UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2001
Commission file number 0-14690
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WERNER ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
NEBRASKA 47-0648386
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
14507 FRONTIER ROAD
POST OFFICE BOX 45308
OMAHA, NEBRASKA 68145-0308 (402) 895-6640
(Address of (Registrant's
principal executive offices) (Zip code) telephone number)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to the Form 10-K.
[ ]
The aggregate market value of the registrant's $.01 par value common stock
held by nonaffiliates of the registrant as of February 28, 2002, was
approximately $688 million (based upon $17.76 per share closing price on
that date, as reported by Nasdaq, adjusted for the March 14, 2002 stock
split). (Aggregate market value estimated solely for the purposes of this
report. This shall not be construed as an admission for purposes of
determining affiliate status.)
As of February 28, 2002, 63,857,364 shares of the registrant's common stock
were outstanding (adjusted for the March 14, 2002 stock split).
Portions of the Proxy Statement of Registrant for the Annual Meeting of
Stockholders to be held May 14, 2002, are incorporated in Part III of this
report.
TABLE OF CONTENTS
Page
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PART I
Item 1. Business 1
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 6
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition 7
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk 15
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 31
PART III
Item 10. Directors and Executive Officers of the Registrant 31
Item 11. Executive Compensation 31
Item 12. Security Ownership of Certain Beneficial Owners
and Management 31
Item 13. Certain Relationships and Related Transactions 31
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 31
PART I
ITEM 1. BUSINESS
General
Werner Enterprises, Inc. ("Werner" or the "Company") is a
transportation company engaged primarily in hauling truckload
shipments of general commodities in both interstate and intrastate
commerce. Werner is one of the five largest truckload carriers in the
United States and maintains its headquarters in Omaha, Nebraska, near
the geographic center of its service area. Werner was founded in 1956
by Chairman and Chief Executive Officer, Clarence L. Werner, who
started the business with one truck at the age of 19. Werner
completed its initial public offering in April 1986 with a fleet of
630 trucks. Werner ended 2001 with a fleet of 7,775 trucks.
The Company operates throughout the 48 contiguous states pursuant
to operating authority, both common and contract, granted by the
United States Department of Transportation and pursuant to intrastate
authority granted by various states. The Company also has authority
to operate in the ten provinces of Canada and provides through trailer
service in and out of Mexico. The principal types of freight
transported by the Company include consumer products, retail store
merchandise, food products, paper products, beverages, industrial
products, and building materials. The Company's emphasis is to
transport consumer non-durable products that ship more consistently
throughout the year.
Marketing and Operations
Werner's business philosophy is to provide superior on-time
service to its customers at a low cost. To accomplish this, Werner
operates premium, modern tractors and trailers. This equipment has a
lower frequency of breakdowns and helps attract and retain qualified
drivers. Werner has continually invested in technology to improve
service to customers and improve retention of drivers. Werner focuses
on shippers that value the broad geographic coverage, equipment
capacity, technology, customized services, and flexibility available
from a large, financially stable carrier. These shippers are
generally less sensitive to rate levels, preferring to have their
freight handled by a few core carriers with whom they can establish
service-based, long-term relationships.
Werner operates in the truckload segment of the trucking
industry. Within the truckload segment, Werner provides specialized
services to customers based on their trailer needs (van, flatbed,
temperature-controlled), geographic area (medium to long haul
throughout the 48 contiguous states, regional), or conversion of their
private fleet to Werner (dedicated).
Werner has a diversified freight base and is not dependent on a
small group of customers or a specific industry for a majority of its
freight. During 2001, the Company's largest 5, 10, and 25 customers
comprised 24%, 32%, and 46% of the Company's revenues, respectively.
No one customer accounted for more than 9% of the Company's revenues
in 2001.
Virtually all of Werner's company and owner-operator tractors are
equipped with satellite communications devices manufactured by
Qualcomm that enable the Company and drivers to conduct two-way
communication using standardized and freeform messages. This
satellite technology, installed in all trucks beginning in 1992, also
enables the Company to plan and monitor the progress of shipments.
The Company obtains specific data on the location of all trucks in the
fleet at least every hour of every day. Using the real-time data
obtained from the satellite devices, Werner has developed advanced
application systems to improve customer service and driver service.
Examples of such application systems include (1) automated engine
diagnostics to continually monitor mechanical fault tolerances, (2)
software which preplans shipments that can be swapped by drivers
enroute to meet driver home time needs, without compromising on-time
delivery requirements, (3) automated "possible late load" tracking
which informs the operations department of shipments that may be
operating behind schedule, thereby allowing the Company to take
preventive measures to avoid a late delivery, and (4) the Company's
proprietary Paperless Log System to preplan the assignment of
shipments to drivers based on real-time available driving hours and to
automatically keep track of truck movement and drivers' hours of
service. In June 1998, Werner Enterprises became the first, and only,
1
trucking company in the United States to receive authorization from
the Federal Highway Administration, under a continuing pilot program,
to use a paperless log system in place of the paper logbooks
traditionally used by truck drivers to track their daily work
activities.
The Federal Motor Carrier Safety Administration (FMCSA) issued a
Notice of Proposed Rulemaking (FMCSA-98-2350) on May 2, 2000, that
proposed to make numerous changes to the regulations which govern
drivers' hours of service. The comment period for filing comments to
the proposed rules was initially scheduled to be due July 31, 2000,
but the deadline was extended twice. Werner Enterprises and hundreds
of other carriers and industry groups submitted comment letters to the
FMCSA in the proceeding by the final deadline of December 15, 2000.
In late 2000, Congress instructed the FMCSA to revise the proposed
regulations. Although the FMCSA announced plans in February 2002 to
develop a new set of proposed rules by separating the controversial
sections of the original proposal from those more favored, the agency
has not determined a deadline for issuing the new proposed
regulations.
On June 30, 2000, the Company, along with four other large
transportation companies, contributed their logistics business units
into a commonly owned, Internet-based transportation logistics
company, Transplace. The Company invested $5 million in cash and has
an approximate 15% equity stake in Transplace. The Company
transferred logistics business representing about 4% of total revenues
for the six months ended June 30, 2000, to Transplace. The Company is
recording its approximate 15% investment in Transplace using the
equity method of accounting and is accruing its percentage share of
Transplace's earnings as other non-operating income. As of December
31, 2001, the Company's net investment in Transplace is $3.7 million.
The Company is not responsible for the debt of Transplace.
Seasonality
In the trucking industry, revenues generally show a seasonal
pattern as some customers reduce shipments during and after the winter
holiday season. The Company's operating expenses have historically
been higher in the winter months due primarily to decreased fuel
efficiency, increased maintenance costs of revenue equipment in colder
weather, and increased insurance and claims costs due to adverse
winter weather conditions. The Company attempts to minimize the
impact of seasonality through its marketing program that seeks
additional freight from certain customers during traditionally slower
shipping periods. Revenue can also be affected by bad weather and
holidays, since revenue is directly related to available working days
of shippers.
Employees and Owner-Operator Drivers
As of December 31, 2001, the Company employed 9,157 drivers, 579
mechanics and maintenance personnel, 1,315 office personnel for the
trucking operation, and 166 personnel for the non-trucking operations.
The Company also had 1,135 contracts with independent contractors
(owner-operators) for services that provide both a tractor and a
qualified driver or drivers. None of the Company's employees is
represented by a collective bargaining unit, and the Company considers
relations with its employees to be good.
The Company recognizes that its professional driver workforce is
one of its most valuable assets. Most of Werner's drivers are
compensated based upon miles driven. For Company drivers, the rate
per mile increases with the drivers' length of service. Additional
compensation may be earned through a fuel efficiency bonus, a mileage
bonus, an annual achievement bonus, and for extra work associated with
their job (loading and unloading, extra stops, and shorter mileage
trips, for example).
At times, there are shortages of drivers in the trucking
industry. In prior years, the number of qualified drivers in the
industry was reduced because of the elimination of federal funding for
driving schools, changes in the demographic composition of the
workforce, individual drivers' desire to be home more often, and a
declining unemployment rate in the U.S. over the past several years.
Although the market for attracting drivers improved during 2001 due to
the higher domestic unemployment rate and other factors, 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.
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The Company also recognizes that carefully selected owner-
operators complement its company-employed drivers. Owner-operators are
independent contractors that supply their own tractor and driver and
are responsible for their operating expenses. Because owner-operators
provide their own tractors, less financial capital is required from
the Company for growth. Also, owner-operators provide the Company with
another source of drivers to support its growth. The Company intends
to continue its emphasis on recruiting owner-operators, as well as
company drivers. However, it has been more difficult for the Company
and the industry to recruit and retain owner-operators over the past
year due to higher fuel prices for most of the year and a weak used
truck pricing market.
Revenue Equipment
As of December 31, 2001, Werner operated 6,640 company tractors
and had contracts for 1,135 tractors owned by owner-operators.
Approximately 75% of the company tractors are manufactured by
Freightliner, a subsidiary of DaimlerChrysler. Most of the remaining
company tractors are manufactured by Peterbilt, a division of PACCAR,
Inc. This standardization of the company tractor fleet decreases
downtime by simplifying maintenance. The Company adheres to a
comprehensive maintenance program for both tractors and trailers. Due
to continuous upgrading of the company tractor fleet, the average age
was 1.5 years at December 31, 2001. The Company generally adheres to
a 3-year replacement cycle for most of its tractors. Owner-operator
tractors are inspected prior to acceptance by the Company for
compliance with operational and safety requirements of the Company and
the Department of Transportation. These tractors are then periodically
inspected, similar to company tractors, to monitor continued
compliance.
The Company operated 19,775 trailers at December 31, 2001: 17,970
dry vans; 805 flatbeds; 935 temperature-controlled; and 65 other
specialized trailers. Most of the Company's trailers are manufactured
by Wabash National Corporation. As of December 31, 2001, 97% of the
Company's fleet of dry van trailers consisted of 53-foot trailers, and
99% consisted of aluminum plate or composite (duraplate) trailers.
Other trailer lengths such as 48-foot and 57-foot are also provided by
the Company to meet the specialized needs of customers.
The Environmental Protection Agency (EPA), in a 1998 consent
decree with a group of heavy-duty diesel engine makers, mandated new
standards for production of low-emission engines by October 1, 2002.
The new standards call for a 37.5% reduction in the amount of nitrogen
oxides emitted by the engines, from 4.0 grams per brake-horsepower
hour to 2.5 grams. The EPA has proposed a schedule of fines to be
levied on the manufacturers of engines that fail to comply with the
standards, ranging from $1,000 to $15,000 per unit. The major engine-
makers are beginning initial production of engines to meet the new
standards in early 2002. Little is known about the new engines'
performance, fuel economy and price, or when engines will be available
for testing. However, it is expected that fuel economy may be worse
than that of the current engines. It is also anticipated that engine
prices may increase to enable engine manufacturers to recoup the cost
of complying with the new emissions standards. At this time, the
amount of such price increases, if they occur, are not known, nor are
the possible increases to fuel expense, supplies and maintenance
expense, and depreciation expense with the new engines. Several large
carriers have publicly stated that they are considering modifying
their normal truck-replacement cycles to allow more time for testing
the new engines. The Company will closely monitor the development of
these new engines to determine the Company's course of action.
Fuel
The Company purchases approximately 90% of its fuel through a
network of approximately 300 fuel stops throughout the United States.
The Company has negotiated discounted pricing based on certain volume
commitments with these fuel stops. Bulk fueling facilities are
maintained at the Company's terminals.
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. Beginning in the second
half of 1999 and continuing throughout 2000, the Company experienced
significant increases in the cost of diesel fuel. Diesel fuel prices
began to decrease in the fourth quarter of 2001. The Company's
customer fuel surcharge reimbursement programs have historically
enabled the Company to recover most of the higher fuel prices from its
3
customers compared to normalized average fuel prices. These fuel
surcharges, which automatically adjust from week to week depending on
the cost of fuel, enable the Company to rapidly recoup the higher cost
of fuel when prices increase. Conversely, when fuel prices decrease,
fuel surcharges decrease. The Company cannot predict whether fuel
prices will continue to decrease or will increase in the future or the
extent to which fuel surcharges will be collected to offset such
increases. As of December 31, 2001, the Company had no derivative
financial instruments to reduce its exposure to fuel price
fluctuations.
The Company maintains aboveground and underground fuel storage
tanks at most of its terminals. Leakage or damage to these facilities
could expose the Company to environmental clean-up costs. The tanks
are routinely inspected to help prevent and detect such problems.
Regulation
The Company is a motor carrier regulated by the United States
Department of Transportation (DOT). The DOT generally governs matters
such as safety requirements, registration to engage in motor carrier
operations, accounting systems, certain mergers, consolidations,
acquisitions, and periodic financial reporting. The Company currently
has a satisfactory DOT safety rating, which is the highest available
rating. A conditional or unsatisfactory DOT safety rating could have
an adverse effect on the Company, as some of the Company's contracts
with customers require a satisfactory rating. Such matters as weight
and dimensions of equipment are also subject to federal, state, and
international regulations.
The Company has unlimited authority to carry general commodities
in interstate commerce throughout the 48 contiguous states. The
Company currently has authority to carry freight on an intrastate
basis in 44 states. The Federal Aviation Administration Authorization
Act of 1994 (the FAAA Act) amended sections of the Interstate Commerce
Act to prevent states from regulating rates, routes, or service of
motor carriers after January 1, 1995. The FAAA Act did not address
state oversight of motor carrier safety and financial responsibility,
or state taxation of transportation. If a carrier wishes to operate
in a state where it did not previously have intrastate authority, it
must, in most cases, still apply for authority.
The Company's operations are subject to various federal, state,
and local environmental laws and regulations, implemented principally
by the EPA and similar state regulatory agencies, governing the
management of hazardous wastes, other discharge of pollutants into the
air and surface and underground waters, and the disposal of certain
substances. The Company believes that its operations are in material
compliance with current laws and regulations.
President Bush is considering implementing provisions of the
North American Free Trade Agreement (NAFTA), which could result in
increased competition between U.S. and Mexican carriers for truckload
services between these two countries.
Competition
The trucking industry is highly competitive and includes
thousands of trucking companies. It is estimated that the annual
revenue of domestic trucking amounts to $400 billion per year. The
Company has a small but growing share (estimated at approximately 1%)
of the markets targeted by the Company. The Company competes
primarily with other truckload carriers. Railroads, less-than-
truckload carriers, and private carriers also provide competition, but
to a lesser degree.
Competition for the freight transported by the Company is based
primarily on service and efficiency and, to some degree, on freight
rates alone. Few other truckload carriers have greater financial
resources, own more equipment, or carry a larger volume of freight
than the Company. The Company is one of the five largest carriers in
the truckload transportation industry.
Forward-Looking Information
The forward-looking statements in this report, which reflect
management's best judgment based on factors currently known, involve
risks and uncertainties. Actual results could differ materially from
those anticipated in the forward-looking statements included herein as
a result of a number of factors, including, but not limited to, those
4
discussed in Item 7, "Management's Discussion and Analysis of Results
of Operations and Financial Condition."
ITEM 2. PROPERTIES
Werner's headquarters is located along Interstate 80 just west of
Omaha, Nebraska, on approximately 197 acres, 147 of which are held for
future expansion. The Company's 286,000 square-foot headquarters
office building includes a 5,000 square-foot computer center, drivers'
lounge areas, a drivers' orientation section, a cafeteria, and a
Company store. The Omaha headquarters also consists of 131,000 square
feet of maintenance and repair facilities containing a central parts
warehouse, frame straightening and alignment machine, truck and
trailer wash areas, equipment safety lanes, body shops for tractors
and trailers, and a paint booth including a 77,500 square-foot trailer
maintenance facility constructed in 1999. Portions of the former
trailer maintenance building were converted into a driver training
facility in 2001. The Company owns all of its corporate headquarters
facilities. The Company's headquarters facilities have suitable space
available to accommodate planned expansion needs for the next 3 to 5
years.
The Company and its subsidiaries own a 22,000 square-foot
terminal in Springfield, Ohio, a 33,000 square-foot facility near
Denver, an 18,000 square-foot facility near Los Angeles, a 31,000
square-foot terminal near Atlanta, a 48,000 square-foot terminal in
Dallas (including 21,000 square feet of trailer repair, parts, and
body shop facilities added in 2001), and a 32,000 square-foot terminal
in Phoenix. The Company leases terminal facilities in Allentown,
Pennsylvania and in Indianapolis, Indiana. All eight locations
include office and maintenance space. The Company opened a new 16,000
square-foot international terminal in Laredo, Texas in May of 2001.
The Company also owns a 73,000 square-foot disaster recovery and
warehouse facility in another area of Omaha and has 50% ownership in a
125,000 square-foot warehouse located near the Company's headquarters.
Additionally, the Company leases several small sales offices and
trailer parking yards in various locations throughout the country.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its
business, primarily involving claims for personal injury and property
damage incurred in the transportation of freight. The Company has
maintained a self-insurance program with a qualified department of
Risk Management professionals since 1988. These employees manage the
Company's property damage, cargo, liability, and workers' compensation
claims. The Company has assumed liability for claims up to $500,000,
plus administrative expenses, for each occurrence involving personal
injury or property damage. The Company is also responsible for
varying annual aggregate amounts of liability for claims above
$500,000 and below $4,000,000. For the policy year ending August 1,
2002, these annual aggregate amounts total $4,500,000. The Company
maintains insurance, which covers liability in excess of this amount
to coverage levels that management considers adequate. The Company
believes that adverse results in one or more of these claims would not
have a material adverse effect on its results of operations or
financial position. See also Note (1) "Insurance and Claims Accruals"
and Note (7) "Commitments and Contingencies" in the Notes to
Consolidated Financial Statements under Item 8 of this Form 10-K.
5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 2001, no matters were submitted to a
vote of security holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Price Range of Common Stock
The Company's common stock trades on the Nasdaq National Market
tier of The Nasdaq Stock Market under the symbol WERN. The following
table sets forth for the quarters indicated the high and low sale
prices per share of the Company's common stock in the Nasdaq National
Market and the Company's dividends declared per common share from
January 1, 2000, through December 31, 2001, after giving retroactive
effect for the March 2002 stock split discussed below.
Dividends
Declared Per
High Low Common Share
------ ------ ------------
2001
Quarter ended:
March 31 $14.91 $11.34 $.019
June 30 18.87 11.67 .019
September 30 17.93 11.94 .019
December 31 20.48 12.07 .019
2000
Quarter ended:
March 31 $13.22 $ 9.23 $.019
June 30 14.34 8.11 .019
September 30 11.11 8.58 .019
December 31 13.31 7.55 .019
As of February 27, 2002, the Company's common stock was held by
232 stockholders of record and approximately 5,000 stockholders
through nominee or street name accounts with brokers.
Dividend Policy
The Company has been paying cash dividends on its common stock
following each of its quarters since the fiscal quarter ended May 31,
1987. The Company does not currently intend to discontinue payment of
dividends on a quarterly basis and does not currently anticipate any
restrictions on its future ability to pay such dividends. However, no
assurance can be given that dividends will be paid in the future since
they are dependent on earnings, the financial condition of the
Company, and other factors.
Common Stock Split
On February 11, 2002, the Company announced that its Board of
Directors declared a four-for-three split of the Company's common
stock effected in the form of a 33 1/3 percent stock dividend. The
stock dividend was payable on March 14, 2002, to stockholders of
record at the close of business on February 25, 2002. No fractional
shares of common stock were issued in connection with the stock split.
Stockholders entitled to fractional shares received a proportional
cash payment based on the closing price of a share of common stock on
February 25, 2002.
All share and per-share information included in this Form 10-K,
including in the accompanying consolidated financial statements, for
all periods presented have been adjusted to retroactively reflect the
stock split.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in
conjunction with the consolidated financial statements and notes under
Item 8 of this Form 10-K.
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(In thousands, except per share amounts)
Operating revenues $1,270,519 $1,214,628 $1,052,333 $863,417 $772,095
Net income 47,744 48,023 60,011 57,246 48,378
Earnings per share (diluted)* 0.74 0.76 0.94 0.90 0.76
Cash flow from operations 226,920 170,147 131,977 137,940 126,037
Cash dividends declared per share* .075 .075 .075 .070 .060
Return on average stockholders' equity 8.5% 9.3% 12.8% 13.7% 13.1%
Operating ratio 93.8% 93.2% 90.3% 88.9% 89.9%
Book value per share* 9.27 8.55 7.86 6.98 6.20
Total assets 964,014 927,207 896,879 769,196 667,638
Long-term debt 20,000 105,000 120,000 100,000 60,000
Total debt (current and long-term) 50,000 105,000 145,000 100,000 60,000
Stockholders' equity 590,049 536,084 494,772 440,588 395,118
- -------------
* After giving retroactive effect for the March 2002, four-for-three
stock split (all years presented).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Critical Accounting Policies
The Company's success depends on its ability to efficiently
manage its resources in the delivery of truckload transportation
services to its customers. Resource requirements vary with customer
demand, which may be subject to seasonal or general economic
conditions. The Company's ability to adapt to changes in customer
transportation requirements is a key element in efficiently deploying
resources and in making capital investments in trucks and trailers.
Although the Company's business volume is not highly concentrated, the
Company may also be affected by the financial failure of its customers
or a loss of a customer's business from time-to-time.
The Company's greatest resource requirements include qualified
drivers, trucks, trailers, and related costs of operating its
equipment (such as fuel, driver pay, insurance, and supplies and
maintenance). The Company has historically been successful mitigating
its risk to increases in fuel prices by recovering additional fuel
surcharges from its customers. The Company's financial results are
also affected by availability of qualified drivers and the market for
new and used trucks. Because the Company is self-insured for cargo,
personal injury, and property damage claims on its trucks and for
workers' compensation benefits for its drivers (supplemented by
premium-based coverage above certain dollar levels), financial results
may also be affected by driver safety, medical costs, the weather, the
legal and regulatory environment, and the costs of insurance coverage
to protect against catastrophic losses.
The most significant accounting policies and estimates that
affect our financial statements include the following:
* Selections of estimated useful lives and salvage values for
purposes of depreciating tractors and trailers. Depreciable
lives of tractors and trailers range from 5 to 10 years.
Estimates of salvage value at the expected date of trade-in or
sale are based on the expected market values of equipment at
the time of disposal.
* Estimates of accrued liabilities for insurance and claims for
liability and physical damage losses and workers' compensation.
The insurance and claims accruals (current and long-term) are
recorded at the estimated ultimate payment amounts and are
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based upon individual case estimates and estimates of incurred-
but-not-reported losses based upon past experience.
Management periodically re-evaluates these estimates as events
and circumstances change. Together with the effects of the matters
discussed above, these factors may significantly impact the Company's
results of operations from period-to-period.
Results of Operations
The following table sets forth the percentage relationship of
income and expense items to operating revenues for the years
indicated.
2001 2000 1999
------ ------ ------
Operating revenues 100.0% 100.0% 100.0%
------ ------ ------
Operating expenses
Salaries, wages and benefits 36.0 35.4 36.4
Fuel 10.3 11.3 7.5
Supplies and maintenance 9.3 8.5 8.3
Taxes and licenses 7.4 7.3 7.8
Insurance and claims 3.3 2.8 3.0
Depreciation 9.2 9.0 9.5
Rent and purchased transportation 16.9 17.9 17.6
Communications and utilities 1.1 1.2 1.3
Other 0.3 (0.2) (1.1)
------ ------ ------
Total operating expenses 93.8 93.2 90.3
------ ------ ------
Operating income 6.2 6.8 9.7
Net interest expense and other 0.2 0.4 0.5
------ ------ ------
Income before income taxes 6.0 6.4 9.2
Income taxes 2.2 2.4 3.5
------ ------ ------
Net income 3.8% 4.0% 5.7%
====== ====== ======
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The following table sets forth certain industry data regarding
the freight revenues and operations of the Company.
2001 2000 1999 1998 1997
------ ------ ------ ------ ------
Operating ratio 93.8% 93.2% 90.3% 88.9% 89.9%
Average revenues per tractor per week (1)$ 2,874 $ 2,889 $ 2,813 $ 2,783 $ 2,755
Average annual miles per tractor 123,660 125,568 125,856 126,492 126,598
Average miles per trip 744 746 734 760 799
Average revenues per total mile (1) $ 1.208 $ 1.197 $ 1.162 $ 1.144 $ 1.132
Average revenues per loaded mile (1) $ 1.342 $ 1.328 $ 1.287 $ 1.265 $ 1.251
Non-trucking revenues (in thousands) $ 74,001 $ 65,977 $ 60,379 $ 41,821 $ 43,955
Average tractors in service 7,698 7,303 6,769 5,662 5,051
Total tractors (at year end)
Company 6,640 6,300 5,895 5,220 4,490
Owner-operator 1,135 1,175 1,230 930 860
------ ------ ------ ------ ------
Total tractors 7,775 7,475 7,125 6,150 5,350
====== ====== ====== ====== ======
Total trailers (at year end) 19,775 19,770 18,900 16,350 14,700
====== ====== ====== ====== ======
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(1) Net of fuel surcharge revenues.
2001 Compared to 2000
Operating revenues increased 4.6% over 2000, due primarily to a
5.4% increase in the average number of tractors in service. Revenue
per total mile, excluding fuel surcharges, increased 0.9% primarily
due to customer rate increases, and revenue per total mile, including
fuel surcharges, increased 0.3% compared to 2000. Fuel surcharges,
which represent collections from customers for the higher cost of
fuel, decreased from $51.4 million in 2000 to $46.2 million in 2001
due to lower average fuel prices (see fuel explanation below).
Excluding fuel surcharge revenues, trucking revenues increased 4.8%
over 2000. Revenue from non-trucking transportation services
increased $8.0 million compared to 2000.
Freight demand during 2001 was soft due to a weaker U.S. economy
as compared to 2000. However, the Company developed its freight base
and utilized its proprietary technology so that it experienced only a
1.5% decrease in its average annual miles per tractor. The Company's
empty mile percentage increased slightly, by one-tenth of one
percentage point (from 9.9% to 10.0%).
The Company's operating ratio (operating expenses expressed as a
percentage of operating revenues) increased from 93.2% in 2000 to
93.8% in 2001. The decrease in owner-operator miles as a percentage
of total miles (16.6% in 2001 compared to 18.6% in 2000), contributed
to a shift in costs from the rent and purchased transportation expense
category 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. Over the past year, it has been more
difficult to attract and retain owner-operator drivers due to the
weaker used truck pricing market, higher fuel prices, and weaker
economy.
Salaries, wages and benefits increased from 35.4% to 36.0% of
revenues due in part to a higher percentage of company drivers as
compared to owner-operators and an increase in the number of drivers
in training. Workers' compensation and health insurance expense
increased due to rising medical costs and higher weekly state workers'
compensation payment rates. In recent years, workers' compensation
and health insurance costs have been increasing at rates higher than
inflation, and this is expected to continue. These increases were
partially offset by an improvement in the tractor to non-driver
employee ratio, which lowered non-driver labor costs per mile. The
market for attracting company drivers improved during 2001; however,
the Company anticipates that the competition for qualified drivers
will continue to be high, and cannot predict whether it will
9
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 decreased from 11.3% to 10.3% of revenues due to lower fuel
prices, principally in the fourth quarter of 2001. The average price
per gallon of diesel fuel, excluding fuel taxes, was approximately
$.11 per gallon lower in 2001 versus 2000. The average price per
gallon in fourth quarter 2001 was approximately $.17 per gallon lower
than the average price for the year of 2001 and was about the same as
the average historical fuel price levels over the past ten years. The
Company's customer fuel surcharge reimbursement programs have
historically enabled the Company to recover most of the higher fuel
prices from its customers compared to normalized average fuel prices.
These fuel surcharges, which automatically adjust from week to week
depending on the cost of fuel, enable the Company to rapidly recoup
the higher cost of fuel when prices increase. Conversely, when fuel
prices decrease, fuel surcharges decrease. After considering the
amounts collected from customers through fuel surcharge programs, net
of reimbursements to owner-operators, 2001 earnings per share
increased by approximately $.07 over 2000 due to lower 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 fuel prices will continue to decrease or will increase in the
future or the extent to which fuel surcharges will be collected from
customers. As of December 31, 2001, the Company had no derivative
financial instruments to reduce its exposure to fuel price
fluctuations.
Supplies and maintenance increased from 8.5% to 9.3% of revenues
due to a higher percentage of company drivers compared to owner-
operators during 2001 and more maintenance services performed over-the-
road than at Company facilities.
Insurance and claims increased from 2.8% to 3.3% of revenues due
to unfavorable claims experience in 2001 and higher excess insurance
premiums. Insurance premiums in the liability insurance market have
increased significantly for many truckload carriers in recent months.
For over ten years, the Company has been self-insured and managed
virtually all of its liability, cargo, and property damage claims with
qualified Risk Department professionals. As a result, higher
liability insurance rates have had a less significant effect on the
Company, impacting the Company only for catastrophic claim coverage.
The Company renewed its annual catastrophic liability insurance
coverage effective August 1, 2001, and the effect of the increase in
premiums was less than 10% of the Company's total annual insurance and
claims expense. 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 will be renewed effective
August 1, 2002.
Rent and purchased transportation expense decreased from 17.9% to
16.9% of revenues because of a decrease in payments to owner-operators
(11.0% of revenue in 2001 compared to 12.6% in 2000), offset by an
increase in purchased transportation relating to remaining non-
trucking operations following the transfer of most of the Company's
logistics business to Transplace. The decrease in payments to owner-
operators resulted from the decrease in owner-operator miles as a
percentage of total Company miles as discussed above. The Company has
experienced difficulty recruiting and retaining owner-operators
because of high fuel prices, a weak used truck pricing market, and
other factors. This has resulted in a reduction in the number of
owner-operator tractors from 1,175 as of December 31, 2000, to 1,135
as of December 31, 2001. The Company reimburses owner-operators for
the higher cost of fuel based on fuel surcharge reimbursements
collected from customers.
Other operating expenses changed from a credit of (0.2)% to an
expense of 0.3% of revenues due in part to a weak market for the sale
of used trucks. Record levels of trucks manufactured during 1999 and
2000, 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 2001, the Company traded about two-thirds of its used trucks
and sold about one-third to third parties. For trucks traded, the
excess of the trade price over the net book value of the trucks
reduced the cost basis of new trucks. In 2000, the Company traded
half of its used trucks and sold half of its used trucks to third
parties through its Fleet Truck Sales retail network and realized
gains of $5.1 million. In 2001, due to a lower average sale price per
10
truck, the Company realized losses of $0.7 million. The Company
renegotiated its trade agreements with its primary truck manufacturer
in June 2001 and continued to expand its nationwide retail truck sales
network in response to the weak used truck market. Other operating
expenses were also impacted by increasing the allowance for
uncollectible receivables for the Company's maximum credit exposure
related to the fourth quarter 2001 Enron bankruptcy of approximately
$1.2 million. The Company has limited credit exposure for the first
quarter 2002 Kmart bankruptcy. The Company has focused on improving
its collections of accounts receivable; as such, days sales in
accounts receivable decreased from 37 days as of December 31, 2000, to
35 days as of December 31, 2001.
Net interest expense and other decreased from 0.4% to 0.2% of
revenues due to lower interest expense, offset partially by the
Company's share of Transplace operating losses. Interest expense
decreased from 0.7% to 0.3% of revenues due to a reduction in the
Company's borrowings. Average debt outstanding in 2001 was $77.5
million versus $125.0 million in 2000. In 2001, the Company recorded
a loss of approximately $1.7 million as its percentage share of
estimated Transplace losses versus a gain of approximately $0.3
million in 2000. The Company is recording its approximate 15%
investment in Transplace using the equity method of accounting and is
accruing its percentage share of Transplace's earnings and losses as
an other non-operating item.
The Company's effective income tax rate (income taxes as a
percentage of income before income taxes) was 37.5% and 38.0% in 2001
and 2000, respectively, as described in Note 5 of the Notes to
Consolidated Financial Statements under Item 8 of this Form 10-K. The
effective income tax rate for the 2001 period decreased due to the
implementation of certain tax strategies. The Company expects the
37.5% income tax rate to be the tax rate in effect for 2002.
2000 Compared to 1999
Operating revenues increased 15% over 1999, due to an 8% increase
in the average number of tractors in service, a 3% increase in average
revenue per mile (excluding fuel surcharges), and a 5% increase in
revenues due to fuel surcharges. Customer rate increases were the
primary factor in the increase in average revenue per mile (excluding
fuel surcharges). Fuel surcharges were collected from customers in
2000 to recover a majority of the increase in fuel expense caused by
higher fuel prices.
The Company's operating ratio (operating expenses expressed as a
percentage of operating revenues) increased from 90.3% to 93.2%.
Salaries, wages and benefits decreased from 36.4% to 35.4% of
revenues by maintaining the average payroll cost per mile while at the
same time increasing average revenue per mile. Offsetting this,
workers' compensation expense increased due to rising medical costs
and higher weekly state workers' compensation payment rates.
Fuel increased from 7.5% to 11.3% of revenues due to
substantially higher fuel prices. The average price per gallon of
diesel fuel, excluding fuel taxes, was 65% higher in 2000 than 1999.
The Company implemented customer fuel surcharge programs to recover a
majority of the increased fuel cost.
Taxes and licenses decreased from 7.8% to 7.3% of revenues due to
higher revenue per mile. On a cost per mile basis, taxes and license
expenses were about the same. Insurance and claims decreased slightly
from 3.0% to 2.8% of revenues. Improved liability claims experience
was offset by increased cargo claims. Depreciation decreased from
9.5% to 9.0% of revenues due to higher revenue per mile. On a cost
per mile basis, depreciation was slightly higher.
Rent and purchased transportation expense increased from 17.6% to
17.9% of revenues due primarily to increases in rental expense on
leased tractors (0.3% of revenue in 2000 compared to 0.1% in 1999) and
payments to owner-operators (12.6% of revenue in 2000 compared to
12.4% in 1999). Payments to owner-operators increased slightly in 2000
compared to 1999 caused in part by an increase in owner-operator miles
as a percentage of total Company miles. On a per-mile basis, payments
to owner-operators increased due to amounts reimbursed by the Company
to owner-operators for the higher cost of fuel. Increases in
logistics and other non-trucking transportation services in the first
half of 2000 offset the decrease in the latter half of the year due to
11
transferring most of the Company's logistics business to Transplace on
June 30, 2000. The Company is one of five large truckload
transportation companies that contributed their logistics businesses
to this commonly owned, Internet-based logistics company. The Company
transferred logistics business representing about 4% of total revenues
for the six months ended June 30, 2000, to Transplace.
Other operating expenses changed from (1.1%) to (0.2%) of
revenues due to a weak market for the sale of used trucks. During
2000, the Company traded more of its used trucks, and the excess of
the trade price over the net book value of the trucks reduced the cost
basis of new trucks. In 1999, the Company sold most of its used trucks
to third parties through its Fleet Truck Sales retail network and
realized gains of $13.0 million. In 2000, due to a reduced number of
trucks sold to third parties and a lower average gain per truck, the
Company realized gains of $5.1 million.
The Company's effective income tax rate (income taxes as a
percentage of income before income taxes) was 38.0% in 2000 and 1999,
as described in Note 5 of the Notes to Consolidated Financial
Statements under Item 8 of this Form 10-K.
Liquidity and Capital Resources
Net cash provided by operating activities was $226.9 million in
2001, $170.1 million in 2000, and $132.0 million in 1999. The 33.4%
increase ($56.8 million) in operating cash flows from 2000 to 2001 was
due primarily to higher depreciation due to the growth of the Company
truck fleet ($6.9 million), increased deferred taxes due to the
implementation of certain tax strategies and growth of the Company
truck fleet ($23.8 million), a small loss versus gains on disposal of
operating equipment due to a weaker used truck pricing market ($5.8
million), increased long-term insurance and claims accruals ($4.5
million), decreases in other long-term assets ($3.8 million), and
working capital improvements ($8.0 million). The cash flow from
operations enabled the Company to make capital expenditures and repay
debt as discussed below.
Net cash used in investing activities was $126.9 million in 2001,
$113.2 million in 2000, and $171.0 million in 1999. The growth of the
Company's business has required significant investment in new revenue
equipment. Net capital expenditures in 2001, 2000, and 1999 were
$126.2 million, $108.5 million, and $171.0 million, respectively. The
capital expenditures in 2001 and 2000 were financed primarily with
cash provided by operations and, to a lesser extent in 1999,
borrowings. Capital expenditures were higher in 2001 due to the
Company's completion of various construction projects including the
Laredo, Texas terminal, the Dallas, Texas terminal expansion, and the
driver training facility. The Company also invested $5.0 million in
Transplace in 2000.
As of December 31, 2001, the Company has committed to
approximately $23 million of net capital expenditures, which is a
small portion of its estimated 2002 capital expenditures.
Net financing activities used $51.1 million in 2001 and $46.8
million in 2000 and generated $38.5 million in 1999. In 2001 and 2000
respectively, the Company made net repayments of $55.0 million and
$40.0 million of debt compared to net borrowings of $45.0 million in
1999. The Company paid dividends of $4.7 million in 2001, $4.7
million in 2000, and $4.7 million in 1999. Financing activities also
included common stock repurchases of $2.8 million in 2000 and $3.9
million in 1999. From time to time, the Company has and may continue
to repurchase shares of its common stock. The timing and amount of
such purchases depends on market and other factors. The Company's
board of directors has authorized the repurchase of up to 3,333,333
shares. As of December 31, 2001, the Company has purchased 1,704,701
shares pursuant to this authorization.
The Company's financial position is strong. As of December 31,
2001, the Company had $74 million of cash and cash equivalents, $50
million of debt, and $590 million of stockholders' equity. Based on
the Company's strong financial position, management foresees no
significant barriers to obtaining sufficient financing, if necessary.
12
Contractual Obligations and Commercial Commitments
The following table sets forth the Company's contractual
obligations and commercial commitments as of December 31, 2001.
Payments Due by Period
--------------------------------------------------------------
Contractual Obligations Total Less than 1 year 1-3 years 4-5 years After 5 years
- ----------------------- ------- ---------------- --------- --------- -------------
(In millions)
Long-term debt $ 50.0 $ 30.0 $ 20.0 $ - $ -
Operating leases 3.3 3.2 0.1 - -
------- ---------------- --------- --------- -------------
Total contractual
cash obligations $ 53.3 $ 33.2 $ 20.1 $ - $ -
======= ================ ========= ========= =============
Amount of Commitment Expiration Per Period
-----------------------------------------------------------------
Other Commercial Total Amounts
Commitments Committed Less than 1 year 1-3 years 4-5 years Over 5 years
- ---------------- ----------- ---------------- --------- --------- -------------
(In millions)
Unused lines of credit $ 25.0 $ 5.0 $ 20.0 $ - $ -
Standby letters of credit 12.2 12.2 - - -
Other commercial commitments 23.0 23.0 - - -
----------- ---------------- --------- --------- -------------
Total commercial commitments $ 60.2 $ 40.2 $ 20.0 $ - $ -
=========== ================ ========= ========= =============
The unused lines of credit are available to the Company in the
event the Company needs financing for the growth of its fleet. With
the Company's strong financial position, the Company expects it could
obtain additional financing, if necessary, at favorable terms. The
standby letters of credit are primarily required for insurance
policies. The other commercial commitments relate to committed
equipment expenditures, which is a small portion of planned equipment
expenditures for 2002.
Inflation
Inflation can be expected to have an impact on the Company's
operating costs. A prolonged period of inflation could cause interest
rates, fuel, wages, and other costs to increase and could adversely
affect the Company's results of operations unless freight rates could
be increased correspondingly. However, the effect of inflation has
been minimal over the past three years.
Year 2000 Issue
The impact of the Year 2000 issue on the Company's operations was
insignificant.
Forward Looking Statements and Risk Factors
This discussion and analysis contains historical and forward-
looking information. The forward-looking statements are made pursuant
to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The Company believes the assumptions underlying
these forward-looking statements are reasonable based on information
currently available, however any of the assumptions could be
inaccurate, and therefore, actual results may differ materially from
those anticipated in the forward-looking statements as a result of
certain risks and uncertainties. Those risks include, but are not
limited to, the following:
The Company's business is modestly seasonal with peak freight
demand occurring generally in the months of September, October, and
November. During the winter months, the Company's freight volumes are
typically lower as some customers have lower shipment levels after the
Christmas holiday season. The Company's operating expenses have
historically been higher in winter months primarily due to decreased
fuel efficiency, increased maintenance costs of revenue equipment in
colder weather, and increased insurance and claims costs due to
adverse winter weather conditions. The Company attempts to minimize
the impact of seasonality through its marketing program by seeking
additional freight from certain customers during traditionally slower
shipping periods. Bad weather, holidays, and the number of business
13
days during the period can also affect revenue, since revenue is
directly related to available working days of shippers.
The trucking industry is highly competitive and includes
thousands of trucking companies. This competition could limit the
Company's growth opportunities and reduce its profitability. The
Company competes primarily with other truckload carriers. Railroads,
less-than-truckload carriers, and private carriers also provide
competition, but to a lesser degree. Competition for the freight
transported by the Company is based primarily on service and
efficiency and, to some degree, on freight rates alone.
The Company is sensitive to changes in overall economic
conditions that impact customer shipping volumes. The general
slowdown in the economy during 2001 had a negative effect on freight
volumes for truckload carriers, including the Company. As the
unemployment rate increased, driver availability improved for the
Company and the industry. Fuel prices increased beginning in fourth
quarter 1999 and were high through 2000 and 2001 before decreasing in
the latter part of 2001. Shortages of fuel, increases in fuel prices,
or rationing of petroleum products can have a materially adverse
impact on the operations and profitability of the Company. To the
extent that the Company cannot recover the higher cost of fuel through
customer fuel surcharges, the Company's results would be negatively
impacted. Future economic conditions that may affect the Company
include employment levels, business conditions, fuel and energy costs,
interest rates, and tax rates.
The Company is regulated by the United States Department of
Transportation (DOT). This regulatory authority establishes broad
powers, generally governing activities such as authorization to engage
in motor carrier operations, safety, financial reporting, and other
matters. The Company may become subject to new or more comprehensive
regulations relating to fuel emissions, driver hours of service, or
other issues mandated by the DOT. For example, new engine emissions
standards are to become effective for truck engine manufacturers in
October 2002. These new engines have not yet been available for
adequate testing. These new engines may be more costly and less fuel
efficient.
At times, there have been shortages of drivers in the trucking
industry. Although the market for attracting company drivers improved
during 2001 due to the higher domestic unemployment rate and other
factors, the Company anticipates that the competition for company
drivers will continue to be high. During 2001, it became more
difficult to recruit and retain owner-operator drivers due to the weak
used truck pricing market and higher fuel prices for most of the year.
The Company anticipates that the competition for company drivers and
owner-operator drivers will continue to be high and cannot predict
whether it will experience shortages in the future.
The Company is highly dependent on the services of key personnel
including Clarence L. Werner and other executive officers. Although
the Company believes it has an experienced and highly qualified
management group, the loss of the services of these executive officers
could have a material adverse impact on the Company and its future
profitability.
The Company is dependent on its vendors and suppliers. The
Company believes it has good relationships with its vendors and that
it is generally able to obtain attractive pricing and other terms from
vendors and suppliers. If the Company fails to maintain good
relationships with its vendors and suppliers or if its vendors and
suppliers experience significant financial problems, the Company could
face difficulty in obtaining needed goods and services because of
interruptions of production or for other reasons, which could
adversely affect the Company's business.
The efficient operation of the Company's business is highly
dependent on its information systems. Much of the Company's software
has been developed internally or by adapting purchased software
applications to the Company's needs. The Company has purchased
redundant computer hardware systems and has its own off-site disaster
recovery facility approximately ten miles from the Company's offices
to use in the event of a disaster. The Company has taken these steps
to reduce the risk of disruption to its business operation if a
disaster were to occur.
The Company self-insures for liability resulting from cargo loss,
personal injury, and property damage as well as workers' compensation.
This is supplemented by premium insurance with licensed insurance
14
companies above the Company's self-insurance level for each type of
coverage. To the extent that the Company was to experience a
significant increase in the number of claims or the cost per claim,
the Company's operating results would be negatively affected.
The Company maintains a three-year replacement cycle on its
tractors. The Company sells tractors to third parties or trades
tractors to manufacturers to maintain a new truck fleet. Used truck
pricing for three-year-old tractors has declined by approximately
$12,000 to $15,000 per tractor from 1999 to year-end 2001. In 1999,
the Company realized gains on sales of tractors of $13.0 million or
$0.13 per share, resulting from used truck prices that were in excess
of the Company's net book value for those trucks. For the last half
of 2001, used truck pricing for three-year-old tractors was
approximately the same as the Company's net book value for those
trucks. Should the used truck pricing market become significantly
worse and the Company decided to sell trucks at a loss rather than
extend the life of its trucks, this could have a material adverse
effect on the Company's business and operating results. Also, the
Company currently trades a portion of its three-year-old tractors to
its primary tractor manufacturer at fixed prices. There can be no
assurance that the Company will be able to continue to negotiate
comparable trade agreements in future years, which may require the
Company to sell more of its trucks to third parties using the
Company's retail truck sales network.
Caution should be taken not to place undue reliance on forward-
looking statements made herein, since the statements speak only as of
the date they are made. The Company undertakes no obligation to
publicly release any revisions to any forward-looking statements
contained herein to reflect events or circumstances after the date of
this report or to reflect the occurrence of unanticipated events.
ITEM 7A. 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's only outstanding debt at December 31, 2001, was $50
million of fixed rate debt. Interest rates on the Company's unused
credit facilities are based on the London Interbank Offered Rate
(LIBOR). Increases in interest rates could impact the Company's annual
interest expense on future borrowings.
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 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 December 31, 2001, 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 2001 and prior years. 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. To date, the Company receives payment for freight
services performed in Mexico and Canada primarily in U.S. dollars to
reduce foreign currency risk.
15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
Werner Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of
Werner Enterprises, Inc. and subsidiaries as of December 31, 2001, and
2000, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the years in the three-year period
ended December 31, 2001. In connection with our audits of the
consolidated financial statements, we have also audited the financial
statement schedule for each of the years in the three-year period
ended December 31, 2001, listed in Item 14(a)(2) of this Form 10-K.
These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Werner Enterprises, Inc. and subsidiaries as of December 31, 2001,
and 2000, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to
the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information for each of the
three years in the period ended December 31, 2001, set forth therein.
KPMG LLP
Omaha, Nebraska
January 22, 2002, except as to the second paragraph of
Note 3 and Note 9 which are as of February 11, 2002
16
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
2001 2000 1999
---------- ---------- ----------
(In thousands, except per share amounts)
Operating revenues $1,270,519 $1,214,628 $1,052,333
---------- ---------- ----------
Operating expenses:
Salaries, wages and benefits 457,433 429,825 382,824
Fuel 131,498 137,620 79,029
Supplies and maintenance 117,882 102,784 87,600
Taxes and licenses 93,628 89,126 82,089
Insurance and claims 41,946 34,147 31,728
Depreciation 116,043 109,107 99,955
Rent and purchased transportation 214,336 216,917 185,129
Communications and utilities 14,365 14,454 13,444
Other 4,059 (2,173) (11,666)
---------- ---------- ----------
Total operating expenses 1,191,190 1,131,807 950,132
---------- ---------- ----------
Operating income 79,329 82,821 102,201
---------- ---------- ----------
Other expense (income):
Interest expense 3,775 8,169 6,565
Interest income (2,628) (2,650) (1,407)
Other 1,791 (154) 245
---------- ---------- ----------
Total other expense 2,938 5,365 5,403
---------- ---------- ----------
Income before income taxes 76,391 77,456 96,798
Income taxes 28,647 29,433 36,787
---------- ---------- ----------
Net income $ 47,744 $ 48,023 $ 60,011
========== ========== ==========
Average common shares outstanding 63,147 62,748 63,207
========== ========== ==========
Basic earnings per share $ 0.76 $ 0.77 $ 0.95
========== ========== ==========
Diluted shares outstanding 64,147 63,010 63,508
========== ========== ==========
Diluted earnings per share $ 0.74 $ 0.76 $ 0.94
========== ========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
17
WERNER ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------
2001 2000
---------- ----------
(In thousands, except
share amounts)
ASSETS
Current assets:
Cash and cash equivalents $ 74,366 $ 25,485
Accounts receivable, trade, less allowance
of $4,966 and $3,994, respectively 121,354 123,518
Receivable from unconsolidated affiliate - 5,332
Other receivables 8,527 10,257
Inventories and supplies 8,432 7,329
Prepaid taxes, licenses, and permits 12,333 12,396
Current deferred income taxes - 11,552
Other 11,055 10,908
---------- ----------
Total current assets 236,067 206,777
---------- ----------
Property and equipment, at cost:
Land 19,357 19,157
Buildings and improvements 79,704 72,631
Revenue equipment 854,603 829,549
Service equipment and other 115,941 100,342
---------- ----------
Total property and equipment 1,069,605 1,021,679
Less - accumulated depreciation 354,122 313,881
---------- ----------
Property and equipment, net 715,483 707,798
---------- ----------
Notes receivable 5,408 4,420
Investment in unconsolidated affiliate 3,660 5,324
Other non-current assets 3,396 2,888
---------- ----------
$ 964,014 $ 927,207
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,188 $ 30,710
Current portion of long-term debt 30,000 -
Insurance and claims accruals 40,254 36,057
Accrued payroll 15,008 12,746
Income taxes payable 1,268 7,157
Current deferred income taxes 20,473 -
Other current liabilities 12,066 14,749
---------- ----------
Total current liabilities 152,257 101,419
---------- ----------
Long-term debt, net of current portion 20,000 105,000
Deferred income taxes 162,907 152,403
Insurance, claims and other long-term accruals 38,801 32,301
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 200,000,000
shares authorized; 64,427,780 shares
issued; 63,636,823 and 62,719,053 shares
outstanding, respectively 644 644
Paid-in capital 106,058 105,683
Retained earnings 490,942 447,943
Accumulated other comprehensive loss (43) (34)
Treasury stock, at cost; 790,957
and 1,708,727 shares, respectively (7,552) (18,152)
---------- ----------
Total stockholders' equity 590,049 536,084
---------- ----------
$ 964,014 $ 927,207
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
18
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
2001 2000 1999
---------- ---------- ----------
(In thousands)
Cash flows from operating activities:
Net income $ 47,744 $ 48,023 $ 60,011
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 116,043 109,107 99,955
Deferred income taxes 42,529 18,751 22,200
Loss (gain) on disposal of
operating equipment 740 (5,055) (13,047)
Equity in (income) loss of
unconsolidated affiliate 1,664 (324) -
Tax benefit from exercise of
stock options 2,384 130 663
Other long-term assets 938 (2,888) -
Insurance, claims and other
long-term accruals 6,500 2,000 (500)
Changes in certain working
capital items:
Accounts receivable, net 2,164 3,693 (32,882)
Prepaid expenses and other
current assets 5,875 (8,474) (8,725)
Accounts payable 2,478 (4,976) (12,460)
Accrued and other current
liabilities (2,139) 10,160 16,762
---------- ---------- ----------
Net cash provided by operating
activities 226,920 170,147 131,977
---------- ---------- ----------
Cash flows from investing activities:
Additions to property and
equipment (170,862) (169,113) (255,326)
Retirements of property and
equipment 44,710 60,608 84,297
Investment in unconsolidated
affiliate - (5,000) -
Decrease (increase) in notes
receivable (750) 287 -
---------- ---------- ----------
Net cash used in investing
activities (126,902) (113,218) (171,029)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of
long-term debt 5,000 10,000 30,000
Repayments of long-term debt (60,000) (25,000) -
Proceeds from issuance of
short-term debt - - 30,000
Repayments of short-term debt - (25,000) (15,000)
Dividends on common stock (4,728) (4,710) (4,740)
Repurchases of common stock - (2,759) (3,941)
Stock options exercised 8,591 657 2,188
---------- ---------- ----------
Net cash provided by (used in)
financing activities (51,137) (46,812) 38,507
---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents 48,881 10,117 (545)
Cash and cash equivalents, beginning
of year 25,485 15,368 15,913
---------- ---------- ----------
Cash and cash equivalents, end of
year $ 74,366 $ 25,485 $ 15,368
========== ========== ==========
Supplemental disclosures of cash flow
information:
Cash paid (received) during year
for:
Interest $ 4,315 $ 7,876 $ 7,329
Income taxes (9,540) 3,916 13,275
Supplemental disclosures of non-cash
investing activities:
Notes receivable issued upon sale
of revenue equipment $ 238 $ 4,707 $ -
Warehouse assets contributed to LLC 1,446 - -
The accompanying notes are an integral part of these consolidated
financial statements.
19
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated
Other Total
Common Paid-In Retained Comprehensive Treasury Stockholders'
Stock Capital Earnings Loss Stock Equity
------ -------- -------- ------------- --------- ------------
(In thousands, except share amounts)
BALANCE, December 31, 1998 $644 $105,177 $349,351 $ - $(14,584) $440,588
Purchases of 403,467 shares
of common stock - - - - (3,941) (3,941)
Dividends on common stock
($.075 per share) - - (4,737) - - (4,737)
Exercise of stock options,
264,701 shares, including
tax benefits - 546 - - 2,305 2,851
Comprehensive income:
Net income - - 60,011 - - 60,011
------ -------- -------- ------------ ---------- ------------
BALANCE, December 31, 1999 644 105,723 404,625 - (16,220) 494,772
Purchases of 300,268
shares of common stock - - - - (2,759) (2,759)
Dividends on common stock
($.075 per share) - - (4,705) - - (4,705)
Exercise of stock options,
79,007 shares, including
tax benefits - (40) - - 827 787
Comprehensive income (loss):
Net income - - 48,023 - - 48,023
Foreign currency
translation adjustments - - - (34) - (34)
------ -------- -------- ------------ ---------- ------------
Total comprehensive income - - 48,023 (34) - 47,989
------ -------- -------- ------------ ---------- ------------
BALANCE, December 31, 2000 644 105,683 447,943 (34) (18,152) 536,084
Dividends on common stock
($.075 per share) - - (4,745) - - (4,745)
Exercise of stock options,
917,770 shares, including
tax benefits - 375 - - 10,600 10,975
Comprehensive income (loss):
Net income - - 47,744 - - 47,744
Foreign currency
translation adjustments - - - (9) - (9)
------ -------- -------- ------------ ---------- ------------
Total comprehensive income - - 47,744 (9) - 47,735
------ -------- -------- ------------ ---------- ------------
BALANCE, December 31, 2001 $644 $106,058 $490,942 $(43) $ (7,552) $590,049
====== ======== ======== ============ ========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
20
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Werner Enterprises, Inc. (the Company) is a truckload
transportation company operating under the jurisdiction of the
Department of Transportation and various state regulatory commissions.
The Company maintains a diversified freight base with no one customer
or industry making up a significant percentage of the Company's
receivables or revenues. The largest single customer generated 9% of
revenues for 2001.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Werner Enterprises, Inc. and its majority-owned
subsidiaries. All significant intercompany accounts and transactions
relating to these majority-owned entities have been eliminated. The
equity method of accounting is used for the Company's investment in
Transplace (see Note 2).
Use of Management Estimates
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements,
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments, purchased
with a maturity of three months or less, to be cash equivalents.
Inventories and Supplies
Inventories and supplies consist primarily of revenue equipment
parts, tires, fuel and supplies and are stated at average cost. Tires
placed on new revenue equipment are capitalized as a part of the
equipment cost. Replacement tires are expensed when placed in service.
Property, Equipment, and Depreciation
Additions and improvements to property and equipment are
capitalized at cost, while maintenance and repair expenditures are
charged to operations as incurred. If equipment is traded rather than
sold, the cost of new equipment is recorded at an amount equal to the
lower of the monetary consideration paid plus the net book value of
the traded property or the fair value of the new equipment.
Depreciation is calculated based on the cost of the asset,
reduced by its estimated salvage value, using the straight-line
method. Accelerated depreciation methods are used for income tax
purposes. The lives and salvage values assigned to certain assets for
financial reporting purposes are different than for income tax
purposes. For financial reporting purposes, assets are depreciated
over the estimated useful lives of 30 years for buildings and
improvements, 5 to 10 years for revenue equipment, and 3 to 10 years
for service and other equipment.
Insurance and Claims Accruals
Insurance and claims accruals, both current and noncurrent,
reflect the estimated cost for cargo loss and damage, bodily injury
and property damage (BI/PD), group health, and workers' compensation
claims, including estimated loss development and loss adjustment
expenses, not covered by insurance. The costs for cargo and BI/PD
21
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
insurance and claims are included in insurance and claims expense,
while the costs of group health and workers' compensation claims are
included in salaries, wages and benefits expense in the Consolidated
Statements of Income. The insurance and claims accruals are recorded
at the estimated ultimate payment amounts and are based upon
individual case estimates and estimates of incurred-but-not-reported
losses based upon past experience.
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 $4,000,000. For the policy year
ending August 1, 2002, these annual aggregate amounts total
$4,500,000. Liability in excess of these risk retention levels is
assumed by the insurance carriers in amounts which management
considers adequate. The Company's premium rate for liability coverage
up to $3,000,000 per claim is fixed through August 1, 2004, while
coverage levels above $3,000,000 per claim will be renewed effective
August 1, 2002.
The Company has assumed responsibility for workers' compensation,
maintains a $19,000,000 bond, has statutory coverage, and has obtained
insurance for individual claims above $500,000.
Under these insurance arrangements, the Company maintains
$12,100,000 in letters of credit, as of December 31, 2001.
Revenue Recognition
The Consolidated Statements of Income reflect recognition of
operating revenues and related direct costs when the shipment is
delivered.
Foreign Currency Translation
Local currencies are generally considered the functional
currencies outside the United States. Assets and liabilities are
translated at year-end exchange rates for operations in local currency
environments. Income and expense items are translated at average
rates of exchange prevailing during the year. Foreign currency
translation adjustments reflect the changes in foreign currency
exchange rates applicable to the net assets of the Mexican operations
for the years ended December 31, 2001 and 2000, and of the Canadian
operations for the year ended December 31, 2001. The amounts of such
translation adjustments were not significant for all years presented
(see the Consolidated Statements of Stockholders' Equity).
Income Taxes
The Company uses the asset and liability method of Statement of
Financial Accounting Standards (SFAS) No. 109 in accounting for income
taxes. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to temporary
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using the enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
Common Stock and Earnings Per Share
The Company computes and presents earnings per share (EPS) in
accordance with SFAS No. 128, Earnings per Share. The difference
between the Company's weighted average shares outstanding and diluted
shares outstanding is due to the dilutive effect of stock options for
all periods presented. There are no differences in the numerator of
the Company's computations of basic and diluted EPS for any period
presented.
22
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Comprehensive Income
Comprehensive income consists of net income and other
comprehensive income (loss). Other comprehensive income (loss) refers
to revenues, expenses, gains and losses that are not included in net
income, but rather are recorded directly in stockholders' equity. For
the years ended December 31, 2001 and 2000, comprehensive income
consists of net income and foreign currency translation adjustments.
For the year ended December 31, 1999, the Company had no items of
other comprehensive income (loss), and, accordingly, comprehensive
income is the same as net income.
Accounting Standards
On July 20, 2001, the Financial Accounting Standards Board (FASB)
issued SFAS No. 141 (SFAS 141), Business Combinations and No. 142
(SFAS 142), Goodwill and Other Intangible Assets. SFAS 141 requires
all business combinations initiated after June 30, 2001, to be
accounted for using the purchase method. Business combinations
accounted for as poolings-of-interests and initiated prior to June 30,
2001, are grandfathered. SFAS 142 replaces the requirement to
amortize intangible assets with indefinite lives and goodwill with a
requirement for an impairment test. The elimination of the
requirement to amortize goodwill also applies to investments accounted
for under the equity method of accounting. SFAS 142 also requires an
evaluation of intangible assets and their useful lives and a
transitional impairment test for goodwill and certain intangible
assets upon adoption. After transition, the impairment tests will be
performed annually. SFAS 142 is effective for fiscal years beginning
after December 15, 2001, as of the beginning of the year. As of
December 31, 2001, the Company has no goodwill or intangible assets
recorded in its financial statements. Management believes that SFAS
141 and SFAS 142 will have no significant effect on the financial
position, results of operations, and cash flows of the Company.
During June 2001, the FASB issued SFAS No. 143 (SFAS 143),
Accounting for Asset Retirement Obligations. This Statement addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset
retirement costs. SFAS 143 requires an enterprise to record the fair
value of an asset retirement obligation as a liability in the period
in which it incurs a legal obligation associated with the retirement
of a tangible long-lived asset. SFAS 143 is effective for fiscal
years beginning after June 15, 2002. As of December 31, 2001,
management believes that SFAS 143 will have no significant effect on
the financial position, results of operations, and cash flows of the
Company.
On October 3, 2001, the FASB issued SFAS No. 144 (SFAS 144),
Accounting for the Impairment or Disposal of Long-Lived Assets, which
addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. While SFAS 144 supersedes SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of, it retains many of the fundamental
provisions of that Statement. SFAS 144 is effective for fiscal years
beginning after December 31, 2001. As of December 31, 2001,
management believes that SFAS 144 will have no significant effect on
the financial position, results of operations, and cash flows of the
Company.
(2) INVESTMENT IN UNCONSOLIDATED AFFILIATE
Effective June 30, 2000, the Company contributed its non-asset
based logistics business to Transplace (TPC), in exchange for an
equity interest in TPC of approximately 15%. TPC is a joint venture
of five large transportation companies - Covenant Transport, Inc.;
J.B. Hunt Transport Services, Inc.; Swift Transportation Co., Inc.;
U.S. Xpress Enterprises, Inc.; and Werner Enterprises, Inc. 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 December 31, 2001, the investment in
unconsolidated affiliate (in thousands) is $3,660 (which includes a
$5,000 cash investment in TPC less $1,340, which represents the
23
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Company's 15% equity in the loss from operations of unconsolidated
affiliate since June 30, 2000). The Company is not responsible for
the debt of Transplace.
In October 2000, the Company provided funds (in thousands) of
$3,200 to TPC in the form of a short-term note with an interest rate
of 8%. The Company recorded interest income on the note from TPC (in
thousands) of approximately $26 and $61 during 2001 and 2000,
respectively. The note was repaid in full in February 2001.
The Company and TPC enter into transactions with each other for
certain of their purchased transportation needs. The Company recorded
operating revenue (in thousands) from TPC of approximately $30,600 and
$15,500 in 2001 and 2000, respectively, and recorded purchased
transportation expense to TPC of approximately $10,500 and $1,500
during 2001 and 2000, respectively.
The Company also provides certain administrative functions to TPC
as well as providing office space, supplies, and communications. The
allocation from the Company for these services (in thousands) was
approximately $407 and $518 during 2001 and 2000, respectively. The
allocations for rent are recorded in the Consolidated Statements of
Income as miscellaneous revenue, and the remaining amounts are
recorded as a reduction of the respective operating expenses.
The Company believes that the transactions with TPC are on terms
no less favorable to the Company than those that could be obtained
from unaffiliated third parties, on an arm's length basis.
(3) LONG-TERM DEBT
Long-term debt consists of the following at December 31 (in
thousands):
2001 2000
-------- --------
Notes payable to banks under committed credit facilities $ - $ 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
-------- --------
50,000 105,000
Less current portion 30,000 -
-------- --------
Long-term debt, net $ 20,000 $105,000
======== ========
Effective February 11, 2002, the Company reduced its credit
facilities to $25 million of available credit pursuant to credit
facilities with banks which bear variable interest based on LIBOR, on
which no borrowings were outstanding at December 31, 2001. Each of
the debt agreements require, among other things, that the Company
maintain a minimum consolidated tangible net worth and not exceed a
maximum ratio of indebtedness to total capitalization. The Company
was in compliance with these covenants at December 31, 2001.
The aggregate future maturities of long-term and short-term debt
by year consist of the following at December 31, 2001, (in thousands):
2002 $ 30,000
2003 20,000
---------
$ 50,000
=========
The carrying amount of the Company's long-term debt approximates
fair value due to the duration of the notes and their interest rates.
24
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(4) LEASES
The Company leases certain revenue equipment under operating
leases which expire through 2003. At December 31, 2001, the future
minimum lease payments under non-cancelable revenue equipment
operating leases are as follows (in thousands):
2002 $3,219
2003 100
Rental expense under non-cancelable revenue equipment operating
leases (in thousands) was $3,237 in 2001, $3,185 in 2000, and $596 in
1999.
(5) INCOME TAXES
Income tax expense consists of the following (in thousands):
2001 2000 1999
--------- --------- ---------
Current
Federal $(12,194) $ 9,132 $11,787
State (1,688) 1,550 2,800
--------- --------- ---------
(13,882) 10,682 14,587
--------- --------- ---------
Deferred
Federal 37,358 16,001 19,112
State 5,171 2,750 3,088
--------- --------- ---------
42,529 18,751 22,200
--------- --------- ---------
Total income tax expense $ 28,647 $29,433 $36,787
========= ========= =========
The effective income tax rate differs from the federal corporate
tax rate of 35% in 2001, 2000, and 1999 as follows (in thousands):
2001 2000 1999
-------- --------- ---------
Tax at statutory rate $26,737 $27,110 $33,879
State income taxes, net
of federal tax benefits 2,264 2,795 3,827
Income tax credits (638) (638) (691)
Other, net 284 166 (228)
-------- --------- ---------
$28,647 $29,433 $36,787
========= ========= =========
25
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
At December 31, deferred tax assets and liabilities consisted of
the following (in thousands):
2001 2000
--------- ---------
Deferred tax assets:
Insurance and claims accruals $ 27,016 $ 24,706
Allowance for uncollectible accounts 1,752 1,425
Other 3,579 3,099
--------- ---------
Gross deferred tax assets 32,347 29,230
--------- ---------
Deferred tax liabilities:
Property and equipment 166,818 161,338
Prepaid expenses 38,286 4,431
Other 10,623 4,312
--------- ---------
Gross deferred tax liabilities 215,727 170,081
--------- ---------
Net deferred tax liability $183,380 $140,851
========= =========
These amounts (in thousands) are presented in the accompanying
Consolidated Balance Sheets as of December 31 as follows:
2001 2000
--------- ---------
Current deferred tax asset $ - $ 11,552
Current deferred tax liability 20,473 -
Noncurrent deferred tax liability 162,907 152,403
--------- ---------
Net deferred tax liability $183,380 $140,851
========= =========
(6) STOCK OPTION AND EMPLOYEE BENEFIT PLANS
Stock Option Plan
The Company's Stock Option Plan (the Stock Option Plan) is a
nonqualified plan that provides for the grant of options to management
employees. Options are granted at prices equal to the market value of
the common stock on the date the option is granted.
Options granted become exercisable in installments from six to
seventy-two months after the date of grant. The options are
exercisable over a period not to exceed ten years and one day from the
date of grant. The maximum number of shares of common stock that may
be optioned under the Stock Option Plan is 11,666,667 shares.
At December 31, 2001, 3,129,679 shares were available for
granting additional options. At December 31, 2001, 2000, and 1999,
options for 828,851, 1,124,919, and 892,237 shares with weighted
average exercise prices of $10.31, $9.81, and $9.47 were exercisable,
respectively.
26
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table summarizes Stock Option Plan activity for the
three years ended December 31, 2001:
Options Outstanding
-----------------------------------
Weighted-Average
Shares Exercise Price
---------- ------------------
Balance, December 31, 1998 2,033,306 9.98
Options granted 1,892,680 9.39
Options exercised (264,701) 8.27
Options canceled (26,668) 11.27
----------
Balance, December 31, 1999 3,634,617 9.79
Options granted 1,506,667 9.65
Options exercised (79,007) 8.17
Options canceled (275,693) 9.77
----------
Balance, December 31, 2000 4,786,584 9.77
Options granted 1,598,000 12.22
Options exercised (917,770) 9.36
Options canceled (95,553) 9.60
----------
Balance, December 31, 2001 5,371,261 10.57
==========
The following table summarizes information about stock options
outstanding and exercisable at December 31, 2001:
Options Outstanding Options Exercisable
----------------------------------- ----------------------------
Weighted-Average Weighted-Average Weighted-Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
--------------- ----------- ---------------- ---------------- ----------- ----------------
$ 7.85 to $ 9.94 3,088,113 8.0 years $ 9.37 465,724 $ 8.87
$11.20 to $15.38 2,283,148 8.7 years 12.20 363,127 12.15
----------- -----------
5,371,261 8.3 years 10.57 828,851 10.31
=========== ============
The Company applies the intrinsic value based method of
Accounting Principles Board (APB) Opinion No. 25 and related
interpretations in accounting for its Stock Option Plan. SFAS No. 123,
Accounting for Stock-Based Compensation requires pro forma disclosure
of net income and earnings per share had the estimated fair value of
option grants on their grant date been charged to salaries, wages and
benefits. The fair value of the options granted during 2001, 2000, and
1999 was estimated using the Black-Scholes option-pricing model with
the following assumptions: risk-free interest rate of 5.0 percent in
2001, 6.0 percent in 2000, and 6.5 percent in 1999; dividend yield of
0.4 percent in 2001 and 0.5 percent in 2000 and 1999; expected life of
8.0 years in 2001 and 2000, and 7.0 years in 1999; and volatility of
38 percent in 2001, 35 percent in 2000, and 30 percent in 1999. The
weighted-average fair value of options granted during 2001, 2000, and
1999 was $6.13, $4.79, and $4.17 per share, respectively. The
Company's pro forma net income and earnings per share would have been
27
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as indicated below had the fair value of option grants been charged to
salaries, wages, and benefits:
2001 2000 1999
---- ---- ----
Net income (in thousands)
As reported $47,744 $48,023 $60,011
Pro forma 44,589 45,735 59,170
Basic earnings per share
As reported 0.76 0.77 0.95
Pro forma 0.71 0.73 0.94
Diluted earnings per share
As reported 0.74 0.76 0.94
Pro forma 0.70 0.73 0.93
Employee Stock Purchase Plan
Employees meeting certain eligibility requirements may
participate in the Company's Employee Stock Purchase Plan (the
Purchase Plan). Eligible participants designate the amount of regular
payroll deductions and/or single annual payment, subject to a yearly
maximum amount, that is used to purchase shares of the Company's
common stock on the Over-The-Counter Market subject to the terms of
the Purchase Plan. The Company contributes an amount equal to 15% of
each participant's contributions under the Purchase Plan. Company
contributions for the Purchase Plan (in thousands) were $108, $117,
and $104 for 2001, 2000, and 1999, respectively. Interest accrues on
Purchase Plan contributions at a rate of 5.25%. The broker's
commissions and administrative charges related to purchases of common
stock under the Purchase Plan are paid by the Company.
401(k) Retirement Savings Plan
The Company has an Employees' 401(k) Retirement Savings Plan (the
401(k) Plan). Employees are eligible to participate in the 401(k) Plan
if they have been continuously employed with the Company or its
subsidiaries for six months or more. The Company matches a portion of
the amount each employee contributes to the 401(k) Plan. It is the
Company's intention, but not its obligation, that the Company's total
annual contribution for employees will equal at least 2 1/2 percent of
net income (exclusive of extraordinary items). Salaries, wages and
benefits expense in the accompanying Consolidated Statements of Income
includes Company 401(k) Plan contributions and administrative expenses
(in thousands) of $1,574, $1,528, and $1,364 for 2001, 2000, and 1999,
respectively.
(7) COMMITMENTS AND CONTINGENCIES
The Company has committed to approximately $23 million of net
capital expenditures, which is a small portion of its estimated 2002
capital expenditures.
The Company is involved in certain claims and pending litigation
arising in the normal course of business. Management believes the
ultimate resolution of these matters will not have a material effect
on the consolidated financial statements of the Company.
(8) SEGMENT INFORMATION
The Company has one reportable segment - Truckload Transportation
Services. This segment consists of five operating fleets that have
been aggregated since they have similar economic characteristics and
meet the other aggregation criteria of SFAS No. 131. The Medium- to
Long-Haul Van fleet transports a variety of consumer, non-durable
28
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 regions. 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):
Revenues
----------------------------------
2001 2000 1999
---------- ---------- ----------
Truckload Transportation Services $1,196,518 $1,148,651 $ 991,954
Other 74,001 65,977 60,379
---------- ---------- ----------
Total $1,270,519 $1,214,628 $1,052,333
========== ========== ==========
Operating Income
----------------------------------
2001 2000 1999
---------- ---------- ----------
Truckload Transportation Services $ 78,807 $ 83,773 $ 99,419
Other 522 (952) 2,782
---------- ---------- ----------
Total $ 79,329 $ 82,821 $ 102,201
========== ========== ==========
Substantially all of the Company's revenues are generated within
the United States or from North American shipments with origins or
destinations in the United States. No one customer accounts for more
than 9% of the Company's revenues.
(9) COMMON STOCK SPLIT
On February 11, 2002, the Company announced that its Board of
Directors declared a four-for-three split of the Company's common
stock effected in the form of a 33 1/3 percent stock dividend. The
stock dividend was payable on March 14, 2002, to stockholders of
record at the close of business on February 25, 2002. No fractional
shares of common stock were issued in connection with the stock split.
Stockholders entitled to fractional shares received a proportional
cash payment based on the closing price of a share of common stock on
February 25, 2002.
All share and per-share information included in the accompanying
consolidated financial statements for all periods presented have been
adjusted to retroactively reflect the stock split.
29
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(10) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
(In thousands, except per share amounts)
2001:
Operating revenues $304,577 $322,777 $322,618 $320,547
Operating income 16,059 19,933 20,621 22,716
Net income 9,455 12,091 12,453 13,745
Diluted earnings per share 0.15 0.19 0.19 0.21
2000:
Operating revenues $291,379 $307,242 $304,572 $311,435
Operating income 18,535 22,418 21,043 20,825
Net income 10,318 12,915 12,291 12,499
Diluted earnings per share 0.16 0.20 0.20 0.20
30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
No reports on Form 8-K have been filed within the twenty-four
months prior to December 31, 2001, involving a change of accountants
or disagreements on accounting and financial disclosure.
PART III
Certain information required by Part III is omitted from this
report on Form 10-K in that the Company will file a definitive proxy
statement pursuant to Regulation 14A (Proxy Statement) not later than
120 days after the end of the fiscal year covered by this report on
Form 10-K, and certain information included therein is incorporated
herein by reference. Only those sections of the Proxy Statement which
specifically address the items set forth herein are incorporated by
reference. Such incorporation does not include the Compensation
Committee Report or the Performance Graph included in the Proxy
Statement.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by
reference to the Company's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by
reference to the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated herein by
reference to the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by
reference to the Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) Financial Statements and Schedules.
(1) Financial Statements: See Part II, Item 8 hereof.
Page
----
Report of Independent Public Accountants 16
Consolidated Statements of Income 17
Consolidated Balance Sheets 18
Consolidated Statements of Cash Flows 19
Consolidated Statements of Stockholders' Equity 20
Notes to Consolidated Financial Statements 21
(2) Financial Statement Schedules: The consolidated financial
statement schedule set forth under the following caption is included
herein. The page reference is to the consecutively numbered pages of
this report on Form 10-K.
Page
----
Schedule II - Valuation and Qualifying Accounts 34
31
Schedules not listed above have been omitted because they
are not applicable or are not required or the information required to
be set forth therein is included in the Consolidated Financial
Statements or Notes thereto.
(3) Exhibits: The response to this portion of Item 14 is
submitted as a separate section of this report on Form 10-K (see
Exhibit Index on page 34).
(b) Reports on Form 8-K:
A report on Form 8-K, filed October 19, 2001, regarding a news
release on October 16, 2001, announcing the Company's operating
revenues and earnings for the third quarter ended September 30, 2001.
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 20th day of March, 2002.
WERNER ENTERPRISES, INC.
By: /s/ John J. Steele
-----------------------------
John J. Steele
Vice President, Treasurer and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant in the capacities and on the dates indicated.
Signature Position Date
--------- -------- ----
/s/ Clarence L. Werner Chairman of the Board, Chief March 20, 2002
- ----------------------- Executive Officer and Director
Clarence L. Werner
/s/ Gary L. Werner Vice Chairman and March 20, 2002
- ----------------------- Director
Gary L. Werner
/s/ Curtis G. Werner Vice Chairman - Corporate March 20, 2002
- ----------------------- Development and Director
Curtis G. Werner
/s/ Gregory L. Werner President, Chief Operating March 20, 2002
- ----------------------- Officer and Director
Gregory L. Werner
/s/ John J. Steele Vice President, Treasurer and March 20, 2002
- ----------------------- Chief Financial Officer
John J. Steele
/s/ James L. Johnson Vice President, Controller March 20, 2002
- ----------------------- and Corporate Secretary
James L. Johnson
/s/ Irving B. Epstein Director March 20, 2002
- -----------------------
Irving B. Epstein
/s/ Martin F. Thompson Director March 20, 2002
- -----------------------
Martin F. Thompson
/s/ Gerald H. Timmerman Director March 20, 2002
- -----------------------
Gerald H. Timmerman
/s/ Donald W. Rogert Director March 20, 2002
- -----------------------
Donald W. Rogert
/s/ Jeffrey G. Doll Director March 20, 2002
- -----------------------
Jeffrey G. Doll
33
SCHEDULE II
WERNER ENTERPRISES, INC.
VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to Write-Off Balance at
Beginning of Costs and of Doubtful End of
Period Expenses Accounts Period
------ -------- -------- ------
(In thousands)
Year ended December 31, 2001:
Allowance for doubtful accounts $3,994 $2,057 $1,085 $4,966
====== ====== ====== ======
Year ended December 31, 2000:
Allowance for doubtful accounts $3,236 $2,191 $1,433 $3,994
====== ====== ====== ======
Year ended December 31, 1999:
Allowance for doubtful accounts $2,933 $ 606 $ 303 $3,236
====== ====== ====== ======
EXHIBIT INDEX
Exhibit Page Number or Incorporated by
Number Description Reference to
------- ----------- ------------------------------
3(i)(A) Revised and Amended Exhibit 3 to Registration Statement
Articles of on Form S-1, Registration No. 33-5245
Incorporation
3(i)(B) Articles of Amendment to Exhibit 3(i) to the Company's
Articles of report on Form 10-Q for the quarter
Incorporation ended May 31, 1994
3(i)(C) Articles of Amendment to Exhibit 3(i) to the Company's report
Articles of on Form 10-K for the year ended
Incorporation ended December 31, 1998
3(ii) Revised and Amended Exhibit 3(ii) to the Company's
By-Laws report on Form 10-K for the year
ended December 31, 1994
10.1 Second Amended and Exhibit 10 to the Company's report
Restated Stock on Form 10-Q for the quarter ended
Option Plan June 30, 2000
10.2 Initial Subscription Exhibit 2.1 to the Company's report
Agreement of on Form 8-K filed July 17, 2000
Transplace.com, LLC,
dated April 19, 2000
10.3 Operating Agreement Exhibit 2.2 to the Company's report
of Transplace.com, LLC, on Form 8-K filed July 17, 2000
dated April 19, 2000
11 Statement Re: Computation Filed herewith
of Per Share Earnings
21 Subsidiaries of the Filed herewith
Registrant
23.1 Consent of KPMG LLP Filed herewith
34