-----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, FFnFgTQERWFw7PoeQ9IqY8mblW/z5GPVr8rA6QJutfnKNGvMDJbazZTVx29nvvhw 8gJMu1k8ILz+Z5xHcD5Yfw== 0000793074-97-000002.txt : 19970329 0000793074-97-000002.hdr.sgml : 19970329 ACCESSION NUMBER: 0000793074-97-000002 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NASD 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-14690 FILM NUMBER: 97567116 BUSINESS ADDRESS: STREET 1: P O BOX 37308 STREET 2: P O BOX 37308 CITY: OMAHA STATE: NE ZIP: 68137 BUSINESS PHONE: 4028956640 10-K405 1 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, 1996 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.) INTERSTATE 80 & HIGHWAY 50 POST OFFICE BOX 37308 OMAHA, NEBRASKA 68137 (402) 895-6640 (Address of principal (Zip code) (Registrant's 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. [ X ] The aggregate market value of the registrant's $.01 par value common stock held by nonaffiliates of the registrant as of March 14, 1997 was approximately $363,969,551 (based upon $16.875 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 March 14, 1997, 37,993,929 shares of the registrant's common stock were outstanding. Portions of the 1996 Annual Report to Stockholders are incorporated in Parts I, II and IV of this report. Portions of the Proxy Statement of Registrant for the Annual Meeting of Stockholders to be held May 13, 1997 are incorporated in Part III of this report. PART I ITEM 1. BUSINESS General Werner Enterprises, Inc. is a transportation company primarily engaged in hauling truckload shipments of general commodities in both interstate and intrastate commerce, with its headquarters in Omaha, Nebraska. References to "Werner" or the "Company" are to Werner Enterprises, Inc. and its majority-owned subsidiaries. Werner was founded by Clarence L. Werner in 1956 and completed its Initial Public Offering in 1986. The Company operates throughout the 48 contiguous states pursuant to operating authority, both common and contract, granted by the 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 has through trailer service in and out of Mexico. The principal types of freight transported include manufactured goods, retail store merchandise, food products, paper products, beverages, and building materials. Marketing and Operations Werner's business philosophy is to provide "high service, low cost" transportation services. The Company has achieved this by (1) meeting the special needs of its customers; (2) careful attention to its work force; and (3) operating premium, modern equipment. Until 1992, the Company operated in the high-service end of the dry van and flatbed medium-to-long- haul segments of the truckload market which continues to be the Company's major revenue source, accounting for 73% of its total revenue in 1996. In these markets, the Company focuses on shippers who value the broad geographic coverage, customized services and flexibility available from a larger, 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. In order to strengthen these customer relationships and to provide opportunities for profitable growth, the Company began expanding into new markets in 1992. The Company's management analyzed possible new markets based on the following criteria: market size, cost of entry, potential long-term profitability and synergy with the Company's existing business. It was decided to enter into three new markets: regional short-haul, temperature-controlled and dedicated fleet services. Regional short-haul consists of dry-van freight with a shorter length of haul, generally around a major metropolitan area or areas. Temperature-controlled freight requires specialized van trailers for products which are sensitive to temperature conditions. Dedicated fleet services involves assuming total responsibility for the trucking needs of a specific customer and generally 2 replacing their private fleet. In 1993, the Company began offering rail intermodal transportation services, and in 1995 started its Werner Logistics Services division. These service offerings build on the Company's existing strengths in its traditional markets and strategically position the Company to provide a broad range of transportation services for its customers. See "Revenue Equipment" for the number of tractors operated in each of the Company's service divisions. Automation plays an important role in the effectiveness and efficiency of the Company's operations. The information set forth under the caption "Technology" on pages 5 through 7 of the Annual Report is incorporated herein by reference. The Company has a diversified customer base and is not dependent on a small group of customers or a specific industry for its freight. During 1996, the Company's largest 5, 10 and 25 customers comprised approximately 19%, 26%, and 39% of the Company's revenues, respectively. 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 and increased maintenance costs of revenue equipment in colder weather. However, the Company attempts to minimize the impact of seasonality through its marketing program which 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, 1996, the Company employed 5,110 drivers, 470 mechanics and maintenance personnel, and 920 management, administrative and support personnel. The Company also had contracts with independent contractors (owner-operators) for the services of 760 tractors 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 work force is one of its most valuable assets. Most of Werner's drivers are compensated based upon miles driven. The rate they are paid increases with a 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 layovers, for example). Effective January 1, 1997, the Company increased the mileage pay for virtually all of its Company drivers and owner- operators by two cents per mile, a 7% increase. This increase should help the Company to attract and retain qualified drivers to meet its growth plans. Also, a 3 regular schedule of driver/top management meetings was initiated approximately five years ago to share information and concerns and seek mutually satisfactory solutions. As a result of management's attention to driver retention, the Company's driver turnover level is believed to be below the industry average. At times, there are shortages of drivers in the trucking industry, particularly the medium-to-long-haul segment. The Company's management believes that the number of qualified drivers in the industry has been reduced because of the Federal License Program implemented during 1992, elimination of federal funding for driving schools, changes in the demographic composition of the work force, as well as drivers' desires to be home more often. 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 supply their own tractor and driver, and are responsible for their operating expenses. Because owner-operators provide their own tractors, less 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. Revenue Equipment As of December 31, 1996, the Company operated 3,840 Company-owned tractors and had contracts for 760 tractors owned by owner-operators. The tractors as of December 31, 1996 were operated in the Company's service divisions as follows: 3,085 medium-to-long-haul dry vans; 335 medium-to-long-haul flatbeds; 465 regional short-haul vans; 300 temperature-controlled; and 415 dedicated. Approximately 70% of the Company's tractors are manufactured by Freightliner. This standardization 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-owned tractor fleet, the average age was 1.5 years at December 31, 1996. 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-owned tractors, to monitor continued compliance. The Company operated 12,170 trailers at December 31, 1996 in the Company's service divisions as follows: 10,752 dry vans; 722 flatbeds; 627 temperature controlled; and 69 other specialized trailers. As of December 31, 1996, 96% of the Company's fleet of dry van trailers consisted of 53- foot trailers of which 10,040 are the "plate" trailer design which provides more capacity. Other trailer lengths such as 27-foot and 57-foot are also provided by the 4 Company to meet the specialized needs of customers. The average age of the trailer fleet was 2.3 years at December 31, 1996. Fuel Shortages of fuel, increases in fuel prices or rationing of petroleum products could have a materially adverse effect on the operations and profitability of the Company. During 1996, the Company experienced significant increases in the cost of fuel. In April 1996, the Company began efforts to recover a portion of the increased cost of fuel from customers via the use of fuel surcharges. The Company cannot predict whether the higher fuel prices will continue or the extent to which fuel surcharges will be collected to offset such increases. The Company maintains above-ground and underground fuel storage tanks at certain 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 formerly regulated by the Interstate Commerce Commission (ICC). The ICC Termination Act of 1995 transferred regulation of motor carriers to the Surface Transportation Board of the United States Department of Transportation (DOT), which assumed some of the former functions of the ICC effective January 1, 1996, generally governing matters such as registration to engage in motor carrier operations, accounting systems, certain mergers, consolidations, acquisitions, and periodic financial reporting. Motor carrier operations are also subject to safety requirements prescribed by the DOT governing interstate operation. 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 federal Motor Carrier Act of 1980 was enacted to increase competition among motor carriers and limit the level of regulation in the industry (commonly referred to as deregulation). The Motor Carrier Act of 1980 enabled applicants to obtain ICC operating authority more easily and allowed interstate motor carriers to change rates without ICC approval. This law also removed many route and commodity restrictions on the transportation of freight. As a result, 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 43 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 5 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. The Company has a small but growing share (estimated at 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. Deregulation of the trucking industry in 1980 created an influx of truckload carriers which, with other factors, created downward pressure on the industry's price structure. Competition for the freight transported by the Company is based primarily on service and efficiency and, to some degree, on freight rates alone. Few other truckload carriers have greater financial resources, own more equipment or carry a larger volume of freight than the Company. The Company is one of the five largest truckload carriers in the trucking industry. Forward Looking Information The forward-looking statements in this report, which reflect management's best judgment based on factors currently known, involve risks and uncertainties. Actual results could differ materially from those anticipated in the forward-looking statements included herein as a result of a number of factors, including, but not limited to, those discussed in Item 7, "Management's Discussion and Analysis of Results of Operations and Financial Condition", incorporated herein by reference to pages 13 through 15 of the Annual Report. ITEM 2. PROPERTIES Werner's headquarters is located along Interstate 80 just west of Omaha, Nebraska, on approximately 210 acres, 171 of which are held for future expansion. The headquarters consist of the Company's 108,000 square-foot office building, a 5,000 square-foot computer center, and 73,000 square feet of maintenance and repair facilities containing a central parts warehouse, frame straightening and alignment machine, truck and trailer wash areas, 6 equipment safety lanes, body shops for tractors and trailers and a paint booth. Additionally, the maintenance area includes a drivers' lounge, a drivers' orientation section and a Company store. The Company and its subsidiaries own a 22,000 square-foot terminal in Springfield, Ohio, a 32,000 square-foot facility near Denver, a 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 25,000 square-foot terminal in Phoenix. All six locations include office and maintenance space. Additionally, the Company leases several small sales offices and trailer parking yards in various locations throughout the country. ITEM 3. LEGAL PROCEEDINGS The Company is a party to routine litigation incidental to its business, primarily involving claims for personal injury and property damage incurred in the transportation of freight. The Company has assumed liability up to $500,000 per claim and a $1,000,000 annual aggregate amount of liability between $500,000 and $1,000,000 for personal injury and property damage claims. 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. The information set forth in Note (1) "Insurance and Claims Accruals" on page 20, Note (4) "Insurance and Claims" on page 21 and Note (7) "Commitments and Contingencies" on page 23 of the Annual Report is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of 1996, no matters were submitted to a vote of security holders. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information set forth under the captions "Price Range of Common Stock" and "Dividend Policy" on page 24 of the Annual Report, "Consolidated Statements of Stockholders' Equity" on page 19 of the Annual Report, and Note (1) "Common Stock and Earnings Per Share" on page 21 of the Annual Report is incorporated herein by reference. 7 ITEM 6. SELECTED FINANCIAL DATA The information set forth under the caption "Financial Highlights" on page 1 of the Annual Report is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The information set forth under the caption "Management's Discussion and Analysis of Results of Operations and Financial Condition" on pages 13 through 15 of the Annual Report is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information set forth under the captions "Consolidated Statements of Income", "Consolidated Balance Sheets", "Consolidated Statements of Cash Flows", "Consolidated Statements of Stockholders' Equity", "Report of Independent Public Accountants", and "Notes to Consolidated Financial Statements", on pages 16 through 23 of the Annual Report is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE No reports on Form 8-K have been filed within the twenty-four months prior to December 31, 1996, involving a change of accountants or disagreements on accounting and financial disclosure. PART III Certain information required by Part III is omitted from this report on Form 10-K in that the Company will file a definitive proxy statement pursuant to Regulation 14A (Proxy Statement) not later than 120 days after the end of the fiscal year covered by this report on Form 10-K, and certain information included therein is incorporated herein by reference. Only those sections of the Proxy Statement which specifically address the items set forth herein are incorporated by reference. Such incorporation does not include the Compensation Committee Report or the Performance Graph included in the Proxy Statement. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item is incorporated herein by reference to the Company's Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated herein by reference to the Company's Proxy Statement. 8 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated herein by reference to the Company's Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated herein by reference to the Company's Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements and Schedules. (1) Financial Statements: See Part II, Item 8 hereof. (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 Report of Independent Public Accountants on Schedule 13 Schedule II - Valuation and Qualifying Accounts 14 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). (b) Reports on Form 8-K: There were no reports on Form 8-K filed by the Company during the fourth quarter of 1996. FORM 11-K INFORMATION INCLUDED HEREIN RELATED TO STOCK OPTION AND EMPLOYEE STOCK PURCHASE 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. The options are exercisable over a period (determined by the Option Committee of the Board of Directors) not to exceed 9 ten years and one day from the date of grant. Stock appreciation rights may also be granted at the same time as participants are awarded stock options. Stock appreciation rights are exercisable at a time when the related options may be exercised. The maximum number of shares of common stock that may be optioned under the Stock Option Plan is 3,000,000 shares. Additionally, the maximum number of shares which may be optioned to any one person under the Stock Option Plan is 750,000 shares. Members of the Option Committee are not eligible to participate in the Stock Option Plan while members of the Option Committee. Current members of the Option Committee are: Clarence L. Werner Irving B. Epstein Werner Enterprises, Inc. Epstein & Epstein P.O. Box 37308 Suite 123 Omaha, NE 68137 10050 Regency Circle Omaha, NE 68114 Curtis G. Werner Martin F. Thompson Werner Enterprises, Inc. 5145 S. 184th Plaza P.O. Box 37308 Omaha, NE 68135 Omaha, NE 68137 These persons do not receive compensation for their services as members of the Option Committee, except outside directors, who receive a fee of $2,000 for each meeting of the Option Committee they attend if not held on a day on which a meeting of the Board of Directors is held. The information set forth in Note (6) "Stock Option and Employee Benefit Plans" on pages 22 and 23 of the Annual Report is incorporated herein by reference. No stock appreciation rights are outstanding. All employees to whom options were granted were provided with a copy of the Stock Option Plan, as well as the Company's most recent Annual Report. Employee Stock Purchase Plan Any person employed by the Company or any subsidiary at least 90 days and who is employed at least 20 hours per week on a regular basis may participate in the Company's Employee Stock Purchase Plan (the Purchase Plan). Eligible participants designate the amount of regular payroll deductions and/or a single annual payment, subject to a $1,950 yearly maximum amount, that will be 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. Interest accrues on Purchase Plan contributions at a rate of 5.25%. The broker's commissions and administrative charges related to purchases of common stock under the Purchase Plan are paid by the Company. As of December 31, 1996, 510 employees were participating in the Purchase Plan. 10 The administrator of the Purchase Plan is John J. Steele, Vice President, Treasurer and Chief Financial Officer of the Company, Post Office Box 37308, Omaha, Nebraska 68137. Mr. Steele has received no compensation for his services as administrator. The broker utilized by the Company to make purchases under the Purchase Plan is Smith Barney, Inc., 388 Greenwich Street, New York, New York 10013. The total amount of compensation received by Smith Barney, Inc. from the Purchase Plan for services in all capacities during the year ended December 31, 1996 was $5,066. Participants are provided with a copy of the Purchase Plan's Prospectus, as well as the Company's most recent Annual Report and any quarterly reports prepared since the Annual Report. Following each purchase under the Purchase Plan, each participant receives a statement from the broker detailing the number of shares purchased, the purchase price, and the accumulated number of shares owned by the participant. 11 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 26th day of March, 1997. 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 26, 1997 Clarence L. Werner Executive Officer and Director /s/ Gary L. Werner Vice Chairman, President and March 26, 1997 Gary L. Werner Director /s/ Curtis G. Werner Vice Chairman - Corporate March 26, 1997 Curtis G. Werner Development and Director /s/ Gregory L. Werner Executive Vice President and March 26, 1997 Gregory L. Werner Director /s/ John J. Steele Vice President, Treasurer and March 26, 1997 John J. Steele Chief Financial Officer /s/ James L. Johnson Corporate Secretary and March 26, 1997 James L. Johnson Controller /s/ Irving B. Epstein Director March 26, 1997 Irving B. Epstein /s/ Martin F. Thompson Director March 26, 1997 Martin F. Thompson /s/ Gerald H. Timmerman Director March 26, 1997 Gerald H. Timmerman /s/ Donald W. Rogert Director March 26, 1997 Donald W. Rogert 12 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE To the Stockholders and Board of Directors of Werner Enterprises, Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Werner Enterprises, Inc.'s annual report to stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 23, 1997. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14(a)(2) of this Form 10-K is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated 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 consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Omaha, Nebraska, January 23, 1997 13 SCHEDULE II WERNER ENTERPRISES, INC. VALUATION AND QUALIFYING ACCOUNTS (In thousands) Balance Charged Write- Balance At To Off At Beginning Costs Of End Of And Doubtful Of Period Expenses Accounts Period ------ -------- -------- ------ Year ended December 31, 1996: Allowance for doubtful accounts $3,240 $606 $487 $3,359 ===================================== Year ended December 31, 1995: Allowance for doubtful accounts $2,791 $606 $157 $3,240 ===================================== Year ended December 31, 1994: Allowance for doubtful accounts $2,552 $455 $216 $2,791 ===================================== 14 EXHIBIT INDEX Exhibit Number Description Page Number or Incorporated by 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(ii) Revised and Amended Exhibit 3(ii) to the Company's report on By-Laws Form 10-K for the year ended December 31, 1994 10 Amended and Restated Exhibit 10 to the Company's report on Form Stock Option Plan 10-Q for the quarter ended May 31, 1994 13 Incorporated by Page 16 of sequentially numbered pages reference sections of Annual Report to Stockholders for the year ended December 31, 1996 21 Subsidiaries of the Page 32 of sequentially numbered pages Registrant 23 Consent of Arthur Page 33 of sequentially numbered pages Andersen LLP 27 Financial Data Page 34 of sequentially numbered pages Schedule 15 EX-13 2
Financial Highlights (Dollars in thousands, except per share amounts) 1996 1995 1994 1993 1992 Operating revenues $643,274 $576,022 $516,006 $418,308 $361,791 Income before cumulative effect of change in accounting principle 40,555 36,380 36,662 29,964 24,138 Net income 40,555 36,380 36,662 29,964 23,084 Earnings per share* 1.07 .96 .97 .85 .71 Cash dividends declared per share .09 .08 .07 .06 .05 Return on average stockholders' equity* 12.4% 12.5% 14.1% 15.9% 15.9% Operating ratio 89.7% 89.4% 88.3% 87.8% 88.7% Book value per share* 9.17 8.18 7.31 6.45 4.75 Total assets 549,211 507,679 453,637 373,375 288,664 Long-term obligations 30,000 40,000 30,000 - 7,009 Stockholders' equity 348,371 309,052 276,414 245,004 162,872 * After giving retroactive effect for the August 1996, three-for-two stock split (all years presented) and before the cumulative effect of a change in accounting principle in 1992.
1 TECHNOLOGY Thanks in part to our innovative use of technology, Werner is a leader in the transportation industry. We have earned the reputation of being a proactive carrier because rather than waiting for problems to occur, we prevent them from happening. We have implemented numerous automated processes that help move a customer's shipment from its origin to its final destination. Satellite communication, load optimization, driver hours-of-service, and EDI (Electronic Data Interchange) are just a few of the many advanced technologies that Werner has capitalized on over the past year. SATELLITE COMMUNICATION Werner Enterprises installed satellite communications devices in its entire truck fleet over four years ago. The primary function of this technology is to serve as an instantaneous, accurate communication link between our driver and the company; provide automatic load tracking; and monitor the driver and tractor's operating performance. Shipment information is available to the driver via a computer terminal within the cab. Comprehensive messages sent by satellite, including the shipper's profile, special delivery instructions, recommended travel routes, and even weather reports, can be received by the driver without having to leave the cab. Since this information is communicated in writing, misunderstandings are greatly reduced. Automatic load tracking allows Werner to pinpoint the location of each tractor within a city block throughout the continental United States and southern Canada. Positions are received from each truck at least every hour that show its location by latitude and longitude. 5 Since our computer keeps a history of these reports, it calculates the truck speed by deducting the distance from one reading to the next within the time frame that has lapsed. This information not only serves as a tool to pre- determine arrival and departure times accurately, it also serves as a safeguard for our drivers in emergency situations. Our satellite communication also plays a vital role in helping us prevent expensive mechanical problems by automatically monitoring each tractor for more than a dozen mechanical faults, including low oil pressure or low engine coolant. This "fail-safe" system automatically sends a message to headquarters if a tractor's engine is not performing within acceptable parameters. The driver is simultaneously alerted by satellite to shut down and contact headquarters immediately. Each year, Werner, and ultimately its customers, reap tremendous benefits from satellite communication as advanced applications are developed and further improved to fit Werner's specific needs. Examples of some applications that are used on a daily basis include: load optimization, drop and swap, and our driver hours-of-service program. LOAD OPTIMIZATION Matching an optimum load to the best truck can be a difficult task, particularly when there are thousands of trucks and loads to consider. But with the assistance of a computerized "decision support system," it can be accomplished effectively within a matter of moments. Our load optimization software analyzes raw data and makes truck-to-load recommendations. Using "real time data," this software considers over 150 different factors before making the best truck/load recommendation. Load origin and destination, rate, empty mile factor, driver's home needs, transit time, maintenance, and equip- ment availability are examples of the types of factors that are considered before assigning a load. Our marketing managers then view and evaluate which recommendation is the most beneficial to the customer, the driver, and the company. DROP AND SWAP Customer satisfaction and driver home-time satisfaction are two end results of our drop-and-swap computer program. This program allows Werner to preplan which loads can be "swapped" while en route to meet our driver's home- time needs without compromising our customer's delivery needs. The program offers a number of recommendations, as well as the benefits and disadvantages of each swap. Drop-and-swap coordinators, adding the human factor, make the final decision. In addition, the drop-and-swap program continually monitors delivery activity and works to eliminate inefficiencies of empty miles whenever possible. 6 DRIVER HOURS-OF-SERVICE Werner has gained national attention within the trucking industry for its proprietary driver hours-of-service system. This program automatically projects the time required to pick up and deliver a load, and it alerts the company of any potential hours-of-service concerns before a driver is assigned. This program gives us more accurate assignment projections while keeping our drivers safe, productive, and in compliance with federal Department of Transportation regulations. EDI EDI (Electronic Data Interchange) is the computer-to-computer exchange of information between Werner and our customers. This form of communication moves information faster and more accurately while reducing paper work, phone calls, manual data entry, faxes, postage, and handling costs. Improved customer service, improved shipment tracking and carrier performance reporting, and improved billing cycles are just a few of the benefits derived by EDI. Approx- imately 30 percent of all incoming orders are currently transmitted by EDI, and it is a requirement to conduct business with a growing number of our larger customers. DOCUMENT IMAGING In an effort to move towards a paperless work environment while improving customer billing procedures, Werner has implemented an "optical image process" or document imaging system. This computer-enhanced process benefits the company by resulting in: better billing accuracy because of more efficient processing and improved cash flow, greater customer satisfaction due to a retrieval process that takes only a matter of seconds, and it helps the company be proactive in meeting staffing needs since peak workloads can be more accurately predicted. With document imaging, trip documents are scanned, stored, and processed by the Werner computer system as images that are merged into a billing state- ment. Since the images are saved to laser optical disk, which is the same size as a compact laser disk, they can be electronically routed within the company and retrieved within a matter of seconds. Each optical laser disk can hold 30,000 pages--equivalent to a stack of paper that is 15 feet high. In addition to our customer billing department, our safety department also utilizes document imaging to store, track, and internally route driver applica- tions, including Department of Motor Vehicle records and work histories. The company will be expanding document imaging to other areas within the organiza- tion that will benefit from this technology. 7 WERNER ENTERPRISES
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. 1996 1995 1994 Operating revenues 100.0% 100.0% 100.0% ------------------------------------- Operating expenses Salaries, wages and benefits 34.9 36.2 35.6 Fuel 9.6 8.2 8.2 Supplies and maintenance 8.3 8.8 8.8 Taxes and licenses 8.0 8.6 8.7 Insurance and claims 2.9 3.5 3.3 Depreciation 10.1 10.6 10.4 Rent and purchased transportation 15.2 13.1 12.1 Communications and utilities 1.3 1.4 1.8 Other (.6) (1.0) (.6) ------------------------------------- Total operating expenses 89.7 89.4 88.3 ------------------------------------- Operating income 10.3 10.6 11.7 Net interest expense and other .1 .2 .1 ------------------------------------- Income before income taxes 10.2 10.4 11.6 Income taxes 3.9 4.1 4.5 ------------------------------------- Net income 6.3% 6.3% 7.1% =====================================
THE FOLLOWING TABLE SETS FORTH CERTAIN INDUSTRY DATA REGARDING THE FREIGHT REVENUES AND OPERATIONS OF THE COMPANY.
1996 1995 1994 1993 1992 Operating ratio 89.7% 89.4% 88.3% 87.8% 88.7% Average revenues per tractor per week (1) $2,710 $2,606 $2,563 $2,507 $2,533 Average annual miles per tractor 126,221 121,728 120,312 122,304 124,992 Average miles per trip 808 785 835 881 959 Average revenues per mile (1) $1.116 $1.113 $1.108 $1.066 $1.054 Total tractors operated (at year end) Company owned 3,840 3,674 3,473 3,085 2,678 Owner-operator owned 760 676 527 442 222 ----------------------------------------------- Total tractors 4,600 4,350 4,000 3,527 2,900 =============================================== Total trailers operated (at year end) 12,170 11,060 10,300 8,420 6,573 ===============================================
(1) Net of fuel surcharge revenues. 13 WERNER ENTERPRISES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS 1996 Compared to 1995 Operating revenues increased by 12%, due primarily to a 6% increase in the average number of tractors in service and a 4% increase in the average miles per tractor. The increase in average miles per tractor is attributable to an increase in freight serviced by team drivers, management focus on maximizing equipment utilization, and improved freight demand. The growth in team driver freight largely contributed to a 3% increase in the average miles per trip. Increased revenues from logistics transportation services and the implementation of a fuel surcharge to recover the higher cost of fuel beginning in April 1996 also contributed, to a lesser extent, to the increase in operating revenues. The Company's operating ratio (operating expenses expressed as a percentage of operating revenues) increased slightly from 89.4% to 89.7%, as described below. Owner-operator tractors represented a larger percentage of total tractors in service during 1996 (17%), compared to 1995 (15%), which caused a shift in expenses from the salaries, wages and benefits; fuel; supplies and maintenance; taxes and licenses; and depreciation categories (owner-operators are independent contractors and are responsible for these costs under their contracts with the Company) to the rent and purchased transportation category. The increase in logistics transportation services also contributed to the shift in costs to rent and purchased transportation. Salaries, wages and benefits decreased as a percentage of revenues primarily due to an increase in the percentage of owner-operator tractors and increased revenues from logistics services, partially offset by reductions in the estimated liability for accrued driver payroll of approximately $2.9 million during 1995. On November 8, 1996, the Company announced that it increased the pay for virtually all of its Company drivers and owner-operators by two cents per mile, effective January 1, 1997. The Company has been contacting customers to explain the reasons for the pay increase in an effort to obtain rate increases. The Company cannot predict the extent to which rate increases will be obtained to offset the additional cost associated with the pay increase. Fuel costs increased from 8.2% to 9.6% of revenues due mainly to a 24% increase in average fuel prices, partially offset by the increased percentage of owner-operator tractors. In April 1996, the Company began efforts to recover a portion of the increased cost of fuel from customers via the use of fuel surcharges. The higher average fuel prices, net of fuel surcharges collected from customers, resulted in a $.12 per share decrease in earnings for 1996 compared to 1995. The Company cannot predict whether the higher fuel prices will continue, or the extent to which fuel surcharges will be collected to offset such increases. Supplies and maintenance decreased from 8.8% to 8.3% of revenues, due primarily to the increased percentage of owner- operator tractors and the increase in logistics transportation revenues. Taxes and licenses decreased from 8.6% to 8.0% of revenues, principally due to the increased percentage of owner-operators, increase in logistics revenues, and refunds of state sales taxes. Insurance and claims decreased from 3.5% to 2.9% of revenues primarily due to improved accident claims experience during 1996. Depreciation decreased from 10.6% to 10.1% of revenues due primarily to the increased percentage of owner-operator tractors, increased tractor utilization, and the effect of a change in the estimated salvage value of certain trailers effective April 1995. Other operating expenses changed from (1.0%) to (.6%) of revenues due to a decrease in gains realized on the sale of revenue equipment to third parties. The Company's effective income tax rate (income taxes as a percentage of income before income taxes) was 38.2% for 1996, compared with 39.0% for 1995, as described in Note 5 of the Notes to Consolidated Financial Statements. 1995 Compared to 1994 Operating revenues increased 12% due primarily to a 10% increase in the average number of tractors in service and increased revenue from intermodal and logistics transportation services. Average miles per tractor increased 1%, mostly due to increased empty miles resulting from softer freight demand. Year over year growth in the Company's regional short-haul and dedicated fleet divisions contributed to a 6% decrease in the average miles per trip, and a 17% increase in the total number of shipments, although growth in the regional division was scaled back later in 1995 as freight demand softened. The Company's operating ratio increased from 88.3% to 89.4%, as described below. 14 WERNER ENTERPRISES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Salaries, wages and benefits increased as a percentage of operating revenues primarily due to a 2 cent per mile (or about 9%) driver pay increase effective May 1, 1994; the retention of more experienced, higher paid drivers; and increased employee health benefit costs. These increases were partially offset by reductions in the estimated liability for accrued driver payroll of approximately $2.9 million during 1995. Fuel costs were comparable to 1994, as slightly higher average fuel prices were offset by improved fuel efficiency. Supplies and maintenance costs were also comparable as a percentage of operating revenues, as reduced driver advertising and tire expenses were offset by increased third- party loading and unloading costs. Taxes and licenses were slightly lower as a percentage of operating revenues, due primarily to the effect of increased revenues from intermodal and logistics transportation services. Insurance and claims expense increased slightly from 3.3% to 3.5% of revenues due principally to accident claims experience in 1995. Depreciation increased from 10.4% to 10.6% of revenues due primarily to the November 1994 purchase of satellite tracking equipment which had previously been leased, and a higher average trailer to tractor ratio during 1995, partially offset by the effect of a change in the estimated salvage value for certain trailers (See "Property, Equipment and Depreciation" in Note 1 of the Notes to Consolidated Financial Statements). Rent and purchased transportation increased by 1.0% of revenues due mainly to an increase in the use of intermodal and logistics services. The average percentage of owner- operator tractors to total tractors was comparable to the prior year, and therefore did not cause significant fluctuations between years in this expense category. Communications and utilities decreased from 1.8% to 1.4% of revenues, essentially due to the purchase of previously leased satellite tracking equipment. Other operating expenses decreased to (1.0%) of revenues due to increased gains recognized on the sale of revenue equipment to third parties. Interest expense increased from .2% to .4% of revenues, due to an increase in the average outstanding amount of long- term borrowings. The Company's effective income tax rate was 39.0% for 1995, compared with 38.9% for 1994, as described in Note 5 of the Notes to Consolidated Financial Statements. Liquidity and Capital Resources Historically, the Company has relied primarily on cash generated from operations to fund working capital requirements. The growth of the Company's business has required significant investment in new revenue equipment. Net capital expenditures in 1996, 1995 and 1994 were $86.2 million, $95.5 million and $117.4 million, respectively. The 1996 capital expenditures were financed primarily with cash generated from operations. The 1995 and 1994 capital expenditures were financed primarily with cash generated from operations and, to a lesser extent, borrowings. The Company has committed to approximately $34 million of capital expenditures (after trade-in allowances) which is a portion of its estimated 1997 capital expenditures. The Company expects to fund these expenditures primarily with cash generated from operations. 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 financial position is strong. The current ratio is 1.97. The Company has $30 million of long-term debt and $348 million in 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. Forward-Looking Statements This report contains forward-looking statements which 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 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; and the amount and severity of accident claims. General economic conditions and weather conditions may also significantly affect the Company's results, as its equipment utilization depends on the level of business activity of shippers in a variety of industries. 15 WERNER ENTERPRISES CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts) 1996 1995 1994 Operating revenues (Note 1) $643,274 $576,022 $516,006 ------------------------------------ Operating expenses: Salaries, wages and benefits 224,721 208,669 183,851 Fuel 61,611 47,431 42,017 Supplies and maintenance 53,337 50,646 45,593 Taxes and licenses 51,807 49,636 44,729 Insurance and claims 18,927 19,776 17,208 Depreciation (Note 1) 65,010 61,195 53,722 Rent and purchased transportation 97,525 75,229 62,522 Communications and utilities 8,164 8,086 9,338 Other (3,958) (5,662) (3,211) ------------------------------------ Total operating expenses 577,144 515,006 455,769 ------------------------------------ Operating income 66,130 61,016 60,237 ------------------------------------ Other expense (income): Interest expense 2,063 2,317 743 Interest income (1,709) (1,072) (649) Other 112 132 161 ------------------------------------ Total other expense 466 1,377 255 ------------------------------------ Income before income taxes 65,664 59,639 59,982 Income taxes (Notes 1 and 5) 25,109 23,259 23,320 ------------------------------------ Net income $ 40,555 $ 36,380 $ 36,662 ==================================== Average common shares outstanding (Note 1) 37,873 37,757 37,954 ==================================== Earnings per share (Note 1) $1.07 $.96 $.97 ====================================
The accompanying notes are an integral part of these consolidated financial statements. 16 WERNER ENTERPRISES CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts) December 31 1996 1995 ASSETS Current assets: Cash and cash equivalents (Note 1) $ 22,136 $ 16,227 Accounts receivable, less allowance of $3,359 and $3,240, respectively 67,928 57,871 Prepaid taxes, licenses, and permits 7,753 7,752 Current deferred income taxes (Notes 1 and 5) 6,800 6,500 Other 11,547 12,645 ----------------------- Total current assets 116,164 100,995 ----------------------- Property and equipment, at cost (Note 1) Land 16,598 16,499 Buildings and improvements 30,127 26,471 Revenue equipment 480,008 435,159 Service equipment and other 52,342 48,079 ----------------------- Total property and equipment 579,075 526,208 Less - accumulated depreciation 146,028 119,524 ----------------------- Property and equipment, net 433,047 406,684 ----------------------- $549,211 $507,679 ======================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 19,025 $ 15,719 Insurance and claims accruals (Notes 1 and 4) 19,758 19,073 Accrued payroll 8,970 7,718 Income taxes payable 3,752 3,226 Driver escrow 3,064 3,368 Other 4,496 5,087 ----------------------- Total current liabilities 59,065 54,191 ----------------------- Long-term debt (Note 3) 30,000 40,000 Deferred income taxes (Notes 1 and 5) 82,500 75,700 Insurance and claims accruals (Notes 1 and 4) 27,000 26,000 Other long-term liabilities 2,275 2,736 Commitments and contingencies (Note 7) Stockholders' equity (Notes 1 and 6): Common stock, $.01 par value, 60,000,000 shares authorized; 38,656,773 and 38,656,800 shares issued; 37,988,079 and 37,771,224 shares outstanding, respectively 387 258 Paid-in capital 101,528 100,294 Retained earnings 251,976 214,959 Less - treasury stock, at cost (5,520) (6,459) ----------------------- Total stockholders' equity 348,371 309,052 ----------------------- $549,211 $507,679 =======================
The accompanying notes are an integral part of these consolidated financial statements. 17 WERNER ENTERPRISES CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) 1996 1995 1994 Cash flows from operating activities: Net income $ 40,555 $ 36,380 $ 36,662 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 65,010 61,195 53,722 Deferred income taxes 6,500 8,700 11,800 Gain on disposal of operating equipment (5,156) (6,921) (4,042) Tax benefit from exercise of stock options 788 123 107 Long-term liabilities 539 4,300 1,046 Changes in certain working capital items: Accounts receivable, net (10,057) (5,349) (7,219) Prepaid expenses and other current assets 1,097 (1,403) (3,659) Accounts payable 3,306 (2,845) 5,816 Accrued payroll 1,252 (2,170) 2,098 Other current liabilities 122 1,794 2,974 ----------------------------------- Net cash provided by operating activities 103,956 93,804 99,305 ----------------------------------- Cash flows from investing activities: Additions to property and equipment (117,599) (131,585) (145,369) Retirements of property and equipment 31,382 36,088 27,950 ----------------------------------- Net cash used in investing activities (86,217) (95,497) (117,419) ----------------------------------- Cash flows from financing activities: Proceeds from issuance of debt - 10,000 30,000 Repayments of long-term debt and capitalized lease obligations (10,000) - (4,552) Dividends on common stock (3,344) (2,895) (2,659) Repurchases of common stock - (1,013) (2,939) Stock options exercised 1,514 168 109 ----------------------------------- Net cash provided by (used in) financing activities (11,830) 6,260 19,959 ----------------------------------- Net increase in cash and cash equivalents 5,909 4,567 1,845 Cash and cash equivalents, beginning of year 16,227 11,660 9,815 ----------------------------------- Cash and cash equivalents, end of year $ 22,136 $ 16,227 $ 11,660 =================================== Supplemental disclosures of cash flow information: Cash paid during year for: Interest $ 3,398 $ 3,294 $ 640 Income taxes 15,904 15,822 10,508
The accompanying notes are an integral part of these consolidated financial statements. 18 WERNER ENTERPRISES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts) (Note 1) Total Common Paid-In Retained Treasury Stockholders' Stock Capital Earnings Stock Equity BALANCE, December 31, 1993 $ 258 $100,044 $147,466 $ (2,764) $245,004 Purchases of 192,900 shares of common stock - - - (2,939) (2,939) Dividends on common stock ($.07 per share) - - (2,529) - (2,529) Exercise of stock options, 19,050 shares - 127 - 89 216 Net income - - 36,662 - 36,662 ------------------------------------------------------- BALANCE, December 31, 1994 258 100,171 181,599 (5,614) 276,414 Purchases of 75,000 shares of common stock - - - (1,013) (1,013) Dividends on common stock ($.08 per share) - - (3,020) - (3,020) Exercise of stock options, 36,000 shares - 123 - 168 291 Net income - - 36,380 - 36,380 ------------------------------------------------------- BALANCE, December 31, 1995 258 100,294 214,959 (6,459) 309,052 Dividends on common stock ($.09 per share) - - (3,538) - (3,538) Exercise of stock options, 216,886 shares - 1,363 - 939 2,302 Net income - - 40,555 - 40,555 Three-for-two stock split (Note 1) 129 (129) - - - ------------------------------------------------------- BALANCE, December 31, 1996 $ 387 $101,528 $251,976 $ (5,520) $348,371 =======================================================
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Werner Enterprises, Inc.: We have audited the accompanying consolidated balance sheets of Werner Enterprises, Inc. (a Nebraska corporation) and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. 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 audits. We conducted our audits in accordance with generally accepted auditing standards. 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 financial statements referred to above present fairly, in all material respects, the financial position of Werner Enterprises, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Omaha, Nebraska, January 23, 1997. 19 WERNER ENTERPRISES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business Werner Enterprises, Inc. (the Company) is a 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 entities have been eliminated. 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. 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. At the time of trade-in, 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 7 years for revenue equipment and 3 to 8 years for service equipment and other. The Company periodically reviews its estimates related to the useful lives and salvage values of its revenue equipment. Effective April 1, 1995, the Company changed, on a prospective basis, the estimated salvage value for certain trailers. This change was to better reflect the value of used equipment and lower trailer utilization due to a higher trailer to tractor ratio and a decrease in the average miles per trip. The change resulted in a decrease in depreciation expense of approximately $2,600,000 and an increase in net income of approximately $1,600,000 ($.04 per share) for the year ended December 31, 1995. Tires Tires placed on new revenue equipment are capitalized as a part of the equipment cost. Replacement tires are expensed when placed in service. 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, while the costs of group health and workers' compensation claims are included in salaries, wages and benefits in the Consolidated Statements of Income. Revenue Recognition The Consolidated Statements of Income reflect recognition of operating revenues and related direct costs when the shipment is delivered. 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 20 WERNER ENTERPRISES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 On August 9, 1996, the Company issued shares for a three- for-two common stock split effected in the form of a 50% stock dividend from authorized and unissued shares to stockholders of record on July 26, 1996. All references in the Consolidated Financial Statements and Notes to Consolidated Financial Statements with regard to the number of shares of common stock and the per share amounts have been adjusted to reflect the effect of the stock split. The stated par value of common stock of $.01 per share did not change. Earnings per share have been computed based on the weighted average number of common shares outstanding. (2) LEASE OBLIGATIONS In September 1992, the Company entered into a three-year operating lease for communications equipment. In November 1994, the Company purchased this equipment and terminated the lease agreement. Communications and utilities expense in the accompanying Consolidated Statements of Income includes $4,247,000 for lease of communications equipment during 1994. (3) LONG-TERM DEBT The Company had borrowings of $30,000,000 at December 31, 1996 and 1995 under a long-term credit facility. The credit facility bears variable interest (6.0% at December 31, 1996) based on the London Interbank Offered Rate (LIBOR) or the overnight federal funds rate, at the Company's option, and matures in June 1998. The facility requires, among other things, that the Company not exceed a maximum ratio of indebtedness to total capitalization of .6 to 1. In June 1995, the Company borrowed $10,000,000 under a separate long-term credit facility. This was repaid during 1996. The carrying amount of the Company's long-term debt approximates fair value due to its variable interest rates. (4) INSURANCE AND CLAIMS The Company annually reviews its public liability and property damage insurance coverage in August. Effective August 1992, the Company assumed responsibility for liability up to $500,000, plus administrative expenses, for each occurrence involving personal injury or property damage. Effective August 1993, the Company also assumed responsibility for a $1,000,000 annual aggregate amount of liability for claims between $500,000 and $1,000,000. Liability in excess of these amounts is assumed by the insurance carriers in amounts which management considers adequate. The Company's public liability and property damage premiums for coverage between $50,000 and $1,000,000 per claim prior to August 1992 are subject to retrospective adjustments based on actual incurred losses until all claims are settled. Management does not expect any significant adjustment will be made to the premiums paid or accrued for these policy years. The Company has assumed responsibility for workers' compensation, maintains a $6,000,000 bond, has statutory coverage and has obtained insurance for individual claims above $500,000. Under these insurance arrangements, the Company maintains $10,500,000 in letters of credit, as of December 31, 1996. (5) INCOME TAXES Income tax expense consists of the following (in thousands): 1996 1995 1994 Current ------------------------- Federal $17,109 $12,472 $ 9,364 State 1,500 2,087 2,156 ------------------------- 18,609 14,559 11,520 ------------------------- Deferred Federal 4,465 6,887 9,804 State 2,035 1,813 1,996 ------------------------- 6,500 8,700 11,800 ------------------------- Total income tax expense $25,109 $23,259 $23,320 ========================= 21 WERNER ENTERPRISES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (5) INCOME TAXES, CONTINUED The effective income tax rate differs from the federal corporate tax rate of 35% in 1996, 1995 and 1994 as follows (in thousands): 1996 1995 1994 ------------------------------ Tax at statutory rate $22,982 $20,874 $20,994 State income taxes, net of federal tax benefits 2,298 2,535 2,699 Other, net (171) (150) (373) ------------------------------ $25,109 $23,259 $23,320 ============================== At December 31, deferred tax assets and liabilities consisted of the following (in thousands): 1996 1995 Deferred tax assets: ------------------ Insurance and claims accruals $18,713 $17,981 Allowance for uncollectible accounts 1,341 1,300 Other 2,971 3,230 ------------------ $23,025 $22,511 ================== Deferred tax liabilities: Property and equipment $94,384 $87,314 Prepaid taxes, licenses and insurance 3,869 3,944 Other 472 453 ------------------ $98,725 $91,711 ================== (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 sixty-six 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 3,000,000 shares. At December 31, 1996, 1,107,227 shares were available for granting further options. At December 31, 1996, 1995 and 1994, options for 481,611, 586,856 and 454,200 shares with weighted average exercise prices of $9.79, $7.73 and $5.01 were exercisable, respectively. The following table summarizes Stock Option Plan activity for the three years ended December 31, 1996: Options Outstanding ----------------------------- Weighted-Average Shares Exercise Price ----------------------------- Balance, December 31, 1993 1,140,150 $10.85 Options exercised (19,050) 5.74 Options canceled (21,000) 14.60 ---------- Balance, December 31, 1994 1,100,100 10.87 Options granted 437,136 13.08 Options exercised (36,000) 4.67 Options canceled (15,750) 15.00 ---------- Balance, December 31, 1995 1,485,486 11.62 Options exercised (216,886) 6.98 Options canceled (58,313) 14.72 ---------- Balance, December 31, 1996 1,210,287 12.31 ========== The following table summarizes information about stock options outstanding at December 31, 1996: Options Outstanding --------------------------------------------------- Weighted-Average Weighted-Average Range of Number Remaining Exercise Exercise Prices Outstanding Contractual Life Price - ---------------------------------------------------------------------- $5.00 to $5.92 257,850 1.0 years $ 5.12 $13.08 to $16.00 952,437 7.5 years 14.25 --------- 1,210,287 6.2 years 12.31 ========= Options Exercisable -------------------------------- Weighted-Average Range of Number Exercise Exercise Prices Exercisable Price -------------------------------- $5.00 to $5.92 257,850 $ 5.12 $13.08 to $16.00 223,761 15.18 -------- 481,611 9.79 ======== The Company applies 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 1995 was estimated using the Black-Scholes option-pricing model with the following assumptions: risk- free interest rate of 6 percent; dividend yield of 0.5 percent; expected life of 5.5 years; and volatility of 30 percent. The weighted-average fair value of options granted during 1995 was $4.97 per share. 22 WERNER ENTERPRISES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 (in thousands): 1996 1995 1994 Net income: ----------------------------- As reported $40,555 $36,380 $36,662 Pro forma $40,125 $36,282 $36,662 Earnings per share: As reported $1.07 $.96 $.97 Pro forma $1.06 $.96 $.97 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 $67,704, $79,977 and $58,072 for 1996, 1995 and 1994, respectively. Interest accrues on Purchase Plan contributions at a rate of 5.25%. The broker's commissions and administrative charges related to purchases of common stock under the Purchase Plan are paid by the Company. 401(k) Retirement Savings Plan The Company has an Employees' 401(k) Retirement Savings Plan (the 401(k) Plan). Employees are eligible to participate in the 401(k) Plan if they have been continuously employed with the Company or its subsidiaries for six months or more. The Company matches a portion of the amount each employee contributes to the 401(k) Plan. It is the Company's intention, but not its obligation, that the Company's total annual contribution for employees will equal 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 $1,030,248, $952,129 and $950,740 for 1996, 1995 and 1994, respectively. (7) COMMITMENTS AND CONTINGENCIES The Company has committed to approximately $34,000,000 of capital expenditures (net cost, after revenue equipment trade-in allowances of approximately $17,000,000) which is a portion of its estimated 1997 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 condition of the Company. (8) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share amounts) First Quarter Second Quarter Third Quarter Fourth Quarter - ------------------------------------------------------------------------------------------------------- 1996: - ----------------------------- Operating revenues $147,903 $159,640 $167,155 $168,576 Operating income 12,235 16,645 19,238 18,012 Net income 7,288 10,023 11,732 11,512 Earnings per share .19 .27 .31 .30 1995: - ----------------------------- Operating revenues $132,434 $143,325 $150,303 $149,960 Operating income 12,598 14,380 17,009 17,029 Net income 7,512 8,578 10,125 10,165 Earnings per share .20 .23 .27 .27
23 WERNER ENTERPRISES CORPORATE INFORMATION 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 from January 1, 1995, through December 31, 1996. - ------------------------------ High Low 1996 ------------- Quarter ended: March 31* 16.50 12.83 June 30* 17.58 14.50 September 30* 18.75 15.42 December 31 18.25 15.63 1995 Quarter ended: March 31* 17.17 12.49 June 30* 14.17 11.67 September 30* 15.33 12.67 December 31* 14.67 12.33 - ------------------------------ *After giving retroactive effect for the three-for-two stock split in August 1996. As of February 21, 1997, the Company's common stock was held by 248 stockholders of record and approximately 5,900 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 intends to continue 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. Corporate Offices Werner Enterprises, Inc. Interstate 80 & Highway 50 P.O. Box 37308 Omaha, Nebraska 68137 Telephone: (402) 895-6640 http://www.werner.com e-mail: werner@werner.com Annual Meeting The Annual Meeting will be held on Tuesday, May 13, 1997 at 10:00 a.m. in the Peter Kiewit Conference Center, 1313 Farnam Street, Omaha, Nebraska. Stock Listing The Company's common stock trades on the Nasdaq National Market tier of The Nasdaq Stock Market under the symbol WERN. Independent Public Accountants Arthur Andersen LLP 1700 Farnam Street Omaha, Nebraska 68102 Stock Transfer Agent and Registrar ChaseMellon Shareholder Services, L.L.C. Overpeck Centre 85 Challenger Road Ridgefield Park, NJ 07660 Telephone: (800)288-9541 http://www.cmssonline.com Form 10-K A copy of the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission may be obtained by calling or writing the Investor Relations Department, P.O. Box 37308, Omaha, Nebraska 68137, (402) 895-6640. 24 EX-21 3 EXHIBIT 21 SUBSIDIARIES OF WERNER ENTERPRISES, INC. STATE OF SUBSIDIARY INCORPORATION 1. Werner Leasing, Inc. Nebraska 2. Werner Aire, Inc. Nebraska 3. Gra-Gar, Inc. Nebraska 4. Drivers Management, Inc. Nebraska 5. Frontier Clinic, Inc. Nebraska 6. Fleet Truck Sales, Inc. Nebraska 7. Professional Truck Drivers School, Inc. Nebraska 8. Werner Transportation, Inc. Nebraska 9. Worley Enterprises, Inc. Nebraska 32 EX-23 4 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included and incorporated by reference 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 26, 1997 33 EX-27 5
5 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 22,136 0 67,928 0 0 116,164 579,075 146,028 549,211 59,065 0 0 0 387 347,984 549,211 643,274 643,274 0 577,144 (1,597) 0 2,063 65,664 25,109 40,555 0 0 0 40,555 1.07 1.07
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