: Salaries, wages and benefits 97,830 83,421 Fuel 21,600 13,766 Supplies and maintenance 23,027 18,436 Taxes and licenses 20,467 17,075 Insurance and claims 7,040 5,523 Depreciation 25,415 20,604 Rent and purchased transportation 45,382 34,278 Communications and utilities 3,394 2,814 Other (2,852) (2,701) ----------------------- Total operating expenses 241,303 193,216 ----------------------- Operating income 28,841 26,499 ----------------------- Other expense (income): Interest expense 1,731 1,242 Interest income (355) (446) Other 83 33 ----------------------- Total other expense 1,459 829 ----------------------- Income before income taxes 27,382 25,670 Income taxes 10,405 9,755 ----------------------- Net income $ 16,977 $ 15,915 ======================= Average common shares outstanding 47,464 47,658 ======================= Earnings per share $ .36 $ .33 ======================= Diluted shares outstanding 47,741 47,846 ======================= Diluted earnings per share $ .36 $ .33 ======================= Dividends declared per share $ .025 $ .024 ======================= </TABLE> 3
WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF INCOME <TABLE> <CAPTION> Nine Months Ended (In thousands) September 30 - ------------------------------------------------------------------------ 1999 1998 - ------------------------------------------------------------------------ (Unaudited) <S> <C> <C> Operating revenues $ 771,770 $ 631,100 ----------------------- Operating expenses: Salaries, wages and benefits 282,397 237,403 Fuel 53,819 42,662 Supplies and maintenance 64,190 53,159 Taxes and licenses 60,071 49,606 Insurance and claims 24,311 18,146 Depreciation 73,606 60,435 Rent and purchased transportation 131,565 100,470 Communications and utilities 9,904 7,922 Other (7,868) (8,387) ----------------------- Total operating expenses 691,995 561,416 ----------------------- Operating income 79,775 69,684 ----------------------- Other expense (income): Interest expense 4,574 3,486 Interest income (1,028) (1,296) Other 140 74 ----------------------- Total other expense 3,686 2,264 ----------------------- Income before income taxes 76,089 67,420 Income taxes 28,914 25,620 ----------------------- Net income $ 47,175 $ 41,800 ======================= Average common shares outstanding 47,389 47,786 ======================= Earnings per share $ 1.00 $ .87 ======================= Diluted shares outstanding 47,648 48,055 ======================= Diluted earnings per share $ .99 $ .87 ======================= Dividends declared per share $ .075 $ .068 ======================= </TABLE> 4
WERNER ENTERPRISES, INC. CONSOLIDATED CONDENSED BALANCE SHEETS <TABLE> <CAPTION> (In thousands) September 30 December 31 - ------------------------------------------------------------------------ 1999 1998 - ------------------------------------------------------------------------ (Unaudited) <S> <C> <C> ASSETS Current assets: Cash and cash equivalents $ 18,367 $ 15,913 Accounts receivable, net 135,056 94,329 Prepaid taxes, licenses and permits 3,605 10,792 Other current assets 28,374 24,231 ----------------------- Total current assets 185,402 145,265 ----------------------- Property and equipment 939,329 829,461 Less - accumulated depreciation 249,085 205,530 ----------------------- Property and equipment, net 690,244 623,931 ----------------------- $ 875,646 $ 769,196 ======================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 42,274 $ 48,146 Short-term debt (Note 1) 15,000 - Insurance and claims accruals 30,305 23,250 Accrued payroll 13,474 10,051 Income taxes payable 5,597 471 Other current liabilities 12,985 9,989 ----------------------- Total current liabilities 119,635 91,907 ----------------------- Long-term debt 120,000 100,000 Insurance, claims and other long-term accruals 31,301 30,801 Deferred income taxes 117,694 105,900 Stockholders' equity 487,016 440,588 ----------------------- $ 875,646 $ 769,196 ======================= </TABLE> 5
WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> Nine Months Ended (In thousands) September 30 - ------------------------------------------------------------------------ 1999 1998 - ------------------------------------------------------------------------ (Unaudited) <S> <C> <C> Cash flows from operating activities: Net income $ 47,175 $ 41,800 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 73,606 60,435 Deferred income taxes 11,794 9,427 Gain on disposal of operating equipment (8,842) (9,624) Insurance, claims and other long-term accruals 500 972 Tax benefit from exercise of stock options 659 372 Changes in certain working capital items: Accounts receivable, net (40,727) 5,988 Prepaid expenses and other current assets 3,044 268 Accounts payable (5,872) (8,212) Other current liabilities 18,595 (967) ----------------------- Net cash provided by operating activities 99,932 100,459 ----------------------- Cash flows from investing activities: Additions to property and equipment (188,157) (180,325) Proceeds from sales of property and equipment 57,080 67,592 ----------------------- Net cash used in investing activities (131,077) (112,733) ----------------------- Cash flows from financing activities: Proceeds from issuance of long-term debt 20,000 20,000 Proceeds from issuance of short-term debt 30,000 - Repayments of short-term debt (15,000) - Dividends on common stock (3,552) (3,063) Repurchases of common stock - (7,161) Stock options exercised 2,151 1,287 ----------------------- Net cash provided by financing activities 33,599 11,063 ----------------------- Net increase (decrease) in cash and cash equivalents 2,454 (1,211) Cash and cash equivalents, beginning of period 15,913 22,294 ----------------------- Cash and cash equivalents, end of period $ 18,367 $ 21,083 ======================= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 5,098 $ 2,627 Income taxes $ 11,158 $ 20,029 </TABLE> 6
WERNER ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Committed Credit Facilities In addition to $50 million of fixed-rate debt described in footnote (2) of the Company's financial statements for the year ended December 31, 1998, the Company had $70 million of long-term and $45 million of short- term variable-rate committed credit facilities with financial institutions available at September 30, 1999. These credit facilities bear variable interest (5.7% at September 30, 1999) based on the London Interbank Offered Rate (LIBOR) or, at the Company's option, the financial institution's base lending rate. Borrowings of $70 million under long-term variable-rate facilities and $15 million under short-term variable-rate facilities were outstanding at September 30, 1999. (2) Commitments As of September 30, 1999, the Company has commitments for capital expenditures of approximately $40 million. 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, 1998. Year 2000 Readiness Disclosure: In January 1997, the Company began conducting a comprehensive review of its Year 2000 issue and has since completed its review of information technology (IT) and non-IT systems. Most of the Company's critical software programs have been developed internally, with the remainder having been licensed from and maintained by software vendors. The Company completed substantially all its conversion of internally developed software programs to Year 2000 compliance in September 1998. The costs of converting these programs were not material. The following is an estimate of the status of the Company's IT systems and non-IT systems. <TABLE> <CAPTION> Year 2000 Modifications being Compliant performed <S> <C> <C> Internally-developed IT systems 100% 0% Vendor-supplied IT systems 100% 0% Non-IT systems 100% 0% </TABLE> Based on information currently available, the Company believes that the Year 2000 issue will not pose significant operational or administrative problems for the Company. However, there can be no assurance that the Year 2000 issue will not have a material adverse effect on the Company's business, operations or financial condition. The Company will continue to evaluate the Year 2000 readiness of third parties (primarily vendors and customers) with whom the Company has material relationships. The Company cannot presently estimate the effect on its results of operations, liquidity, and financial condition should material vendors and customers fail to become Year 2000 compliant. The Company is not currently aware of any material vendors or customers which have represented to the Company that they are unlikely to achieve Year 2000 compliance. If the Company obtains information indicating it is likely that a material vendor or customer will not achieve Year 2000 compliance, the Company will develop a specific contingency plan at that time. As a general precaution, the Company has documented manual procedures to be implemented if the IT systems of its material vendors or customers fail and has made arrangements for its key employees to be available should the Company experience disruptions. Financial Condition: During the nine months ended September 30, 1999, the Company generated cash flow from operations of $99.9 million. The Company received net proceeds from the issuance of long-term and short-term borrowings of $35 million, which, along with the cash flow from operations, enabled the Company to make net property additions, primarily revenue equipment, of $131.1 million and pay common stock dividends of $3.6 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. 8
The Company's debt to equity ratio at September 30, 1999 was 27.7%, compared with 22.7% at December 31, 1998. The Company's debt to total capitalization ratio (total capitalization equals total debt plus total stockholders' equity) was 21.7% at September 30, 1999 compared to 18.5% at December 31, 1998. Results of Operations: Three Months Ended September 30, 1999 and 1998 - ---------------------------------------------- Operating revenues increased 23.0% for the three months ended September 30, 1999, compared to the same period of the prior year, primarily due to a 21.4% increase in the average number of tractors in service. Average tractors in service increased from 5,726 in third quarter 1998 to 6,949 in third quarter 1999. Revenue per mile, excluding fuel surcharges, increased 1.3% compared to third quarter of 1998 due to rate increases and a shift in the mix of freight between fleets in the truckload division which decreased the average trip length by 3%. A $4.3 million increase in revenues from logistics and other non-trucking transportation services also contributed to the overall increase in operating revenues. Operating expenses, expressed as a percentage of operating revenues, were 89.3% for the three months ended September 30, 1999, compared to 87.9% for the three months ended September 30, 1998. The Company's increase in logistics and other non-trucking transportation services, and an increase in owner-operator miles as a percentage of total miles (18.9% in third quarter 1999 compared to 16.8% in third quarter 1998), contributed to a shift in costs to the rent and purchased transportation expense category from several other expense categories. 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. Salaries, wages and benefits decreased from 37.9% to 36.2% of revenues due primarily to the increase in logistics and other non-trucking revenues, more owner-operator miles as a percentage of total miles and a higher ratio of tractors to non-driver employees. 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 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 6.2% to 8.0% of revenues, due mainly to higher average fuel prices during the quarter compared to the same quarter of the prior year. The average cost of fuel, excluding fuel taxes, was 41% higher in third quarter 1999 compared to third quarter 1998. See further discussion of fuel prices under the caption "Commodity Price Risk" in Item 3 of this Form 10-Q. Taxes and licenses decreased from 7.8% to 7.6% of revenues due primarily to the increases in logistics and other non-trucking revenues and owner-operator miles as a percentage of total miles. Rent and purchased transportation increased from 15.6% to 16.8% of revenues due primarily to the Company's increases in logistics and other non-trucking transportation services and owner-operator miles as a percentage of total miles. 9
Nine Months Ended September 30, 1999 and 1998 - --------------------------------------------- Operating revenues increased by 22.3% for the nine months ended September 30, 1999, compared to the same period of the previous year, primarily due to a 20.2% increase in the average number of tractors. Revenue per mile, excluding fuel surcharges, increased 1.3% due primarily to rate increases and changes in the mix of freight resulting in a decrease in the average trip length. A $14.3 million increase in revenues from logistics and other non-trucking transportation services also contributed to the overall increase in operating revenues. Operating expenses, expressed as a percentage of operating revenues, were 89.7% for the nine months ended September 30, 1999, compared to 89.0% for the same period of the previous year. The increase in logistics and other non-trucking transportation services, and an increase in owner- operator miles as a percentage of total miles (17.9% in 1999 compared to 16.7% in 1998), resulted in a shift in costs to the rent and purchased transportation expense category from several other expense categories. Salaries, wages and benefits decreased from 37.6% to 36.6% of revenues, primarily due to the increase in logistics and other non-trucking transportation services, more owner-operator miles as a percentage of total miles, and a higher ratio of tractors to non-driver employees. Fuel increased from 6.8% to 7.0% of revenues due mainly to higher fuel prices, on average, during the nine months ended September 30, 1999, compared to the same period of 1998, partly offset by the increases in logistics revenues and owner-operator miles. Insurance and claims increased from 2.9% to 3.2% of revenues due to unfavorable claims experience partly due to more severe winter driving conditions during the first quarter of 1999 and an increased frequency of property damage and other claims during the nine months ended September 30, 1999. Rent and purchased transportation increased from 15.9% to 17.0% of revenues due to the increase in logistics and other non-trucking transportation services and increase in owner- operator miles as a percentage of total miles. Other operating expenses changed from (1.3%) to (1.0%) of revenues due in part to higher expense for repairs on equipment sales to third parties during 1999, which reduced the amount of gains recognized on these sales. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to market risk from changes in interest rates and commodity prices. Interest Rate Risk The Company had $85 million of variable rate debt at September 30, 1999. The interest rates on the variable rate debt are based on the London Interbank Offered Rate (LIBOR). Assuming this level of borrowings, a hypothetical one percentage point increase in the LIBOR interest rate would increase the Company's annual interest expense by $850,000. 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 portion of short-term fuel price increases from customers in the form of fuel surcharges. As of September 30, 1999, the Company has implemented customer fuel surcharges with a majority of its revenue base to offset a portion of the higher fuel cost per gallon. The Company cannot predict whether high fuel price levels will continue in the future or the extent to which fuel surcharges will be collected to offset such increases. As of September 30, 1999, the Company had no derivative financial instruments to reduce its exposure to fuel price fluctuations. 10
PART II OTHER INFORMATION 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 September 30, 1999 Financial Data Schedule Filed herewith (b) Reports on Form 8-K. (i) A report on Form 8-K, filed July 21, 1999, regarding a news release on July 16, 1999, announcing the Company's operating revenues and earnings for the second quarter ended June 30, 1999. 11
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WERNER ENTERPRISES, INC. Date: November 12, 1999 By: /s/ John J. Steele ------------------ -------------------------------- John J. Steele Vice President, Treasurer and Chief Financial Officer Date: November 12, 1999 By: /s/ James L. Johnson ------------------ -------------------------------- James L. Johnson Corporate Secretary and Controller 12