-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LaKpFQkzxhyKVK8BFONemdyEqw8AlUx/godTcfrHM64bhrWmfB58gcmPOQ38EC4I xZrOHlU5WyZJfSKkeFnY9A== 0000793074-01-000002.txt : 20010326 0000793074-01-000002.hdr.sgml : 20010326 ACCESSION NUMBER: 0000793074-01-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WERNER ENTERPRISES INC CENTRAL INDEX KEY: 0000793074 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 470648386 STATE OF INCORPORATION: NE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-14690 FILM NUMBER: 1578136 BUSINESS ADDRESS: STREET 1: 14507 FRONTIER ROAD STREET 2: P O BOX 45308 CITY: OMAHA STATE: NE ZIP: 68145 BUSINESS PHONE: 4028956640 10-K 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 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, 2000 Commission file number 0-14690 WERNER ENTERPRISES, INC. (Exact name of registrant as specified in its charter) NEBRASKA 47-0648386 (State or other jurisdiction of (I.R.S. employer 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, 2001 was approximately $471 million (based upon $16.688 per share closing price on that date, as reported by Nasdaq). (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, 2001, 47,089,534 shares of the registrant's common stock were outstanding. Portions of the Proxy Statement of Registrant for the Annual Meeting of Stockholders to be held May 1, 2001 are incorporated in Part III of this report. TABLE OF CONTENTS Page ---- 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 5 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 6 Item 6. Selected Financial Data 6 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition 7 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 11 Item 8. Financial Statements and Supplementary Data 12 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 26 PART III Item 10. Directors and Executive Officers of the Registrant 26 Item 11. Executive Compensation 26 Item 12. Security Ownership of Certain Beneficial Owners and Management 26 Item 13. Certain Relationships and Related Transactions 26 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 27 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 among 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 2000 with a fleet of 7,475 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. 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). On June 30, 2000, the Company, along with five other large transportation companies, contributed their logistics business units into a commonly owned, Internet-based transportation logistics company, Transplace.com. This transaction is dependent upon receiving approval of federal and, perhaps, state regulators regarding antitrust issues and other laws. The Company invested $5 million in cash and has an approximate 15% equity stake in Transplace.com. The Company transferred logistics business representing about 4% of total revenues for the six months ended June 30, 2000 to Transplace.com. The Company is recording its approximate 15% investment in Transplace.com using the equity method of accounting and is accruing its percentage share of Transplace.com's earnings as other non-operating income. 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 2000, the Company's largest 5, 10, and 25 customers comprised 23%, 31%, and 45% of the Company's revenues, respectively. No one customer accounted for more than 9% of the Company's revenues in 2000. 1 Virtually all of Werner's company and owner-operator tractors are equipped with satellite communications devices that enable the Company and drivers to conduct two-way communication using standardized and freeform messages. The satellite technology 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 automatically keep track of truck movement and drivers' hours of service. In June 1998, Werner Enterprises became the first trucking company in the United States to receive authorization from the Federal Highway Administration, under a 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 proposes 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. The Company believes that the current proposed rules would be, at best, safety neutral, and, more likely detrimental to highway safety. At the same time, the current proposed rules would mandate a huge cost for the American public. If changes are to be made to the current drivers' hours of service regulations, those changes cannot become effective until at least October 2001. It is widely expected that, if new regulations are ultimately enacted, the new regulations will be substantially different from the current proposed regulations. 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, 2000, the Company employed 8,664 drivers, 526 mechanics and maintenance personnel, 1,346 office personnel for the trucking operation, and 121 personnel for the non-trucking operations. The Company also had 1,175 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. The rate per mile increases with 2 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). The Company conducts a regular schedule of driver management meetings to share information and concerns with its drivers. At times, there are shortages of drivers in the trucking industry. The Company's management believes the number of qualified drivers in the industry has been 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. 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. 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 high fuel prices and a weak used truck pricing market. Revenue Equipment As of December 31, 2000, Werner operated 6,300 company tractors and had contracts for 1,175 tractors owned by owner-operators. Approximately 70% of the company tractors are manufactured by Freightliner, a subsidiary of DaimlerChrysler. Most of the remaining company tractors are manufactured by Peterbilt. 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 1.6 years at December 31, 2000. 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 19,770 trailers at December 31, 2000: 17,835 dry vans; 910 flatbeds; 940 temperature-controlled; and 85 other specialized trailers. Most of the Company's trailers are manufactured by Wabash National Corporation. As of December 31, 2000, 97% of the Company's fleet of dry van trailers consisted of 53-foot trailers, and 99% consisted of aluminum plate or composite trailers. Other trailer lengths such as 27-foot and 57-foot are also provided by the Company to meet the specialized needs of customers. The average age of the trailer fleet was 4.2 years at December 31, 2000. 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 to further reduce fuel costs. 3 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. By the end of 2000, the Company was able to recover most of the increase in the cost of fuel through the use of customer fuel surcharges. The Company cannot predict whether high fuel prices will continue in the future or the extent to which fuel surcharges will be collected to offset such increases. As of December 31, 2000, 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 a few 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. 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 $390 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 believes it is one of the five largest carriers in the truckload transportation industry. 4 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 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 210 acres, 153 of which are held for future expansion. During 1999, the Company completed construction of a 166,500 square-foot addition to the Company's headquarters office building. The 286,000 square-foot 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 are being converted into a driver training facility. The Company owns all of its corporate headquarters facilities. 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 27,000 square-foot terminal in Dallas, 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 also leases office space in Laredo, Texas and is completing construction of a new 18,000 square-foot office facility there with a tentative completion date in the spring of 2001. The Company also owns a 73,000 square foot disaster recovery and warehouse facility in another area of Omaha. Additionally, the Company leases several small sales offices and trailer parking yards in various locations throughout the country. The Company's headquarters facilities have suitable space available to accommodate planned expansion needs for the next 3 to 5 years. 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 assumed liability up to $500,000, plus administrative expenses, for each occurrence involving personal injury or property damage. The Company is also responsible for a $1,500,000 annual aggregate amount of liability for claims between $500,000 and $1,000,000, and a $1,000,000 annual aggregate amount for claims between $1,000,000 and $2,000,000. 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of 2000, no matters were submitted to a vote of security holders. 5 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, 1999, through December 31, 2000.
Dividends Declared Per High Low Common Share ------ ------ ------------ 2000 Quarter ended: March 31 $17.63 $12.31 $.025 June 30 19.13 10.81 .025 September 30 14.81 11.44 .025 December 31 17.75 10.06 .025 1999 Quarter ended: March 31 $20.75 $15.75 $.025 June 30 21.63 14.50 .025 September 30 22.25 16.13 .025 December 31 18.34 12.25 .025
As of March 6, 2001, the Company's common stock was held by 257 stockholders of record and approximately 6,000 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. 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.
2000 1999 1998 1997 1996 ---------- ---------- -------- -------- -------- (In thousands, except per share amounts) Operating revenues $1,214,628 $1,052,333 $863,417 $772,095 $643,274 Net income 48,023 60,011 57,246 48,378 40,555 Earnings per share (diluted) 1.02 1.26 1.19 1.01 .85 Cash dividends declared per share .100 .100 .093 .080 .075 Return on average stockholders' equity 9.3% 12.8% 13.7% 13.1% 12.4% Operating ratio 93.2% 90.3% 88.9% 89.9% 89.7% Book value per share 11.40 10.48 9.31 8.27 7.34 Total assets 927,207 896,879 769,196 667,638 549,211 Long-term debt 105,000 120,000 100,000 60,000 30,000 Total debt (current and long-term) 105,000 145,000 100,000 60,000 30,000 Stockholders' equity 536,084 494,772 440,588 395,118 348,371
6 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following table sets forth the percentage relationship of income and expense items to operating revenues for the years indicated.
2000 1999 1998 ----- ----- ----- Operating revenues 100.0% 100.0% 100.0% ----- ----- ----- Operating expenses Salaries, wages and benefits 35.4 36.4 37.7 Fuel 11.3 7.5 6.6 Supplies and maintenance 8.5 8.3 8.4 Taxes and licenses 7.3 7.8 7.9 Insurance and claims 2.8 3.0 2.7 Depreciation 9.0 9.5 9.6 Rent and purchased transportation 17.9 17.6 16.1 Communications and utilities 1.2 1.3 1.2 Other (0.2) (1.1) (1.3) ----- ----- ----- Total operating expenses 93.2 90.3 88.9 ----- ----- ----- Operating income 6.8 9.7 11.1 Net interest expense and other .4 .5 .4 ----- ----- ----- Income before income taxes 6.4 9.2 10.7 Income taxes 2.4 3.5 4.1 ----- ----- ----- Net income 4.0% 5.7% 6.6% ===== ===== =====
The following table sets forth certain industry data regarding the freight revenues and operations of the Company.
2000 1999 1998 1997 1996 ------- ------- ------- ------- ------- Operating ratio 93.2% 90.3% 88.9% 89.9% 89.7% Average revenues per tractor per week (1) $ 2,889 $ 2,813 $ 2,783 $ 2,755 $ 2,710 Average annual miles per tractor 125,568 125,856 126,492 126,598 126,221 Average miles per trip 746 734 760 799 808 Average revenues per total mile (1) $ 1.197 $ 1.162 $ 1.144 $ 1.132 $ 1.116 Average revenues per loaded mile (1) $ 1.328 $ 1.287 $ 1.265 $ 1.251 $ 1.236 Average tractors in service 7,303 6,769 5,662 5,051 4,372 Total tractors (at year end) Company 6,300 5,895 5,220 4,490 3,840 Owner-operator 1,175 1,230 930 860 760 ------- ------- ------- ------- ------- Total tractors 7,475 7,125 6,150 5,350 4,600 ======= ======= ======= ======= ======= Total trailers (at year end) 19,770 18,900 16,350 14,700 12,170 ======= ======= ======= ======= ======= - ------------ (1) Net of fuel surcharge revenues.
Results of Operations 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 7 revenues due to fuel surcharges. Customer rate increases were the primary factor in the increase in average revenue per mile. 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 claim payments. 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. The Company is unable to predict whether higher fuel price levels will continue or the extent to which fuel surcharges will be collected in the future from customers. 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 (.3% of revenue in 2000 compared to .1% in 1999) and payments to owner-operators (12.6% of revenue in 2000 compared to 12.4% in 1999). Owner-operators are independent contractors that supply their own tractor and driver and are responsible for operating expenses such as fuel, supplies and maintenance, fuel taxes, and payroll. 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 transferring most of the Company's logistics business to Transplace.com. On June 30, 2000, the Company transferred its logistics business unit to Transplace.com. The Company is one of six large truckload transportation companies that contributed their logistics businesses to this commonly owned, Internet-based logistics company. Each of the six founding members of Transplace.com contributed their logistics business, related intangible assets, and $5 million of cash. The Company transferred logistics business representing about 4% of total revenues for the six months ended June 30, 2000 to Transplace.com. The Company is recording its approximate 15% investment in Transplace.com using the equity method of accounting and is accruing its percentage share of Transplace.com's earnings as other non- operating income. 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 truck reduced the cost basis of the new truck. 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. Due to a reduced number of trucks sold to third parties and a lower average gain per truck, in 2000 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. 8 1999 Compared to 1998 Operating revenues increased by 22% over 1998, primarily due to a 20% increase in the average number of tractors in service and a 2% increase in the average revenue per mile, excluding fuel surcharges. Customer rate increases and a higher percentage of freight in the regional and dedicated fleets were the primary factors in the increased revenue per mile. Regional and dedicated trips have a shorter length of haul, on average, than medium- to long-haul van trips. Revenue per mile tends to increase as length of haul decreases. An $18.6 million increase in revenues from logistics and other non-trucking transportation services also contributed to the overall increase in operating revenues. The Company's operating ratio (operating expenses expressed as a percentage of operating revenues) increased from 88.9% to 90.3%. Owner- operator miles as a percentage of total miles increased from 16.6% in 1998 to 18.2% in 1999, resulting in a shift in costs to the rent and purchased transportation expense category from several other expense categories. The increase in expenses paid to third-party companies for logistics and other non-trucking transportation services also contributed to this shift among expense categories. Salaries, wages and benefits decreased from 37.7% to 36.4% of revenues primarily due to increased revenues from logistics and other non-trucking transportation services, more owner-operator miles as a percentage of total miles, and a higher ratio of tractors to non- driver employees. Fuel increased in 1999 from 6.6% to 7.5% of revenues due primarily to a 22% increase in average fuel prices (excluding fuel taxes) in 1999 compared to 1998. This increase was partially offset by the increases in owner-operator miles and logistics and non- trucking revenues. The Company has implemented customer fuel surcharge reimbursement programs to recover a portion of the increased fuel cost. However, a significant portion of the fuel expense increase was not recovered during 1999. This is due to several factors, including: the fuel price levels which determine when fuel surcharges are collected, unreimbursed empty miles between freight shipments, unreimbursed out-of-route miles caused in part by driver home time needs, and the unreimbursed costs of truck idling. Insurance and claims increased from 2.7% to 3.0% of revenues due in part to an increase in the frequency of property damage claims. Rent and purchased transportation increased from 16.1% to 17.6% of revenues primarily due to the Company's increase in logistics and other non-trucking transportation services and the increase in owner- operator miles. Other operating expenses changed from (1.3%) of revenues to (1.1%) of revenues due in part to lower gains per tractor sold, net of repair costs. The Company's effective income tax rate (income taxes as a percentage of income before income taxes) was 38.0% in 1999 and 1998, 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 $170.1 million in 2000, $132.0 million in 1999, and $137.9 million in 1998. The 29% increase in operating cash flows from 1999 to 2000 was primarily due to improved billing and collection of accounts receivable, increased depreciation due to more revenue equipment, and other working capital improvements. Activity with Transplace.com included a $3.2 million short-term note and a $2.1 million operating advance, both of which 9 were repaid by Transplace.com subsequent to year-end. 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 $113.2 million in 2000, $171.0 million in 1999, and $172.4 million in 1998. The growth of the Company's business has required significant investment in new revenue equipment. Net capital expenditures in 2000, 1999, and 1998 were $108.5 million, $171.0 million, and $172.4 million, respectively. The capital expenditures were financed primarily with cash provided by operations and, to a lesser extent in 1999 and 1998, borrowings. Capital expenditures were lower in 2000 due to the Company's planned slower fleet growth. The Company also invested $5.0 million in Transplace.com in 2000. As of December 31, 2000, the Company has committed to approximately $9 million of net capital expenditures, which is a small portion of its estimated 2001 capital expenditures. Net financing activities used $46.8 million in 2000 and generated $38.5 million in 1999 and $28.1 million in 1998. In 2000, the Company repaid $40 million of debt compared to net borrowings of $45 million and $20 million in 1999 and 1998, respectively. The Company paid dividends of $4.7 million in 2000 and 1999, and $4.2 million in 1998. Financing activities also included common stock repurchases of $2.8 million in 2000, $3.9 million in 1999, and $9.1 million in 1998. 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 2,500,000 shares. As of December 31, 2000, the Company has purchased 1,278,526 shares pursuant to this authorization. The Company's financial position is strong. As of December 31, 2000, the Company had $105 million of debt and $536 million of stockholders' equity. Based on the Company's strong financial position, management foresees no significant barriers to obtaining sufficient financing, if necessary, to continue with its growth plans. 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 This report contains forward-looking statements that are based on information currently available to the Company's management. Although the Company believes the expectations reflected in such forward- looking statements to be reasonable, no assurance can be given that the expectations will be realized. Factors currently known to management that could cause actual results to differ materially from the expectations reflected in forward-looking statements include, but are not limited to, the following: price and availability of diesel fuel; availability of an adequate number of qualified drivers; competitive factors including rate competition; unanticipated changes in laws, regulations, and taxation; the market value for used revenue equipment; and the amount and severity of accident claims. General economic conditions and weather conditions may also significantly affect the Company's results, as equipment utilization and rate levels 10 depend on the level of business activity of shippers in a variety of industries. The Company assumes no obligation to update any forward- looking statements to the extent it becomes aware that it will not be achieved for any reason. 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 had $55 million of variable rate debt at December 31, 2000. The interest rates on the variable rate debt are based on the London Interbank Offered Rate (LIBOR). Assuming this level of borrowings, a hypothetical one-percentage point increase in the LIBOR interest rate would increase the Company's annual interest expense by $550,000. Commodity Price Risk The price and availability of diesel fuel are subject to fluctuations due to changes in the level of global oil production, seasonality, weather, and other market factors. Historically, the Company has been able to recover a majority of fuel price increases from customers in the form of fuel surcharges. 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, 2000, the Company had no derivative financial instruments to reduce its exposure to fuel price fluctuations. 11 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, 2000, and 1999, and the related consolidated statements of income, stockholders' equity and cash flows for each of the two years in the period ended December 31, 2000. In connection with our audits of the consolidated financial statements, we have also audited the information in the financial statement schedule for each of the two years in the period ended December 31, 2000 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 audit. The consolidated financial statements and financial statement schedule of Werner Enterprises, Inc. and subsidiaries for the year ended December 31, 1998 were audited by other auditors whose report dated January 20, 1999, expressed an unqualified opinion on those statements. 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 2000 and 1999 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, 2000, and 1999, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2000, 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 two years in the period ended December 31, 2000 set forth therein. KPMG LLP Omaha, Nebraska January 22, 2001 12 WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts)
2000 1999 1998 ---------- ---------- -------- Operating revenues $1,214,628 $1,052,333 $863,417 ---------- ---------- -------- Operating expenses: Salaries, wages and benefits 429,825 382,824 325,659 Fuel 137,620 79,029 56,786 Supplies and maintenance 102,784 87,600 72,273 Taxes and licenses 89,126 82,089 67,907 Insurance and claims 34,147 31,728 23,875 Depreciation 109,107 99,955 82,549 Rent and purchased transportation 216,917 185,129 139,026 Communications and utilities 14,454 13,444 10,796 Other (2,173) (11,666) (11,065) ---------- ---------- -------- Total operating expenses 1,131,807 950,132 767,806 ---------- ---------- -------- Operating income 82,821 102,201 95,611 ---------- ---------- -------- Other expense (income): Interest expense 8,169 6,565 4,889 Interest income (2,650) (1,407) (1,724) Other (154) 245 114 ---------- ---------- -------- Total other expense 5,365 5,403 3,279 ---------- ---------- -------- Income before income taxes 77,456 96,798 92,332 Income taxes 29,433 36,787 35,086 ---------- ---------- -------- Net income $ 48,023 $ 60,011 $ 57,246 ========== ========== ======== Average common shares outstanding 47,061 47,406 47,667 ========== ========== ======== Basic earnings per share $ 1.02 $ 1.27 $ 1.20 ========== ========== ======== Diluted shares outstanding 47,257 47,631 47,910 ========== ========== ======== Diluted earnings per share $ 1.02 $ 1.26 $ 1.19 ========== ========== ========
The accompanying notes are an integral part of these consolidated financial statements. 13 WERNER ENTERPRISES, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts)
December 31 -------------------- 2000 1999 ---------- -------- ASSETS Current assets: Cash and cash equivalents $ 25,485 $ 15,368 Accounts receivable, trade, less allowance of $3,994 and $3,236, respectively 123,518 127,211 Receivable from unconsolidated affiliate 5,332 - Other receivables 10,257 11,217 Inventories and supplies 7,329 5,296 Prepaid taxes, licenses, and permits 12,396 12,423 Current deferred income taxes 11,552 8,500 Other 10,908 8,812 ---------- -------- Total current assets 206,777 188,827 ---------- -------- Property and equipment, at cost Land 19,157 14,522 Buildings and improvements 72,631 65,152 Revenue equipment 829,549 800,613 Service equipment and other 100,342 90,322 ---------- -------- Total property and equipment 1,021,679 970,609 Less - accumulated depreciation 313,881 262,557 ---------- -------- Property and equipment, net 707,798 708,052 ---------- -------- Notes receivable 4,420 - Investment in unconsolidated affiliate 5,324 - Other non-current assets 2,888 - ---------- -------- $ 927,207 $896,879 ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 30,710 $ 35,686 Short-term debt - 25,000 Insurance and claims accruals 36,057 32,993 Accrued payroll 12,746 11,846 Income taxes payable 7,157 926 Other current liabilities 14,749 14,755 ---------- -------- Total current liabilities 101,419 121,206 ---------- -------- Long-term debt 105,000 120,000 Deferred income taxes 152,403 130,600 Insurance, claims and other long-term accruals 32,301 30,301 Commitments and contingencies Stockholders' equity Common stock, $.01 par value, 200,000,000 shares authorized; 48,320,835 shares issued; 47,039,290 and 47,205,236 shares outstanding, respectively 483 483 Paid-in capital 105,844 105,884 Retained earnings 447,943 404,625 Accumulated other comprehensive loss (34) - Treasury stock, at cost; 1,281,545 and 1,115,599 shares, respectively (18,152) (16,220) ---------- -------- Total stockholders' equity 536,084 494,772 ---------- -------- $ 927,207 $896,879 ========== ========
The accompanying notes are an integral part of these consolidated financial statements. 14 WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net income $ 48,023 $ 60,011 $ 57,246 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 109,107 99,955 82,549 Deferred income taxes 18,751 22,200 14,700 Gain on disposal of operating equipment (5,055) (13,047) (12,251) Equity in income of unconsolidated affiliate (324) - - Tax benefit from exercise of stock options 130 663 389 Other long-term assets (2,888) - - Insurance, claims and other long-term accruals 2,000 (500) 1,472 Changes in certain working capital items: Accounts receivable, net 3,693 (32,882) (868) Prepaid expenses and other current assets (8,474) (8,725) (5,186) Accounts payable (4,976) (12,460) 3,979 Accrued and other current liabilities 10,160 16,762 (4,090) --------- --------- --------- Net cash provided by operating activities 170,147 131,977 137,940 --------- --------- --------- Cash flows from investing activities: Additions to property and equipment (169,113) (255,326) (258,643) Retirements of property and equipment 60,608 84,297 86,260 Investment in unconsolidated affiliate (5,000) - - Proceeds from collection of notes receivable 287 - - --------- --------- --------- Net cash used in investing activities (113,218) (171,029) (172,383) --------- --------- --------- Cash flows from financing activities: Proceeds from issuance of long-term debt 10,000 30,000 40,000 Repayments of long-term debt (25,000) - - Proceeds from issuance of short-term debt - 30,000 20,000 Repayments of short-term debt (25,000) (15,000) (20,000) Dividends on common stock (4,710) (4,740) (4,201) Repurchases of common stock (2,759) (3,941) (9,072) Stock options exercised 657 2,188 1,335 --------- --------- --------- Net cash provided by (used in) financing activities (46,812) 38,507 28,062 --------- --------- --------- Net increase (decrease) in cash and cash equivalents 10,117 (545) (6,381) Cash and cash equivalents, beginning of year 15,368 15,913 22,294 --------- --------- --------- Cash and cash equivalents, end of year $ 25,485 $ 15,368 $ 15,913 ========= ========= ========= Supplemental disclosures of cash flow information: Cash paid during year for: Interest $ 7,876 $ 7,329 $ 4,800 Income taxes 3,916 13,275 26,100 Supplemental disclosures of non-cash investing activities: Notes receivable from sale of revenue equipment $ 4,707 - -
The accompanying notes are an integral part of these consolidated financial statements. 15 WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except share amounts)
Accumulated Other Total Common Paid-In Retained Comprehensive Treasury Stockholders' Stock Capital Earnings Loss Stock Equity ------ -------- -------- ------------- -------- ------------- BALANCE, December 31, 1997 $387 $104,764 $296,533 $ - $ (6,566) $395,118 Purchases of 592,600 shares of common stock - - - - (9,072) (9,072) Dividends on common stock ($.09 per share) - - (4,428) - - (4,428) Five-for-four stock split 96 (96) - - - - Exercise of stock options, 119,391 shares - 670 - - 1,054 1,724 Comprehensive income: Net income - - 57,246 - - 57,246 ---- -------- -------- ---- -------- -------- BALANCE, December 31, 1998 483 105,338 349,351 - (14,584) 440,588 Purchases of 302,600 shares of common stock - - - - (3,941) (3,941) Dividends on common stock ($.10 per share) - - (4,737) - - (4,737) Exercise of stock options, 198,526 shares - 546 - - 2,305 2,851 Comprehensive income: Net income - - 60,011 - - 60,011 ---- -------- -------- ---- -------- -------- BALANCE, December 31, 1999 483 105,884 404,625 - (16,220) 494,772 Purchases of 225,201 shares of common stock - - - - (2,759) (2,759) Dividends on common stock ($.10 per share) - - (4,705) - - (4,705) Exercise of stock options, 59,255 shares - (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 $483 $105,844 $447,943 $(34) $(18,152) $536,084 ==== ======== ======== ==== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 16 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. 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.com (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 equipment and other. 17 WERNER ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 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 Company is responsible for liability up to $500,000, plus administrative expenses, for each occurrence involving personal injury or property damage. The Company is also responsible for a $1,500,000 annual aggregate amount of liability for claims between $500,000 and $1,000,000, and a $1,000,000 annual aggregate amount for claims between $1,000,000 and $2,000,000. Liability in excess of these amounts is assumed by the insurance carriers in amounts which management considers adequate. The Company has assumed responsibility for workers' compensation, maintains a $15,000,000 bond, has statutory coverage and has obtained insurance for individual claims above $500,000. Under these insurance arrangements, the Company maintains $9,300,000 in letters of credit, as of December 31, 2000. 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. 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. 18 WERNER ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Comprehensive Income Comprehensive income consists of net income and other comprehensive 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 year ended December 31, 2000, comprehensive income consists of net income and foreign currency translation adjustments. For the years ended December 31, 1999 and 1998, the Company had no items of other comprehensive loss, and, accordingly, comprehensive income is the same as net income. Accounting Standards In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities". SFAS 133, effective for all fiscal quarters of fiscal years beginning after June 15, 2000, establishes standards for reporting and display of derivative instruments and for hedging activities. As of December 31, 2000, the Company had no derivative financial instruments. Because of the Company's minimal historical use of derivatives, management believes that SFAS 133 will not have a material effect on the financial position or results of operations of the Company. (2)--INVESTMENT IN UNCONSOLIDATED AFFILIATE Effective June 30, 2000, the Company contributed its non-asset based logistics business to Transplace.com, LLC (TPC), in exchange for an equity interest in TPC of approximately 15%. TPC is an Internet- based logistics company founded by six large transportation companies - - Covenant Transport, Inc.; J.B. Hunt Transport Services, Inc.; M.S. Carriers, Inc.; Swift Transportation Co., Inc.; U.S. Xpress Enterprises, Inc.; and Werner Enterprises, Inc. The Company is accounting for its investment in TPC using the equity method. At December 31, 2000, the investment in unconsolidated affiliate includes a $5,000,000 cash investment in TPC plus the Company's 15% equity in the estimated cumulative earnings of unconsolidated affiliate of $324,000. In October 2000, the Company provided funds of $3,200,000 to TPC in the form of a short-term note that bears interest at the rate of 8%. The Company recorded interest income on the note from TPC of approximately $61,000 during 2000. As of December 31, 2000, the receivable from unconsolidated affiliate included this $3,200,000 note as well as an operating advance to TPC. Interest is not accrued on the operating advance. Both the note receivable, including accrued interest, and operating advance were repaid subsequent to December 31, 2000. The Company and TPC enter into transactions with each other for certain of their purchased transportation needs. The Company recorded operating revenue from TPC of approximately $15,500,000, and recorded purchased transportation expense to TPC of approximately $1,500,000 during 2000. 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 was approximately $518,000 during 2000. The allocations for rent are recorded in the Consolidated Statement 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. 19 WERNER ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (3)--LONG-TERM DEBT Long-term debt consists of the following at December 31 (in thousands):
2000 1999 -------- -------- Notes payable to banks under committed credit facilities $ 55,000 $ 95,000 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 -------- -------- 105,000 145,000 Less short-term debt - (25,000) -------- -------- Long-term debt $105,000 $120,000 ======== ========
The notes payable to banks under committed credit facilities bear variable interest (7.2% at December 31, 2000) based on the London Interbank Offered Rate (LIBOR), and these credit facilities mature at various dates from August 2002 to May 2003. The Company has an additional $55 million of available long-term credit pursuant to these credit facilities with banks which bear variable interest based on LIBOR, on which no borrowings were outstanding at December 31, 2000. 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, 2000. The aggregate future maturities of long-term and short-term debt by year consist of the following at December 31, 2000 (in thousands):
2001 $ - 2002 55,000 2003 50,000 -------- $105,000 ========
The carrying amount of the Company's long-term debt approximates fair value due to the duration of the notes and their interest rates. (4)--LEASES The Company leases certain revenue equipment under operating leases which expire through 2003. At December 31, 2000, the future minimum lease payments under non-cancelable revenue equipment operating leases are as follows (in thousands):
2001 $3,732 2002 3,219 2003 100
Rental expense under non-cancelable revenue equipment operating leases (in thousands) was $3,185 in 2000, $596 in 1999, and $0 in 1998. 20 WERNER ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (5)--INCOME TAXES Income tax expense consists of the following (in thousands):
2000 1999 1998 ------- ------- ------- Current Federal $ 9,132 $11,787 $17,186 State 1,550 2,800 3,200 ------- ------- ------- 10,682 14,587 20,386 ------- ------- ------- Deferred Federal 16,001 19,112 12,378 State 2,750 3,088 2,322 ------- ------- ------- 18,751 22,200 14,700 ------- ------- ------- Total income tax expense $29,433 $36,787 $35,086 ======= ======= =======
The effective income tax rate differs from the federal corporate tax rate of 35% in 2000, 1999, and 1998 as follows (in thousands):
2000 1999 1998 ------- ------- ------- Tax at statutory rate $27,110 $33,879 $32,316 State income taxes, net of federal tax benefits 2,795 3,827 3,589 Income tax credits (638) (691) (536) Other, net 166 (228) (283) ------- ------- ------- $29,433 $36,787 $35,086 ======= ======= =======
At December 31, deferred tax assets and liabilities consisted of the following (in thousands):
2000 1999 -------- -------- Deferred tax assets: Insurance and claims accruals $ 24,706 $ 22,715 Allowance for uncollectible accounts 1,425 874 Other 3,099 3,266 -------- -------- Gross deferred tax assets 29,230 26,855 -------- -------- Deferred tax liabilities: Property and equipment 161,338 142,312 Prepaid expenses 4,431 5,982 Other 4,312 661 -------- -------- Gross deferred tax liabilities 170,081 148,955 -------- -------- Net deferred tax liability $140,851 $122,100 ======== ========
These amounts (in thousands) are presented in the accompanying Consolidated Balance Sheets as of December 31 as follows:
2000 1999 -------- -------- Current deferred tax asset $ 11,552 $ 8,500 Noncurrent deferred tax liability 152,403 130,600 -------- -------- Net deferred tax liability $140,851 $122,100 ======== ========
21 WERNER ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company believes its history of profitability and taxable income and its utilization of tax planning sufficiently supports the carrying amount of the deferred tax assets. Accordingly, the Company has not recorded a valuation allowance as all deferred tax benefits are more likely than not to be realized. (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 8,750,000 shares. At December 31, 2000, 3,474,094 shares were available for granting further options. At December 31, 2000, 1999, and 1998, options for 843,689, 669,178, and 522,295 shares with weighted average exercise prices of $13.08, $12.62, and $11.43 were exercisable, respectively. The following table summarizes Stock Option Plan activity for the three years ended December 31, 2000:
Options Outstanding ----------------------------- Weighted-Average Shares Exercise Price --------- ---------------- Balance, December 31, 1997 1,581,119 $12.95 Options granted 86,250 16.66 Options exercised (119,391) 11.18 Options canceled (22,998) 13.01 --------- Balance, December 31, 1998 1,524,980 13.30 Options granted 1,419,510 12.52 Options exercised (198,526) 11.02 Options canceled (20,001) 15.03 --------- Balance, December 31, 1999 2,725,963 13.05 Options granted 1,130,000 12.87 Options exercised (59,255) 10.90 Options canceled (206,770) 13.02 --------- Balance, December 31, 2000 3,589,938 13.03 =========
22 WERNER ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following tables summarize information about stock options outstanding and exercisable at December 31, 2000:
Options Outstanding ------------------------------ Weighted- Weighted- Average Average Range of Number Remaining Exercise Exercise Prices Outstanding Contractual Life Price --------------- ----------- ---------------- --------- $10.46 to $13.25 2,932,375 8.0 years $12.31 $14.94 to $20.50 657,563 7.0 years 16.21 --------- 3,589,938 7.9 years 13.03 =========
Options Exercisable --------------------------- Weighted- Average Range of Number Exercise Exercise Prices Exercisable Price --------------- ----------- --------- $10.46 to $13.25 562,980 $11.52 $14.94 to $20.50 280,709 16.20 ------- 843,689 13.08 =======
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 2000, 1999, and 1998 was estimated using the Black-Scholes option-pricing model with the following assumptions: risk-free interest rate of 6.0 percent in 2000, 6.5 percent in 1999, and 5.5 percent in 1998; dividend yield of 0.5 percent; expected life of 8.0 years in 2000, 7.0 years in 1999, and 5.5 years in 1998; and volatility of 35 percent in 2000 and 30 percent in 1999 and 1998. The weighted-average fair value of options granted during 2000, 1999, and 1998 was $6.39, $5.56, and $6.16 per share, respectively. The Company's pro forma net income and earnings per share would have been as indicated below had the fair value of option grants been charged to salaries, wages, and benefits:
2000 1999 1998 ------- ------- ------- Net income (in thousands) As reported $48,023 $60,011 $57,246 Pro forma 45,735 59,170 56,327 Basic earnings per share As reported 1.02 1.27 1.20 Pro forma .97 1.25 1.18 Diluted earnings per share As reported 1.02 1.26 1.19 Pro forma .97 1.24 1.18 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 were $117,393, $104,304, and $100,045 for 2000, 1999, and 1998, respectively. Interest accrues on 23 WERNER ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 of $1,527,502, $1,364,254, and $1,191,372 for 2000, 1999, and 1998, respectively. (7)--COMMITMENTS AND CONTINGENCIES The Company has committed to approximately $9 million of net capital expenditures, which is a small portion of its estimated 2001 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 financial statements of the Company. (8)--SEGMENT INFORMATION The Company operates in one reportable segment - Truckload transportation services. The reportable Truckload segment consists of five operating fleets that have been aggregated since they have similar economic characteristics and meet the other aggregation criteria of SFAS No. 131. The Medium- to Long-Haul Van fleet transports a variety of consumer, non-durable products and other commodities in truckload quantities over irregular routes using dry van trailers. The Regional Short-Haul fleet provides comparable truckload van service within five geographic 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. Operating revenues from external customers for the Company's major service categories were as follows (in thousands):
2000 1999 1998 ---------- ---------- -------- Truckload $1,148,651 $ 991,954 $821,596 Non-trucking 65,977 60,379 41,821 ---------- ---------- -------- Total operating revenues $1,214,628 $1,052,333 $863,417 ========== ========== ========
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. 24 WERNER ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded) (9)--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share amounts) First Second Third Fourth Quarter Quarter Quarter Quarter -------- -------- -------- -------- 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 .22 .27 .26 .26 1999: Operating revenues $240,980 $260,646 $270,144 $280,563 Operating income 21,243 29,691 28,841 22,426 Net income 12,622 17,576 16,977 12,836 Diluted earnings per share .27 .37 .36 .27
25 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE During the second quarter of 1999, the Company solicited and received formal proposals for accounting and tax services from several accounting firms. Effective June 10, 1999, the Company (a) engaged KPMG LLP as independent accountants and (b) dismissed Arthur Andersen LLP ("AA LLP") as independent accountants. The decision to change accountants was approved by the Company's Board of Directors. The reports of AA LLP for the past two fiscal years contained no adverse opinion, disclaimer of opinion, or opinion that was qualified or modified as to uncertainty, audit scope, or accounting principles. During the Company's two most recent fiscal years and subsequent interim periods preceding the effective date of the change in accountants there were no: 1) disagreements between the Company and AA LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of AA LLP, would have caused them to make reference to the subject matter of the disagreements in their reports. 2) reportable events involving AA LLP that would have required disclosure under Item 304(a)(1)(v) of Regulation S-K. 3) consultations between the Company and KPMG LLP regarding any of the matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K. 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. 26 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 12 Consolidated Statements of Income 13 Consolidated Balance Sheets 14 Consolidated Statements of Cash Flows 15 Consolidated Statements of Stockholders' Equity 16 Notes to Consolidated Financial Statements 17 (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 29 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 30). (b) Reports on Form 8-K: A report on Form 8-K, filed October 18, 2000, regarding a news release on October 17, 2000, announcing the Company's operating revenues and earnings for the third quarter ended September 30, 2000. 27 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 19th day of March, 2001. 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 19, 2001 - ----------------------- Executive Officer and Clarence L. Werner Director /s/ Gary L. Werner Vice Chairman and Director March 19, 2001 - ----------------------- Gary L. Werner /s/ Curtis G. Werner Vice Chairman - Corporate March 19, 2001 - ----------------------- Development and Director Curtis G. Werner /s/ Gregory L. Werner President, Chief Operating March 19, 2001 - ----------------------- Officer and Director Gregory L. Werner /s/ John J. Steele Vice President, Treasurer and March 19, 2001 - ----------------------- Chief Financial Officer John J. Steele /s/ James L. Johnson Vice President, Controller March 19, 2001 - ----------------------- and Secretary James L. Johnson /s/ Irving B. Epstein Director March 19, 2001 - ----------------------- Irving B. Epstein /s/ Martin F. Thompson Director March 19, 2001 - ----------------------- Martin F. Thompson /s/ Gerald H. Timmerman Director March 19, 2001 - ----------------------- Gerald H. Timmerman /s/ Donald W. Rogert Director March 19, 2001 - ----------------------- Donald W. Rogert /s/ Jeffrey G. Doll Director March 19, 2001 - ----------------------- Jeffrey G. Doll 28 SCHEDULE II WERNER ENTERPRISES, INC. VALUATION AND QUALIFYING ACCOUNTS (In thousands)
Balance at Charged to Write-Off Balance at Beginning of Costs and of Doubtful End of Period Expenses Accounts Period ------------ ---------- ----------- ---------- 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 ====== ====== ====== ====== Year ended December 31, 1998: Allowance for doubtful accounts $3,126 $ 206 $ 399 $2,933 ====== ====== ====== ======
29 EXHIBIT INDEX
Page Number or Exhibit Incorporated by Number Description Reference to - ------- ----------- --------------- 3(i)(A) Revised and Amended Exhibit 3 to Registration Statement on Form Articles of S-1, Registration No. 33-5245 Incorporation 3(i)(B) Articles of Amendment Exhibit 3(i) to the Company's report on to Articles of Form 10-Q for the quarter ended May 31, Incorporation 1994 3(i)(C) Articles of Amendment Exhibit 3(i) to the Company's report on to Articles of Form 10-K for the year ended December 31, Incorporation 1998 3(ii) Revised and Exhibit 3(ii) to the Company's report on Amended By-Laws Form 10-K for the year ended December 31, 1994 10.1 Second Amended and Exhibit 10 to the Company's report on Form Restated Stock Option 10-Q for the quarter ended June 30, 2000 Plan 10.2 Initial Subscription Exhibit 2.1 to the Company's report on Form Agreement of 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 on Form of Transplace.com, 8-K filed July 17, 2000 LLC, dated April 19, 2000 11 Statement Re: Filed herewith Computation of Per Share Earnings 21 Subsidiaries of Filed herewith the Registrant 23.1 Consent of KPMG LLP Filed herewith 23.2 Consent of Arthur Filed herewith Andersen LLP 99 Report of Independent Filed herewith Public Accountants of Arthur Andersen LLP
30 EX-11 2 0002.txt EXHIBIT 11 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS ----------------------------------------------- (In thousands, except per share amounts)
2000 1999 1998 ------- ------- ------- Net income $48,023 $60,011 $57,246 ======= ======= ======= Average common shares outstanding 47,061 47,406 47,667 Common stock equivalents (1) 196 225 243 ------- ------- ------- Diluted shares outstanding 47,257 47,631 47,910 ======= ======= ======= Basic earnings per share $1.02 $1.27 $1.20 ======= ======= ======= Diluted earnings per share $1.02 $1.26 $1.19 ======= ======= =======
(1) Common stock equivalents represent the dilutive effect of outstanding stock options for all periods presented. EX-21 3 0003.txt EXHIBIT 21 SUBSIDIARIES OF WERNER ENTERPRISES, INC. ---------------------------------------- JURISDICTION OF SUBSIDIARY ORGANIZATION ---------------------------------------- ------------ 1. Werner Leasing, Inc. Nebraska 2. Werner Aire, Inc. Nebraska 3. Gra-Gar, LLC Delaware 4. Drivers Management, LLC Delaware 5. Werner Management, Inc. Nebraska 6. Drivers Management Holding, Inc. Nebraska 7. Frontier Clinic, Inc. Nebraska 8. Fleet Truck Sales, Inc. Nebraska 9. Professional Truck Drivers School, Inc. Nebraska 10. Werner Transportation, Inc. Nebraska 11. Werner de Mexico, S. de R.L. de C.V. Mexico EX-23 4 0004.txt EXHIBIT 23.1 ACCOUNTANTS' CONSENT -------------------- We consent to incorporation by reference in the registration statements (File No. 33-15894 and No. 33-15895) on Form S-8 of Werner Enterprises, Inc. of our report dated January 22, 2001, relating to the consolidated balance sheets as of December 31, 2000 and 1999, of Werner Enterprises, Inc. and subsidiaries and the related statements of income, stockholders' equity, and cash flows for the years ended December 31, 2000 and 1999, and related schedules, which report appears in the December 31, 2000, annual report on Form 10-K of Werner Enterprises, Inc. KPMG LLP Omaha, Nebraska March 19, 2001 EX-23 5 0005.txt EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statement File Nos. 33-15894 and 33-15895. ARTHUR ANDERSEN LLP Omaha, Nebraska, March 19, 2001 EX-99 6 0006.txt EXHIBIT 99 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To the Stockholders and Board of Directors of Werner Enterprises, Inc.: We have audited the accompanying consolidated statements of income, stockholders' equity and cash flows of Werner Enterprises, Inc. (a Nebraska Corporation) and Subsidiaries for the year ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations of Werner Enterprises, Inc. and Subsidiaries and their cash flows for the year ended December 31, 1998, in conformity with accounting principles generally accepted in the United States. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14(a)(2) of this Form 10-K, for the year ended December 31, 1998, is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Omaha, Nebraska, January 20, 1999 -----END PRIVACY-ENHANCED MESSAGE-----