UNITED STATES
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
March 31, 2001 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 April 30, 2001, 47,161,991 shares of the registrant's common
stock, par value $.01 per share, were outstanding.
INDEX TO FORM 10-Q
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Statements of Income for the Three Months Ended
March 31, 2001 and 2000 3
Consolidated Condensed Balance Sheets as of March 31, 2001 and
December 31, 2000 4
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2001 and 2000 5
Notes to Consolidated Financial Statements as of March 31, 2001 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 13
PART II - OTHER INFORMATION
Items 1, 2, 3, 4 and 5 - Not Applicable
Item 6 - Exhibits and Reports on Form 8-K 13
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 period ended March 31, 2001, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2001. 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, 2000.
2
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
(In thousands, except per share amounts) March 31
- ------------------------------------------------------------------------------
2001 2000
- ------------------------------------------------------------------------------
(Unaudited)
Operating revenues $304,577 $291,379
--------------------------
Operating expenses:
Salaries, wages and benefits 109,074 103,312
Fuel 35,064 31,209
Supplies and maintenance 26,944 25,312
Taxes and licenses 23,078 21,462
Insurance and claims 10,741 6,980
Depreciation 29,195 26,321
Rent and purchased transportation 50,272 57,027
Communications and utilities 3,743 3,686
Other 407 (2,465)
--------------------------
Total operating expenses 288,518 272,844
--------------------------
Operating income 16,059 18,535
--------------------------
Other expense (income):
Interest expense 1,406 2,235
Interest income (894) (447)
Other 419 105
--------------------------
Total other expense 931 1,893
--------------------------
Income before income taxes 15,128 16,642
Income taxes 5,673 6,324
--------------------------
Net income $ 9,455 $ 10,318
==========================
Average common shares outstanding 47,072 47,092
==========================
Basic earnings per share $ .20 $ .22
==========================
Diluted shares outstanding 47,663 47,251
==========================
Diluted earnings per share $ .20 $ .22
==========================
Dividends declared per share $ .025 $ .025
==========================
3
WERNER ENTERPRISES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands) March 31 December 31
- ------------------------------------------------------------------------------
2001 2000
- ------------------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 28,498 $ 25,485
Accounts receivable, net 127,375 123,518
Receivable from unconsolidated affiliate - 5,332
Other receivables 10,619 10,257
Prepaid taxes, licenses and permits 10,021 12,396
Other current assets 30,642 29,789
----------------------------
Total current assets 207,155 206,777
----------------------------
Property and equipment 1,041,567 1,021,679
Less - accumulated depreciation 333,395 313,881
----------------------------
Property and equipment, net 708,172 707,798
----------------------------
Notes receivable 4,341 4,420
Investment in unconsolidated affiliate 4,933 5,324
Other non-current assets 2,652 2,888
----------------------------
$ 927,253 $ 927,207
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 31,493 $ 30,710
Insurance and claims accruals 35,716 36,057
Accrued payroll 15,454 12,746
Payable to unconsolidated affiliate 3,115 -
Other current liabilities 22,117 21,906
----------------------------
Total current liabilities 107,895 101,419
----------------------------
Long-term debt 60,000 105,000
Insurance, claims and other long-term accruals 34,301 32,301
Deferred income taxes 179,901 152,403
Stockholders' equity 545,156 536,084
----------------------------
$ 927,253 $ 927,207
============================
4
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
(In thousands) March 31
- ------------------------------------------------------------------------------
2001 2000
- ------------------------------------------------------------------------------
(Unaudited)
Cash flows from operating activities:
Net income $ 9,455 $ 10,318
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 29,195 26,321
Deferred income taxes 27,498 2,580
Gain on disposal of property and equipment (57) (2,787)
Equity in loss of unconsolidated affiliate 391 -
Tax benefit from exercise of stock options 157 3
Other long-term assets 236 -
Insurance claims and other long-term accruals 2,000 -
Changes in certain working capital items:
Accounts receivable, net (3,857) (3,522)
Prepaid expenses and other current assets 6,492 (2,748)
Accounts payable 783 (4,785)
Other current liabilities 5,684 6,208
--------------------------
Net cash provided by operating activities 77,977 31,588
--------------------------
Cash flows from investing activities:
Additions to property and equipment (40,199) (32,563)
Proceeds from sales of property and equipment 10,562 25,306
Proceeds from collection of notes receivable 204 -
--------------------------
Net cash used in investing activities (29,433) (7,257)
--------------------------
Cash flows from financing activities:
Repayments of short-term debt - (20,000)
Repayments of long-term debt (45,000) -
Dividends on common stock (1,176) (1,180)
Repurchases of common stock - (2,113)
Stock options exercised 645 3
--------------------------
Net cash used in financing activities (45,531) (23,290)
--------------------------
Net increase in cash and cash equivalents 3,013 1,041
Cash and cash equivalents, beginning of period 25,485 15,368
--------------------------
Cash and cash equivalents, end of period $ 28,498 $ 16,409
==========================
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest $ 1,709 $ 1,844
Income taxes $(22,480) $ 1,323
Supplemental schedule of non-cash investing
activities:
Notes receivable issued upon sale of revenue
equipment $ 125 $ 1,423
5
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Investment in Unconsolidated Affiliate
Effective June 30, 2000, the Company contributed its non-asset based
logistics business to Transplace.com, LLC (TPC), in exchange for an equity
interest in TPC of approximately 15%. TPC is a joint venture of six large
transportation companies - Covenant Transport, Inc.; J. B. Hunt Transport
Services, Inc.; M. S. Carriers, Inc.; Swift Transportation Co., Inc.; U. S.
Xpress Enterprises, Inc.; and Werner Enterprises, Inc. Accordingly, the
Company is accounting for its investment in TPC using the equity method.
Management believes this method is appropriate because the Company has the
ability to exercise significant influence over operating and financial
policies of TPC through its representation on the TPC board of directors.
At March 31, 2001, the investment in unconsolidated affiliate includes a
$5,000,000 investment in TPC less $67,000, which represents the Company's
15% equity in the operations of unconsolidated affiliate.
(2) Long-Term Debt
Long-term debt consists of the following (in thousands):
March 31 December 31
2001 2000
-------- -----------
Notes payable to banks under committed credit
facilities $10,000 $ 55,000
6.55% Series A Senior Notes, due November 2002 20,000 20,000
6.02% Series B Senior Notes, due November 2002 10,000 10,000
5.52% Series C Senior Notes, due December 2003 20,000 20,000
------- --------
Long-term debt $60,000 $105,000
======= ========
The notes payable to banks under committed credit facilities bear
variable interest (6.04% at March 31, 2001) based on the London Interbank
Offered Rate (LIBOR) and mature in August 2002. The Company has an
additional $90 million of available long-term credit facilities with banks
which bear variable interest based on LIBOR, on which no borrowings were
outstanding at March 31, 2001.
(3) Commitments
As of March 31, 2001, the Company has commitments for net capital
expenditures of approximately $42.6 million.
(4) Accounting Standards
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" (SFAS 133), which was amended by SFAS No. 138. SFAS
133, effective for all fiscal quarters of fiscal years beginning after June
15, 2000, establishes standards for reporting and display of derivative
instruments and for hedging activities. Management has determined that
6
adoption of these two statements did not have any effect on the results of
operations or financial position during the first quarter of 2001.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 summarizes certain of the SEC staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements and affects a broad range of industries. SAB 101 was
effective for the Company in the fourth quarter of 2000. Because the
Company has historically recognized revenue when shipments are delivered,
the adoption of SAB 101 had no effect on the results of operations or
financial position of the Company.
(5) Earnings Per Share
A reconciliation of the numerator and denominator of basic and diluted
earnings per share is shown below. Common stock equivalents represent the
dilutive effect of outstanding stock options for all periods presented.
(in thousands, except
per share amounts)
Three Months Ended
March 31
-----------------------
2001 2000
-----------------------
Net income $ 9,455 $ 10,318
=======================
Average common shares outstanding 47,072 47,092
Common stock equivalents 591 159
-----------------------
Diluted shares outstanding 47,663 47,251
=======================
Basic earnings per share $ .20 $ .22
=======================
Diluted earnings per share $ .20 $ .22
=======================
Options to purchase shares of common stock which were outstanding
during the periods indicated above, but were 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, were:
Three Months Ended
March 31
--------------------------------
2001 2000
--------------------------------
Number of shares under option 7,500 718,501
Range of option purchase prices $19.13-$20.50 $14.94-$20.50
(6) Segment Information
The Company has one reportable segment- Truckload transportation
services. This segment consists of five operating fleets that have been
aggregated since they have similar economic characteristics and meet the
7
other aggregation criteria of SFAS No. 131. The Medium- to Long-Haul Van
fleet transports a variety of consumer, non-durable products and other
commodities in truckload quantities over irregular routes using dry van
trailers. The Regional Short-Haul fleet provides comparable truckload van
service within five geographic areas. The Flatbed and Temperature-
Controlled fleets provide truckload services for products with specialized
trailers. The Dedicated Services fleet provides truckload services
required by a specific company, plant, or distribution center.
The Company generates non-trucking revenues related to freight
transportation management, third-party equipment maintenance, and other
business activities. None of these operations meet the quantitative
threshold reporting requirements of SFAS No. 131. As a result, these
operations are grouped in "Other" in the table below. The Company does not
prepare separate balance sheets by segments and, as a 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):
For the Quarter Ended March 31, 2001
------------------------------------
Truckload
Transportation
Services Other Total
------------------------------------
Revenues $289,811 $14,766 $304,577
Operating Income 15,702 357 16,059
For the Quarter Ended March 31, 2000
------------------------------------
Truckload
Transportation
Services Other Total
------------------------------------
Revenues $272,159 $19,220 $291,379
Operating Income (Loss) 18,794 (259) 18,535
8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This report contains forward-looking statements which are based on
information currently available to the Company's management. Actual
results could differ materially from those anticipated in forward-looking
statements as a result of a number of factors, including, but not limited
to, those discussed in Item 7, "Management's Discussion and Analysis of
Results of Operations and Financial Condition", of the Company's Annual
Report on Form 10-K for the year ended December 31, 2000. The Company
assumes no obligation to update any forward-looking statement to the extent
it becomes aware that it will not be achieved for any reason.
Financial Condition:
During the three months ended March 31, 2001, the Company generated
cash flow from operations of $78.0 million. The increase in operating cash
flows from deferred income taxes from first quarter 2000 to first quarter
2001 was due primarily to the implementation of certain tax strategies.
The cash flow from operations enabled the Company to make net property
additions, primarily revenue equipment, of $29.6 million, repay $45.0
million of debt, and pay common stock dividends of $1.2 million. 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 debt to equity ratio at March 31, 2001 was 11.0%,
compared with 19.6% at December 31, 2000. The Company's debt to total
capitalization ratio (total capitalization equals total debt plus total
stockholders' equity) was 9.9% at March 31, 2001 compared to 16.4% at
December 31, 2000.
9
Results of Operations:
The following table sets forth the percentage relationship of income
and expense items to operating revenues for the periods indicated.
Percentage of Operating
Revenues
-----------------------
Three Months Ended
March 31
2001 2000
-----------------------
Operating revenues 100.0% 100.0%
------------------
Operating expenses:
Salaries, wages and benefits 35.8 35.4
Fuel 11.5 10.7
Supplies and maintenance 8.9 8.7
Taxes and licenses 7.6 7.4
Insurance and claims 3.5 2.4
Depreciation 9.6 9.0
Rent and purchased transportation 16.5 19.5
Communications and utilities 1.2 1.3
Other 0.1 (0.8)
------------------
Total operating expenses 94.7 93.6
------------------
Operating income 5.3 6.4
Net interest expense and other 0.3 0.7
------------------
Income before income taxes 5.0 5.7
Income taxes 1.9 2.2
------------------
Net income 3.1% 3.5%
==================
--------------------
Operating Statistics
--------------------
Average monthly miles per tractor 10,242 10,505
Average revenues per total mile (1) $1.189 $1.172
Average revenues per loaded mile (1) $1.331 $1.302
Average percentage of empty miles 10.67% 9.99%
Average tractors in service 7,547 7,127
Non-trucking revenues (in thousands) $14,766 $19,220
Total tractors (at quarter end)
Company 6,440 5,925
Owner-operator 1,185 1,250
----- -----
Total tractors 7,625 7,175
Total trailers (at quarter end) 19,860 18,900
(1) Net of fuel surcharge revenues.
10
Three Months Ended March 31, 2001 and 2000
- ------------------------------------------
Operating revenues increased 4.5% for the three months ended March 31,
2001, compared to the same period of the prior year, due in part to a 5.9%
increase in the average number of tractors in service. Revenue per mile,
excluding fuel surcharges, increased 1.5%, and revenue per mile, including
fuel surcharges, increased 3.1% compared to first quarter 2000. Excluding
fuel surcharge revenues, trucking revenues increased 4.8% for the three
months ended March 31, 2001, compared to the same period of the prior year.
These increases were offset by a 2.5% decrease in miles per truck compared
to first quarter 2000 and a $4.5 million decrease (23% decrease) in
revenues from logistics and other non-trucking transportation services due
to the Company transferring logistics business to Transplace.com on June
30, 2000. See discussion of Transplace.com on the following pages.
Freight demand during first quarter 2001 was less than first quarter
2000. Over the past several months, the Company has increased its focus on
margin improvement and debt reduction rather than on growth. Until market
conditions improve, the Company anticipates growing its fleet at a slower
rate. However, when market conditions improve, the Company intends to
increase its growth rate.
Operating expenses, expressed as a percentage of operating revenues,
were 94.7% for the three months ended March 31, 2001, compared to 93.6% for
the three months ended March 31, 2000. The decrease in owner-operator
miles as a percentage of total miles (17.3% in first quarter 2001 compared
to 19.6% in first quarter 2000), contributed to a shift in costs from the
rent and purchased transportation expense category to several other expense
categories, as described on the following pages. Owner-operators are
independent contractors who supply their own tractor and driver, and are
responsible for their operating expenses including fuel, supplies and
maintenance, and fuel taxes.
Salaries, wages and benefits increased from 35.4% to 35.8% of
revenues. This was partially due to an increase in driver costs due to a
higher number of student drivers and a higher percentage of Company drivers
compared to owner-operators in first quarter 2001 versus first quarter
2000. This was offset by a reduction in non-driver salaries due to a
higher ratio of tractors to non-driver employees in first quarter 2001
compared to first quarter 2000. Workers' compensation expense increased
due to rising medical costs and higher weekly claim payments. While the
market for recruiting and retaining drivers is almost always challenging,
market conditions improved during first quarter. A rising unemployment
rate and trucking company business failures helped the Company increase its
company driver workforce and improve its driver turnover percentage
slightly. 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 10.7% to 11.5% of revenues due mainly to a higher
percentage of company drivers compared to owner-operators during the
quarter compared to the same quarter of the prior year. Diesel fuel prices
were 1.4% higher during first quarter 2001 compared to first quarter 2000,
although prices remain near historically high levels. The Company's
customer fuel surcharge reimbursement programs recovered most of the
increase in fuel cost. After considering the amounts collected from
customers through fuel surcharge programs, net of reimbursements to owner-
operators, there was no significant impact on first quarter 2001 earnings
per share compared to first quarter 2000 earnings per share due to higher
fuel costs. 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
higher fuel price levels will continue or the extent to which fuel
11
surcharges will be collected from customers. As of March 31, 2001, the
Company had no derivative financial instruments to reduce its exposure to
fuel price fluctuations.
Insurance and claims increased from 2.4% to 3.5% of revenues due to
more severe winter weather conditions in the first quarter of 2001 compared
to the same quarter last year. The frequency of property damage and related
cargo-damage accidents increased. Depreciation increased from 9.0% to 9.6%
of revenues because of the larger percentage of company-owned trucks versus
owner-operator trucks.
Rent and purchased transportation decreased from 19.5% to 16.5% of
revenues due primarily to transferring most of the Company's logistics
business to Transplace.com and the decrease in owner-operator miles as a
percentage of total miles. The Company has experienced difficulty in
recruiting and retaining owner-operators because of high fuel prices,
resulting in a reduction of the number of owner-operator tractors from
1,250 as of March 31, 2000, to 1,185 as of March 31, 2001. The Company
reimburses owner-operators for the higher cost of fuel based on fuel
surcharge reimbursements collected from customers.
On June 30, 2000, the Company transferred its logistics business unit
to Transplace.com. The Company is one of six large truckload
transportation companies that contributed their logistics businesses to
this commonly owned, Internet-based logistics company. Each of the six
founding members of Transplace.com contributed their logistics business,
related intangible assets, and $5 million of cash. The Company transferred
logistics business representing about 3% of total revenues for the three
months ended March 31, 2000 to Transplace.com. The Company is recording
its approximate 15% investment in Transplace.com using the equity method of
accounting and is accruing its percentage share of Transplace.com's
earnings as an other non-operating item. In first quarter 2001, the
Company recorded a loss of approximately $0.4 million as its percentage
share of estimated Transplace.com earnings.
Other operating expenses changed from a credit of (0.8)% to 0.1% of
revenues due to a weak market for the sale of used trucks. Record levels
of trucks manufactured over the past two years, an increased supply of used
trucks caused in part by trucking company business failures, and slower
fleet growth by many carriers have all contributed to a decline in the
market value of used trucks. During first quarter 2001, the Company traded
more of its used trucks, and the excess of the trade price over the net
book value of the truck reduced the cost basis of the new truck. In first
quarter of 2000, the Company sold most of its used trucks to third parties
through its Fleet Truck Sales retail network and realized gains of $2.8
million. Due to a reduced number of trucks sold to third parties and a
lower average gain per truck, in first quarter 2001 the Company realized
gains of $0.1 million. The Company cannot predict whether the current state
of the used truck market will continue.
Interest expense decreased from 0.8% to 0.5% of revenues due to a
reduction in the Company's borrowings. Average debt outstanding in first
quarter 2001 was $82.5 million versus $135.0 million in first quarter 2000.
The Company's effective income tax rate (income taxes as a percentage
of income before income taxes) was 37.5% and 38.0% for the three-month
periods ended March 31, 2001 and 2000, respectively. The effective income
tax rate for the 2001 period decreased due to the implementation of certain
tax strategies.
12
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 $10 million of variable rate debt at March 31, 2001.
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 $100,000.
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 majority of fuel price increases from customers in the form of
fuel surcharges. As of March 31, 2001, the Company has implemented
customer fuel surcharges with most of its revenue base to offset most of
the higher fuel cost per gallon. The Company cannot predict the extent to
which high fuel price levels will occur in the future or the extent to
which fuel surcharges could be collected to offset such increases. As of
March 31, 2001, the Company had no derivative financial instruments to
reduce its exposure to fuel price fluctuations.
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K.
(i) A report on Form 8-K, filed January 26, 2001, regarding a news
release on January 22, 2001, announcing the Company's operating
revenues and earnings for the fourth quarter and year ended
December 31, 2000.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
WERNER ENTERPRISES, INC.
Date: May 15, 2001 By: /s/ John J. Steele
---------------------- ------------------------------
John J. Steele
Vice President, Treasurer and
Chief Financial Officer
Date: May 15, 2001 By: /s/ James L. Johnson
---------------------- ------------------------------
James L. Johnson
Vice President, Controller and
Corporate Secretary
14