-----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, Cy/ZLks3GRAOwfOa3FlA/LiJpEep+eY0phjiXXLN0tQLbNEEbQk/gLtPsWHtUaH0 bFXOVT52PeELnukvRjg78Q== 0000793074-02-000025.txt : 20021113 0000793074-02-000025.hdr.sgml : 20021113 20021113085039 ACCESSION NUMBER: 0000793074-02-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021113 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14690 FILM NUMBER: 02818477 BUSINESS ADDRESS: STREET 1: 14507 FRONTIER ROAD STREET 2: P O BOX 45308 CITY: OMAHA STATE: NE ZIP: 68145 BUSINESS PHONE: 4028956640 10-Q 1 wern10q3q02.txt WERNER ENTERPRISES, INC. 10Q 9/30/02 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 Identification No.) incorporation or organization) 14507 FRONTIER ROAD POST OFFICE BOX 45308 OMAHA, NEBRASKA 68145-0308 (402) 895-6640 (Address of principal (Zip Code)(Registrant's telephone number, executive offices) including area code) _________________________________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] As of October 31, 2002, 63,733,918 shares of the registrant's common stock, par value $.01 per share, were outstanding. INDEX TO FORM 10-Q PAGE PART I - FINANCIAL INFORMATION ---- Item 1 - Financial Statements Consolidated Statements of Income for the Three Months Ended September 30, 2002 and 2001 3 Consolidated Statements of Income for the Nine Months Ended September 30, 2002 and 2001 4 Consolidated Condensed Balance Sheets as of September 30, 2002 and December 31, 2001 5 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001 6 Notes to Consolidated Financial Statements as of September 30, 2002 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 14 Item 4 - Controls and Procedures 15 PART II - OTHER INFORMATION Items 1, 2, 3, 4, and 5 - Not Applicable Item 6 - Exhibits and Reports on Form 8-K 15 PART I FINANCIAL INFORMATION Item 1. Financial Statements. The interim consolidated financial statements contained herein reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the financial condition, results of operations, and cash flows for the periods presented. They have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. Operating results for the three-month and nine-month periods ended September 30, 2002, are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. In the opinion of management, the information set forth in the accompanying consolidated condensed balance sheets is fairly stated in all material respects in relation to the consolidated balance sheets from which it has been derived. These interim consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2001. 2 WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended (In thousands, except per share amounts) September 30 - ------------------------------------------------------------------------- 2002 2001 - ------------------------------------------------------------------------- (Unaudited) Operating revenues $336,096 $322,618 ---------------------- Operating expenses: Salaries, wages and benefits 120,303 115,020 Fuel 32,321 33,560 Supplies and maintenance 28,798 31,723 Taxes and licenses 24,348 23,529 Insurance and claims 13,233 9,866 Depreciation 30,632 29,005 Rent and purchased transportation 55,285 54,935 Communications and utilities 3,610 3,277 Other 410 1,082 ---------------------- Total operating expenses 308,940 301,997 ---------------------- Operating income 27,156 20,621 ---------------------- Other expense (income): Interest expense 757 775 Interest income (628) (585) Other 156 506 ---------------------- Total other expense 285 696 ---------------------- Income before income taxes 26,871 19,925 Income taxes 10,076 7,472 ---------------------- Net income $ 16,795 $ 12,453 ====================== Average common shares outstanding 63,725 63,335 ====================== Basic earnings per share $ .26 $ .20 ====================== Diluted shares outstanding 65,128 64,353 ====================== Diluted earnings per share $ .26 $ .19 ====================== Dividends declared per share $ .020 $ .019 ======================
3 WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended (In thousands, except per share amounts) September 30 - ------------------------------------------------------------------------- 2002 2001 - ------------------------------------------------------------------------- (Unaudited) Operating revenues $989,076 $949,972 ---------------------- Operating expenses: Salaries, wages and benefits 358,222 338,956 Fuel 87,783 104,338 Supplies and maintenance 89,966 87,942 Taxes and licenses 72,953 69,799 Insurance and claims 37,632 31,518 Depreciation 89,355 87,108 Rent and purchased transportation 168,552 160,452 Communications and utilities 10,971 10,587 Other 2,063 2,659 ---------------------- Total operating expenses 917,497 893,359 ---------------------- Operating income 71,579 56,613 ---------------------- Other expense (income): Interest expense 2,316 3,015 Interest income (1,904) (2,033) Other 787 1,232 ---------------------- Total other expense 1,199 2,214 ---------------------- Income before income taxes 70,380 54,399 Income taxes 26,392 20,400 ---------------------- Net income $ 43,988 $ 33,999 ====================== Average common shares outstanding 63,776 63,044 ====================== Basic earnings per share $ .69 $ .54 ====================== Diluted shares outstanding 65,209 63,946 ====================== Diluted earnings per share $ .67 $ .53 ====================== Dividends declared per share $ .060 $ .057 ======================
4 WERNER ENTERPRISES, INC. CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands) September 30 December 31 - ------------------------------------------------------------------------- 2002 2001 - ------------------------------------------------------------------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 91,739 $ 74,366 Accounts receivable, trade, less allowance of $5,489 and $4,966, respectively 126,725 121,354 Other receivables 9,058 8,527 Inventories and supplies 9,763 8,432 Prepaid taxes, licenses and permits 3,702 12,333 Other current assets 16,640 11,055 ------------------------ Total current assets 257,627 236,067 ------------------------ Property and equipment 1,157,894 1,069,605 Less - accumulated depreciation 378,098 354,122 ------------------------ Property and equipment, net 779,796 715,483 ------------------------ Other non-current assets 13,300 12,464 ------------------------ $1,050,723 $ 964,014 ======================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 46,533 $ 33,188 Current portion of long-term debt 30,000 30,000 Insurance and claims accruals 46,497 40,254 Accrued payroll 20,340 15,008 Current deferred income taxes 20,473 20,473 Other current liabilities 17,009 13,334 ------------------------ Total current liabilities 180,852 152,257 ------------------------ Long-term debt, net of current portion 20,000 20,000 Insurance and claims accruals, net of current portion 45,801 38,801 Deferred income taxes 174,168 162,907 Stockholders' equity: Common stock, $.01 par value, 200,000,000 shares authorized; 64,427,780 shares issued; 63,680,423 and 63,636,823 shares outstanding, respectively 644 644 Paid-in capital 107,004 106,058 Retained earnings 531,103 490,942 Accumulated other comprehensive loss (101) (43) Treasury stock, at cost; 747,357 and 790,957 shares, respectively (8,748) (7,552) ------------------------ Total stockholders' equity 629,902 590,049 ------------------------ $1,050,723 $ 964,014 ========================
5 WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended (In thousands) September 30 - ------------------------------------------------------------------------- 2002 2001 - ------------------------------------------------------------------------- (Unaudited) Cash flows from operating activities: Net income $ 43,988 $ 33,999 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 89,355 87,108 Deferred income taxes 11,261 32,273 (Gain) loss on disposal of property and equipment (567) 565 Equity in loss of unconsolidated affiliate 763 1,110 Tax benefit from exercise of stock options 1,032 1,508 Other long-term assets 580 1,117 Insurance and claims accruals, net of current portion 7,000 3,000 Changes in certain working capital items: Accounts receivable, net (5,371) (5,227) Prepaid expenses and other current assets 1,184 12,273 Accounts payable 13,345 5,660 Other current liabilities 15,222 10,424 ---------------------- Net cash provided by operating activities 177,792 183,810 ---------------------- Cash flows from investing activities: Additions to property and equipment (201,972) (130,936) Retirements of property and equipment 48,473 29,004 (Increase) decrease in notes receivable (1,892) 665 ---------------------- Net cash used in investing activities (155,391) (101,267) ---------------------- Cash flows from financing activities: Proceeds from issuance of long-term debt - 5,000 Repayments of long-term debt - (60,000) Dividends on common stock (3,746) (3,546) Payment of stock split fractional shares (12) - Repurchases of common stock (3,766) - Stock options exercised 2,496 6,158 ---------------------- Net cash used in financing activities (5,028) (52,388) ---------------------- Net increase in cash and cash equivalents 17,373 30,155 Cash and cash equivalents, beginning of period 74,366 25,485 ---------------------- Cash and cash equivalents, end of period $ 91,739 $ 55,640 ====================== Supplemental disclosures of cash flow information: Cash paid (received) during the period for: Interest $ 2,043 $ 3,556 Income taxes $ 10,483 $(15,787) Supplemental schedule of non-cash investing activities: Notes receivable issued upon sale of revenue equipment $ 1,197 $ 205 Notes receivable cancelled upon turn in of revenue equipment $ (910) $ -
6 WERNER ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Investment in Unconsolidated Affiliate Effective June 30, 2000, the Company contributed its non-asset based logistics business to Transplace (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. Accordingly, the Company is accounting for its investment in TPC using the equity method. Management believes this method is appropriate because the Company has the ability to exercise significant influence over operating and financial policies of TPC through its representation on the TPC board of directors. At September 30, 2002, the investment in unconsolidated affiliate (in thousands), which is included in other non-current assets, is $2,897 (which includes a $5,000 cash investment in TPC less $2,103, which represents the 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. (2) Comprehensive Income Other than its net income, the Company's only other source of comprehensive income (loss) is foreign currency translation adjustments. Other comprehensive income (loss) from foreign currency translation adjustments was ($58) and ($11) (in thousands) for the nine-month periods ended September 30, 2002 and 2001, respectively. (3) Commitments As of September 30, 2002, the Company has commitments for net capital expenditures of approximately $100 million. 7 (4) Earnings Per Share A reconciliation of the numerator and denominator of basic and diluted earnings per share is shown below. Common stock equivalents represent the dilutive effect of outstanding stock options for all periods presented.
(in thousands, except per share amounts) Three Months Ended Nine Months Ended September 30 September 30 --------------------- --------------------- 2002 2001 2002 2001 --------------------- --------------------- Net income $ 16,795 $ 12,453 $ 43,988 $ 33,999 ===================== ===================== Average common shares outstanding 63,725 63,335 63,776 63,044 Common stock equivalents 1,403 1,018 1,433 902 --------------------- --------------------- Diluted shares outstanding 65,128 64,353 65,209 63,946 ===================== ===================== Basic earnings per share $ .26 $ .20 $ .69 $ .54 ===================== ===================== Diluted earnings per share $ .26 $ .19 $ .67 $ .53 ===================== =====================
Options to purchase shares of common stock which were outstanding during the periods indicated above, but were excluded from the computation of diluted earnings per share because the option purchase price was greater than the average market price of the common shares, were:
Three Months Ended Nine Months Ended September 30 September 30 --------------------- --------------------- 2002 2001 2002 2001 --------------------- --------------------- Number of shares under option - - - 3,333 Range of option purchase prices - - - $15.38
(5) 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 products and other commodities in truckload quantities over irregular routes using dry van trailers. The Regional Short-Haul fleet provides comparable truckload van service within five geographic areas. The Flatbed and Temperature- Controlled fleets provide truckload services for products with specialized trailers. The Dedicated Services fleet provides truckload services required by a specific company, plant, or distribution center. The Company generates non-trucking revenues related to freight transportation management, third-party equipment maintenance, and other business activities. None of these operations meet the quantitative 8 threshold reporting requirements of SFAS No. 131. As a result, these operations are grouped in "Other" in the table below. The Company does not prepare separate balance sheets by segments and, as a result, assets are not separately identifiable by segment. The Company has no significant intersegment sales or expense transactions that would result in adjustments necessary to eliminate amounts between the Company's segments. The following tables summarize the Company's segment information (in thousands of dollars):
Revenues -------- Three Months Ended Nine Months Ended September 30 September 30 --------------------- --------------------- 2002 2001 2002 2001 --------------------- --------------------- Truckload Transportation Services $310,304 $302,839 $917,768 $896,062 Other 25,792 19,779 71,308 53,910 --------------------- --------------------- Total $336,096 $322,618 $989,076 $949,972 ===================== ===================== Operating Income ---------------- Three Months Ended Nine Months Ended September 30 September 30 --------------------- --------------------- 2002 2001 2002 2001 --------------------- --------------------- Truckload Transportation Services $26,847 $20,494 $70,446 $55,998 Other 309 127 1,133 615 --------------------- --------------------- Total $27,156 $20,621 $71,579 $56,613 ===================== =====================
9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This report contains forward-looking statements which are based on information currently available to the Company's management. Actual results could differ materially from those anticipated in forward-looking statements as a result of a number of factors, including, but not limited to, those discussed in Item 7, "Management's Discussion and Analysis of Results of Operations and Financial Condition", of the Company's Annual Report on Form 10-K for the year ended December 31, 2001. The Company assumes no obligation to update any forward-looking statement to the extent it becomes aware that it will not be achieved for any reason. Financial Condition: During the nine months ended September 30, 2002, the Company generated cash flow from operations of $177.8 million, a 10.8% increase ($17.4 million) compared to the same nine-month period a year ago, excluding the $23.4 million refund of income taxes received in first quarter 2001 which resulted from the implementation of certain tax strategies. Including the income tax refund, cash flow from operations was $183.8 million for the nine months ended September 30, 2001. The cash flow from operations enabled the Company to make net property additions, primarily new tractors, of $153.5 million, repurchase common stock of $3.8 million, and pay common stock dividends of $3.7 million. Effective October 1, 2002, newly manufactured truck engines must be compliant with the engine emission standards mandated by the Environmental Protection Agency (EPA), or be subject to a fine imposed by the EPA. All truck engines manufactured prior to October 1, 2002 are not subject to these emission standards. Management's analysis led to significant concerns about the reliability, fuel efficiency, cost and warranties of the new engines. There has been insufficient time to test a significant sample of the new engines for use in the Company's fleet. The Company has already reduced the average age of its already-young company truck fleet from 1.5 years as of December 2001 to 1.2 years as of September 2002. The Company expects to take delivery of new trucks with pre-October engines during fourth quarter 2002. This is expected to further reduce the average age of the company truck fleet to about 1.0 years as of December 2002. Truck purchases in 2003 will be dependent on the results of the Company's further testing and analysis of the new engines, including both the EGR engine manufactured by Detroit Diesel and the ACERT engine manufactured by Caterpillar. To the extent the Company purchases fewer new trucks in 2003, it would likely have fewer used trucks to sell. This could result in the Company recognizing less gains on sale of equipment in 2003. The Company's cash position as of September 2002 was $91.7 million. The Company expects its cash balance will decrease in fourth quarter 2002 due to the scheduled $30 million repayment of debt in November 2002 and net property additions, including the purchase of new trucks with pre-October 2002 engines in fourth quarter 2002, of approximately $80 million to $85 million. The Company intends to fund the new truck purchases and debt repayment in fourth quarter 2002 through existing cash on hand and cash flow from operations. As a result of the fourth quarter 2002 truck purchases, capital expenditures in the first part of 2003 are expected to be lower, and the Company expects to generate free cash flow (cash flow from operations less capital expenditures) in the first part of 2003. The Company's debt to equity ratio at September 30, 2002 was 7.9%, compared with 8.5% at December 31, 2001. The Company's debt to total capitalization ratio (total capitalization equals total debt plus total stockholders' equity) was 7.4% at September 30, 2002 compared to 7.8% at December 31, 2001. As of September 30, 2002, the Company has no equipment operating leases, and, therefore has no off-balance sheet equipment debt. Based on the Company's strong financial position, management foresees no significant barriers to obtaining sufficient financing, if necessary. 10 Results of Operations: The following table sets forth the percentage relationship of income and expense items to operating revenues for the periods indicated.
Three Months Ended Nine Months Ended September 30 September 30 2002 2001 2002 2001 -------------------------------------------- Operating revenues 100.0% 100.0% 100.0% 100.0% -------------------------------------------- Operating expenses: Salaries, wages and benefits 35.8 35.7 36.2 35.7 Fuel 9.6 10.4 8.9 11.0 Supplies and maintenance 8.6 9.8 9.1 9.2 Taxes and licenses 7.3 7.3 7.4 7.3 Insurance and claims 3.9 3.1 3.8 3.3 Depreciation 9.1 9.0 9.0 9.2 Rent and purchased transportation 16.4 17.0 17.1 16.9 Communications and utilities 1.1 1.0 1.1 1.1 Other 0.1 0.3 0.2 0.3 -------------------------------------------- Total operating expenses 91.9 93.6 92.8 94.0 -------------------------------------------- Operating income 8.1 6.4 7.2 6.0 Net interest expense and other 0.1 0.2 0.1 0.3 -------------------------------------------- Income before income taxes 8.0 6.2 7.1 5.7 Income taxes 3.0 2.3 2.7 2.1 -------------------------------------------- Net income 5.0% 3.9% 4.4% 3.6% ============================================
The following table sets forth certain industry data regarding the freight revenues and operations of the Company.
Three Months Ended Nine Months Ended -------------------------------------------------- September 30 % September 30 % 2002 2001 Change 2002 2001 Change -------------------------------------------------- Average monthly miles per tractor 10,283 10,347 (0.6%) 10,308 10,316 (0.1%) Average revenues per total mile (1) $1.242 $1.212 2.5% $1.227 $1.202 2.1% Average revenues per loaded mile (1) $1.372 $1.341 2.3% $1.357 $1.336 1.6% Average percentage of empty miles 9.52% 9.62% (1.0%) 9.60% 10.02% (4.2%) Average tractors in service 7,885 7,735 1.9% 7,914 7,676 3.1% Average revenues per truck per week (1) $2,947 $2,894 1.8% $2,919 $2,861 2.0% Non-trucking revenues (in thousands) $25,792 $19,779 30.4% $71,308 $53,910 32.3% Total tractors (at quarter end) Company 6,900 6,615 6,900 6,615 Owner-operator 1,050 1,135 1,050 1,135 ------- ------- ------- ------- Total tractors 7,950 7,750 7,950 7,750 Total trailers (at quarter end) 20,200 19,800 20,200 19,800 (1) Net of fuel surcharge revenues.
11 Three Months Ended September 30, 2002 Compared to Three Months Ended - --------------------------------------------------------------------------- September 30, 2001 - ------------------ Operating revenues increased 4.2% for the three months ended September 30, 2002, compared to the same period of the prior year, due in part to a 1.9% increase in the average number of tractors in service. Revenues also increased due to an improvement in the rate per total mile of three cents a mile, or 2.5%, compared to the same quarter a year ago. A better economy and tightening truck capacity contributed to the improvement. Over the past several months, we have been meeting with customers to explain the current state of the truckload industry. Both truckload industry and Company margins, while improving, are below acceptable levels for the investment and risk of operating in this industry. We are actively negotiating rate increases. Fuel surcharge revenues, which represent collections from customers for the higher cost of fuel, decreased from $11.8 million in third quarter 2001 to $8.2 million in third quarter 2002 due to lower average fuel prices (see fuel explanation below). Excluding fuel surcharge revenues, trucking revenues increased 3.8% for the three months ended September 30, 2002, compared to the same period of the prior year. Revenue from non-trucking transportation and other services increased by $6.0 million, most of which was due to growth with existing customers. Operating expenses, expressed as a percentage of operating revenues, were 91.9% for the three months ended September 30, 2002, compared to 93.6% for the three months ended September 30, 2001. Owner-operator miles as a percentage of total miles were 14.7% in third quarter 2002 compared to 16.3% in third quarter 2001. 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 challenging operating conditions. During third quarter 2002, the Company had approximately 85 fewer in- service owner-operator trucks compared to third quarter 2001. The majority of this decrease was due to a planned reduction in business with a specific customer in second quarter 2002 that accounted for a decrease of 56 owner- operator trucks and a reduction in trucks with another large owner-operator fleet. Salaries, wages and benefits increased from 35.7% to 35.8% of revenues due in part to an increase in the frequency and cost of workers' compensation claims, higher weekly state workers' compensation payment rates, and an increase in workers' compensation excess insurance premiums. The Company renewed its workers' compensation insurance coverage, and for the policy year beginning April 2002, the Company increased its self- insurance retention from $0.5 million to $1.0 million per claim and has premium-based coverage with a reputable insurance company for claims above this amount. The Company's premiums for this coverage increased by approximately $1.3 million over the premiums from the prior policy year. In addition, the Company added about 100 employees in its maintenance department to reduce the higher cost of over-the-road repairs. The market for attracting and retaining company drivers is becoming more challenging, and the Company anticipates that the competition for qualified drivers will be high and cannot predict whether it will experience shortages in the future. If such a shortage was to occur and increases in driver pay rates became necessary to attract and retain drivers, the Company's results of operations would be negatively impacted to the extent that corresponding freight rate increases were not obtained. Fuel decreased from 10.4% to 9.6% of revenues due to lower fuel prices. Average diesel fuel prices were higher than historical levels, but were five cents per gallon lower in third quarter 2002 compared to third quarter 2001. While fuel prices increased during third quarter 2002 due to pending concerns in the Middle East, fuel prices in third quarter 2001 began to decrease toward the end of the quarter. Fuel prices have begun falling again since the end of third quarter 2002, but as of November 12, 2002, are still ten cents per gallon higher than the fuel prices of November 12, 2001. 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 surcharge programs, which generally adjust weekly based on 12 fuel pricing changes, continued to be in effect during third quarter 2002. After considering the amounts collected from customers through fuel surcharge programs, net of reimbursement to owner-operators, there was a less than $.01 per share negative impact on third quarter 2002 earnings per share compared to third quarter 2001 earnings per share. 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 price levels will increase or decrease in the future or the extent to which fuel surcharges will be collected from customers. As of September 30, 2002, the Company had no derivative financial instruments to reduce its exposure to fuel price fluctuations. Supplies and maintenance decreased from 9.8% to 8.6% of revenues due to (1) less maintenance being performed at a higher cost over-the-road versus being performed at company facilities and (2) improved management of maintenance expenses. The increase in the amount of maintenance being performed at company facilities required the hiring of additional maintenance personnel. See the previous discussion of the increase in salaries, wages and benefits. Insurance and claims increased from 3.1% to 3.9% of revenues due to higher excess insurance retention levels and less favorable claims experience in third quarter 2002. Insurance premiums in the liability insurance market have increased significantly for many truckload carriers. The Company has been self-insured and managed its own claims for liability, cargo, and property damage for over ten years. The Company renewed its annual liability insurance coverage for coverage in excess of $0.5 million per claim effective August 1, 2002. 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 were renewed effective August 1, 2002. For the policy year beginning August 2002, the Company's total premiums for liability insurance remained almost the same as the prior policy year while the Company assumed liability for claims above $3.0 million and below $5.0 million per claim. Liability claims in excess of $5.0 million per claim, if they occur, are covered under premium-based policies with reputable insurance companies. Rent and purchased transportation decreased from 17.0% to 16.4% of revenues due to a reduction in owner-operators and a decrease in payments to owner-operators for fuel reimbursement due to lower fuel costs. The Company reimburses owner-operators for the higher cost of fuel based on fuel surcharge reimbursements collected from customers. This decrease was offset by an increase in purchased transportation for non-trucking services. Other operating expenses decreased from 0.3% to 0.1% of revenues due to improved pricing in the used truck market. Because of truckload carrier concerns with new truck engines and lower industry production of new trucks, the resale value of the Company's premium used trucks has improved. In third quarter 2002 the Company realized gains of $0.6 million on sales of used trucks to third parties through its Fleet Truck Sales retail network compared to losses of $0.1 million in third quarter 2001. The Company's effective income tax rate (income taxes as a percentage of income before income taxes) was 37.5% for the three-month periods ended September 30, 2002 and 2001. Nine Months Ended September 30, 2002 Compared to Nine Months Ended - --------------------------------------------------------------------------- September 30, 2001 - ------------------ Operating revenues increased by 4.1% for the nine months ended September 30, 2002, compared to the same period of the previous year, primarily due to a 3.1% increase in the average number of tractors in service. Revenue per total mile, excluding fuel surcharges, increased 2.1%. Fuel surcharge revenues decreased from $39.4 million to $16.9 million due to lower average fuel prices of approximately 16 cents per gallon. Excluding fuel surcharge revenues, trucking revenues increased 5.2% for the nine months ended September 30, 2002, 13 compared to the same period of the prior year. Revenue from non- trucking transportation and other services increased by $17.4 million. Operating expenses, expressed as a percentage of operating revenues, were 92.8% for the nine months ended September 30, 2002, compared to 94.0% for the same period of the previous year. Salaries, wages and benefits increased from 35.7% to 36.2% of revenues, due to the Company increasing employees in its maintenance department to reduce the higher cost of over-the-road repairs, a higher percentage of company drivers as compared to owner-operators, and an increase in workers' compensation expense due to higher workers' compensation excess insurance premiums and higher weekly state workers' compensation payment rates. Fuel decreased from 11.0% to 8.9% of revenues due to lower fuel prices. Insurance and claims increased from 3.3% to 3.8% of revenues primarily due to higher excess insurance premiums and less favorable claims experience. Rent and purchased transportation increased from 16.9% to 17.1% primarily due to an increase in purchased transportation relating to non-trucking operations, offset by a decrease in payments to owner-operators for fuel reimbursement, and a reduction in the number of owner-operators. Accounting Standards: During June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 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 September 30, 2002, management believes that SFAS 143 will have no significant effect on the financial position, results of operations, and cash flows of the Company. In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statement No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. The provisions of this statement related to the rescission of Statement No. 4 shall be applied in fiscal years beginning after May 15, 2002. As of September 30, 2002, management believes that SFAS 145 will have no significant effect on the financial position, results of operations, and cash flows of the Company. In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002. As of September 30, 2002, management believes that SFAS 146 will have no significant effect on the financial position, results of operations, and cash flows of the Company. Item 3. Quantitative and Qualitative Disclosures About Market Risk. The Company is exposed to market risk from changes in commodity prices. 14 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 surcharge revenues. The Company has implemented customer fuel surcharge programs with most of its revenue base to offset most of the higher fuel cost per gallon. The Company cannot predict the extent to which higher fuel price levels may occur in the future or the extent to which fuel surcharges could be collected to offset such increases. As of September 30, 2002, 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 third quarter 2002 and prior periods. The Company receives payment for freight services performed in Mexico and Canada primarily in U.S. dollars to reduce foreign currency risk. 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. Item 4. Controls and Procedures. Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures, as defined in Exchange Act Rule 15d-14(c). Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in enabling the Company to record, process, summarize and report information required to be included in the Company's periodic SEC filings within the required time period. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date the Company carried out its evaluation. PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K. (i) A report on Form 8-K, filed July 22, 2002, regarding a news release on July 16, 2002, announcing the Company's operating revenues and earnings for the second quarter ended June 30, 2002. (ii) A report on Form 8-K, filed August 6, 2002, providing the sworn statements of the Principal Executive Officer and the Principal Financial Officer required under Section 21(a)(1) of the Securities Exchange Act of 1934. 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WERNER ENTERPRISES, INC. Date: November 13, 2002 By: /s/ John J. Steele ----------------- ----------------------------- John J. Steele Vice President, Treasurer and Chief Financial Officer Date: November 13, 2002 By: /s/ James L. Johnson ----------------- ----------------------------- James L. Johnson Vice President, Controller and Corporate Secretary 16 CERTIFICATIONS - -------------- I, Clarence L. Werner, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Werner Enterprises, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002 ----------------- /s/ Clarence L. Werner - ------------------------ Clarence L. Werner Chairman and Chief Executive Officer 17 CERTIFICATIONS - -------------- I, John J. Steele, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Werner Enterprises, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002 ----------------- /s/ John J. Steele - ------------------------ John J. Steele Vice President, Treasurer, and Chief Financial Officer 18 EX-99.1 3 ceocert3q02.txt WERNER ENTERPRISES, INC. CEO CERTIFICATION Exhibit 99.1 CERTIFICATION BY CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 (SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002) In connection with the Quarterly Report of Werner Enterprises, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2002, (the "Report") filed with the Securities and Exchange Commission, I, Clarence L. Werner, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: 1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. November 13, 2002 /s/ Clarence L. Werner ------------------------ Clarence L. Werner Chairman and Chief Executive Officer EX-99.2 4 cfocert3q02.txt WERNER ENTERPRISES, INC. CFO CERTIFICATION Exhibit 99.2 CERTIFICATION BY CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 (SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002) In connection with the Quarterly Report of Werner Enterprises, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2002, (the "Report") filed with the Securities and Exchange Commission, I, John J. Steele, Vice President, Treasurer, and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: 1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. November 13, 2002 /s/ John J. Steele ----------------------- John J. Steele Vice President, Treasurer, and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----