WERNER ENTERPRISES INC 10-Q

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. The interim consolidated financial statements have been prepared in accordance with the U.S. Securities and Exchange Commission (“SEC”) instructions to Form 10-Q and were also prepared without audit. The interim consolidated financial statements do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements; although in management’s opinion, the disclosures are adequate so that the information presented is not misleading. Operating results for the three-month and nine-month periods ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. 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 and notes thereto should be read in conjunction with the consolidated financial statements and accompanying notes contained in our 2019 Form 10-K. 3 Table of Contents WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF INCOME Three Months Ended September 30, Nine Months Ended September 30, (In thousands, except per share amounts) 2020 2019 2020 2019 (Unaudited) Operating revenues $ 590,214 $ 618,264 $ 1,751,876 $ 1,841,914 Operating expenses: Salaries, wages and benefits 197,151 209,586 598,129 618,386 Fuel 37,933 59,518 117,381 176,720 Supplies and maintenance 44,015 46,907 133,079 136,963 Taxes and licenses 24,032 24,244 70,835 70,788 Insurance and claims 23,307 21,930 85,160 65,631 Depreciation 62,980 62,620 199,487 184,816 Rent and purchased transportation 131,843 134,797 378,989 413,809 Communications and utilities 3,797 3,892 11,141 11,806 Other 3,053 1,413 11,688 3,177 Total operating expenses 528,111 564,907 1,605,889 1,682,096 Operating income 62,103 53,357 145,987 159,818 Other expense (income): Interest expense 887 2,408 3,639 4,695 Interest income ( 323 ) ( 756 ) ( 1,326 ) ( 2,648 ) Other 55 47 123 ( 11 ) Total other expense (income) 619 1,699 2,436 2,036 Income before income taxes 61,484 51,658 143,551 157,782 Income taxes 15,152 12,614 35,029 39,334 Net income $ 46,332 $ 39,044 $ 108,522 $ 118,448 Earnings per share: Basic $ 0.67 $ 0.56 $ 1.57 $ 1.70 Diluted $ 0.67 $ 0.56 $ 1.56 $ 1.69 Weighted-average common shares outstanding: Basic 69,097 69,198 69,148 69,684 Diluted 69,449 69,600 69,500 70,053 See Notes to Consolidated Financial Statements (Unaudited). 4 Table of Contents WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2020 2019 2020 2019 (Unaudited) Net income $ 46,332 $ 39,044 $ 108,522 $ 118,448 Other comprehensive income (loss): Foreign currency translation adjustments 782 ( 1,065 ) ( 8,182 ) 79 Change in fair value of interest rate swaps, net of tax 401 ( 1,440 ) ( 5,819 ) ( 1,651 ) Other comprehensive income (loss) 1,183 ( 2,505 ) ( 14,001 ) ( 1,572 ) Comprehensive income $ 47,515 $ 36,539 $ 94,521 $ 116,876 See Notes to Consolidated Financial Statements (Unaudited). 5 Table of Contents WERNER ENTERPRISES, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands, except share amounts) September 30, 2020 December 31, 2019 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 40,476 $ 26,418 Accounts receivable, trade, less allowance of $ 8,854 and $ 7,921 , respectively 337,897 322,846 Other receivables 28,937 52,221 Inventories and supplies 9,354 9,243 Prepaid taxes, licenses and permits 7,328 16,757 Other current assets 40,129 38,849 Total current assets 464,121 466,334 Property and equipment 2,384,537 2,343,536 Less – accumulated depreciation 857,106 817,260 Property and equipment, net 1,527,431 1,526,276 Other non-current assets 148,584 151,254 Total assets $ 2,140,136 $ 2,143,864 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 104,041 $ 94,634 Current portion of long-term debt — 75,000 Insurance and claims accruals 81,024 69,810 Accrued payroll 42,885 38,347 Other current liabilities 28,258 31,049 Total current liabilities 256,208 308,840 Long-term debt, net of current portion 175,000 225,000 Other long-term liabilities 48,362 21,129 Insurance and claims accruals, net of current portion 234,797 228,218 Deferred income taxes 245,632 249,669 Commitments and contingencies Stockholders’ equity: Common stock, $ 0.01 par value, 200,000,000 shares authorized; 80,533,536 shares issued; 69,097,926 and 69,244,525 shares outstanding, respectively 805 805 Paid-in capital 114,074 112,649 Retained earnings 1,384,474 1,294,608 Accumulated other comprehensive loss ( 28,729 ) ( 14,728 ) Treasury stock, at cost; 11,435,610 and 11,289,011 shares, respectively ( 290,487 ) ( 282,326 ) Total stockholders’ equity 1,180,137 1,111,008 Total liabilities and stockholders’ equity $ 2,140,136 $ 2,143,864 See Notes to Consolidated Financial Statements (Unaudited). 6 Table of Contents WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended September 30, (In thousands) 2020 2019 (Unaudited) Cash flows from operating activities: Net income $ 108,522 $ 118,448 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 199,487 184,816 Deferred income taxes ( 2,358 ) 8,413 Gain on disposal of property and equipment ( 7,293 ) ( 14,530 ) Non-cash equity compensation 6,003 6,346 Insurance and claims accruals, net of current portion 6,579 15,840 Other 21,771 ( 4,527 ) Changes in certain working capital items: Accounts receivable, net ( 15,051 ) 14,552 Other current assets ( 1,335 ) 5,667 Accounts payable 6,477 ( 532 ) Other current liabilities 23,594 ( 2,308 ) Net cash provided by operating activities 346,396 332,185 Cash flows from investing activities: Additions to property and equipment ( 294,448 ) ( 375,202 ) Proceeds from sales of property and equipment 107,185 103,543 Decrease in notes receivable 6,277 9,247 Net cash used in investing activities ( 180,986 ) ( 262,412 ) Cash flows from financing activities: Repayments of short-term debt ( 75,000 ) — Repayments of long-term debt ( 50,000 ) ( 50,000 ) Proceeds from issuance of long-term debt — 275,000 Change in net checks issued in excess of cash balances — 8,902 Dividends on common stock ( 18,669 ) ( 279,962 ) Repurchases of common stock ( 8,798 ) ( 42,301 ) Tax withholding related to net share settlements of restricted stock awards ( 3,941 ) ( 1,191 ) Stock options exercised — 171 Net cash used in financing activities ( 156,408 ) ( 89,381 ) Effect of exchange rate fluctuations on cash ( 1,968 ) 32 Net increase (decrease) in cash, cash equivalents and restricted cash 7,034 ( 19,576 ) Cash, cash equivalents and restricted cash, beginning of period 33,442 33,930 Cash, cash equivalents and restricted cash, end of period $ 40,476 $ 14,354 Supplemental disclosures of cash flow information: Interest paid $ 3,882 $ 4,361 Income taxes paid 36,880 41,038 Supplemental schedule of non-cash investing and financing activities: Notes receivable issued upon sale of property and equipment $ 2,283 $ 5,542 Change in fair value of interest rate swaps ( 5,819 ) ( 1,651 ) Property and equipment acquired included in accounts payable 24,068 8,847 Property and equipment disposed included in other receivables 5,183 1,486 Dividends accrued but not yet paid at end of period 6,219 6,229 See Notes to Consolidated Financial Statements (Unaudited). 7 Table of Contents WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands, except share and per share amounts) Common Stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Stockholders’ Equity (Unaudited) BALANCE, December 31, 2019 $ 805 $ 112,649 $ 1,294,608 $ ( 14,728 ) $ ( 282,326 ) $ 1,111,008 Comprehensive income — — 23,058 ( 15,490 ) — 7,568 Purchases of 282,992 shares of common stock — — — — ( 8,798 ) ( 8,798 ) Dividends on common stock ($ 0.09 per share) — — ( 6,218 ) — — ( 6,218 ) Equity compensation activity, 125,203 shares — ( 4,360 ) — — 430 ( 3,930 ) Non-cash equity compensation expense — 2,406 — — — 2,406 BALANCE, March 31, 2020 805 110,695 1,311,448 ( 30,218 ) ( 290,694 ) 1,102,036 Comprehensive income — — 39,132 306 — 39,438 Dividends on common stock ($ 0.09 per share) — — ( 6,219 ) — — ( 6,219 ) Equity compensation activity, 10,297 shares — ( 199 ) — — 194 ( 5 ) Non-cash equity compensation expense — 1,138 — — — 1,138 BALANCE, June 30, 2020 805 111,634 1,344,361 ( 29,912 ) ( 290,500 ) 1,136,388 Comprehensive income — — 46,332 1,183 — 47,515 Dividends on common stock ($ 0.09 per share) — — ( 6,219 ) — — ( 6,219 ) Equity compensation activity, 893 shares — ( 19 ) — — 13 ( 6 ) Non-cash equity compensation expense — 2,459 — — — 2,459 BALANCE, September 30, 2020 $ 805 $ 114,074 $ 1,384,474 $ ( 28,729 ) $ ( 290,487 ) $ 1,180,137 See Notes to Consolidated Financial Statements (Unaudited). 8 Table of Contents WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands, except share and per share amounts) Common Stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Stockholders’ Equity (Unaudited) BALANCE, December 31, 2018 $ 805 $ 107,455 $ 1,413,746 $ ( 16,073 ) $ ( 241,180 ) $ 1,264,753 Comprehensive income — — 36,086 513 — 36,599 Purchases of 600,000 shares of common stock — — — — ( 20,545 ) ( 20,545 ) Dividends on common stock ($ 0.09 per share) — — ( 6,290 ) — — ( 6,290 ) Equity compensation activity, 46,129 shares — ( 1,578 ) — — 399 ( 1,179 ) Non-cash equity compensation expense — 2,051 — — — 2,051 BALANCE, March 31, 2019 805 107,928 1,443,542 ( 15,560 ) ( 261,326 ) 1,275,389 Comprehensive income — — 43,318 420 — 43,738 Purchases of 700,000 shares of common stock — — — — ( 21,756 ) ( 21,756 ) Dividends on common stock ($ 3.84 per share) — — ( 267,331 ) — — ( 267,331 ) Equity compensation activity, 6,901 shares — ( 140 ) — — 130 ( 10 ) Non-cash equity compensation expense — 2,314 — — — 2,314 BALANCE, June 30, 2019 805 110,102 1,219,529 ( 15,140 ) ( 282,952 ) 1,032,344 Comprehensive income — — 39,044 ( 2,505 ) — 36,539 Dividends on common stock ($ 0.09 per share) — — ( 6,229 ) — — ( 6,229 ) Equity compensation activity, 9,712 shares — ( 19 ) — — 188 169 Non-cash equity compensation expense — 1,981 — — — 1,981 BALANCE, September 30, 2019 $ 805 $ 112,064 $ 1,252,344 $ ( 17,645 ) $ ( 282,764 ) $ 1,064,804 See Notes to Consolidated Financial Statements (Unaudited). 9 Table of Contents WERNER ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) Accounting Policies New Accounting Pronouncements Adopted In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements,” which requires measurement and recognition of expected versus incurred credit losses for financial assets. The Company adopted ASU 2016-13 as of January 1, 2020. Upon adoption, this update had no effect on our financial position, results of operations and cash flows. In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement,” which modifies the disclosure requirements on fair value measurements. As part of its disclosure framework project, the FASB has eliminated, amended and added disclosure requirements for fair value measurements in Topic 820, Fair Value Measurement. The Company adopted ASU 2018-13 as of January 1, 2020. Upon adoption, this update had no effect on our consolidated financial statements. In August 2018, the FASB issued ASU No. 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force),” which updates the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract to align with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted ASU 2018-15 as of January 1, 2020. Upon adoption, this update had no effect on our financial position, results of operations and cash flows. Accounting Standards Updates Not Yet Effective In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which reduces complexity in accounting for income taxes by removing certain exceptions to the general principles stated in Topic 740 and by clarifying and amending existing guidance to improve consistent application of and simplify other areas of Topic 740. The provisions of this update are effective for fiscal years beginning after December 15, 2020. Although we are evaluating the impact of adopting ASU No. 2019-12 on our financial position, results of operations and cash flows, we do not expect a material effect upon adoption. In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848)” which provides optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting. The provisions of this update are effective for all entities as of March 12, 2020 through December 31, 2022 and apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. We are evaluating the impact of the optional expedients in this update and their applicability to modifications of our existing credit facilities and hedging relationships that reference LIBOR. 10 Table of Contents (2) Revenue Revenue Recognition Revenues are recognized over time as control of the promised services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. The following table presents our revenues disaggregated by revenue source (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Truckload Transportation Services $ 458,256 $ 480,351 $ 1,368,172 $ 1,423,201 Werner Logistics 117,351 121,331 339,678 369,584 Inter-segment eliminations ( 30 ) ( 1 ) ( 55 ) ( 240 ) Transportation services 575,577 601,681 1,707,795 1,792,545 Other revenues 14,637 16,583 44,081 49,369 Total revenues $ 590,214 $ 618,264 $ 1,751,876 $ 1,841,914 The following table presents our revenues disaggregated by geographic areas in which we conduct business (in thousands). Operating revenues for foreign countries include revenues for (i) shipments with an origin or destination in that country and (ii) other services provided in that country. If both the origin and destination are in a foreign country, the revenues are attributed to the country of origin. Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 United States $ 534,978 $ 551,008 $ 1,581,474 $ 1,631,861 Mexico 36,708 49,031 111,174 153,803 Other 18,528 18,225 59,228 56,250 Total revenues $ 590,214 $ 618,264 $ 1,751,876 $ 1,841,914 Contract Balances and Accounts Receivable A receivable is an unconditional right to consideration and is recognized when shipments have been completed and the related performance obligation has been fully satisfied. At September 30, 2020 and December 31, 2019, the accounts receivable, net, balance was $ 337.9 million and $ 322.8 million, respectively. Contract assets represent a conditional right to consideration in exchange for goods or services and are transferred to receivables when the rights become unconditional. At September 30, 2020 and December 31, 2019, the balance of contract assets was $ 7.8 million and $ 5.9 million, respectively. We have recognized contract assets within the other current assets financial statement caption on the balance sheet. These contract assets are considered current assets as they will be settled in less than 12 months. Contract liabilities represent advance consideration received from customers and are recognized as revenues over time as the related performance obligation is satisfied. The balance of contract liabilities was $ 1.0 million as of September 30, 2020 and $ 1.3 million as of December 31, 2019. The amount of revenues recognized in the nine months ended September 30, 2020 that was included in the December 31, 2019 contract liability balance was $ 1.3 million . We have recognized contract liabilities within the accounts payable and other current liabilities financial statement captions on the balance sheet. These contract liabilities are considered current liabilities as they will be settled in less than 12 months. Performance Obligations We have elected to apply the practical expedient in ASC Topic 606 to not disclose the value of remaining performance obligations for contracts with an original expected length of one year or less. Remaining performance obligations represent the transaction price allocated to future reporting periods for freight shipments started but not completed at the reporting date that we expect to recognize as revenue in the period subsequent to the reporting date; transit times generally average approximately 3 days. During the nine months ended September 30, 2020 and September 30, 2019, revenues recognized from performance obligations related to prior periods (for example, due to changes in transaction price) were not material. 11 Table of Contents (3) Leases We have entered into operating leases primarily for real estate. The leases have terms which range from 1 year to 11 years, and some include options to renew. Renewal terms are included in the lease term when it is reasonably certain that we will exercise the option to renew. Operating leases are included in other non-current assets, other current liabilities and other long-term liabilities on the consolidated condensed balance sheets. These assets and liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date, using our incremental borrowing rate because the rate implicit in each lease is not readily determinable. We have certain contracts for real estate that may contain lease and non-lease components which we have elected to treat as a single lease component. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Variable lease expense is recognized in the period in which the obligation for those payments is incurred. Lease expense is reported in rent and purchased transportation on the consolidated statements of income. The following table presents information about the amount, timing and uncertainty of cash flows arising from our operating leases as of September 30, 2020. (In thousands) September 30, 2020 Maturity of Lease Liabilities 2020 (remaining) $ 904 2021 3,546 2022 2,622 2023 1,635 2024 1,404 Thereafter 1,442 Total undiscounted operating lease payments $ 11,553 Less: Imputed interest ( 766 ) Present value of operating lease liabilities $ 10,787 Balance Sheet Classification Right-of-use assets (recorded in other non-current assets) $ 10,417 Current lease liabilities (recorded in other current liabilities) 3,327 Long-term lease liabilities (recorded in other long-term liabilities) 7,460 Total operating lease liabilities $ 10,787 Other Information Weighted-average remaining lease term for operating leases 4.00 years Weighted-average discount rate for operating leases 3.38 % Cash Flows An initial right-of-use asset of $ 8.7 million was recognized as a non-cash asset addition with the adoption of the new lease accounting standard on January 1, 2019. During the nine months ended September 30, 2020 and September 30, 2019, additional right-of-use assets of $ 2.4 million and $ 3.6 million, respectively, were recognized as non-cash asset additions that resulted from new operating lease liabilities. Cash paid for amounts included in the present value of operating lease liabilities was $ 3.0 million and $ 2.7 million during the nine months ended September 30, 2020 and September 30, 2019, respectively, and is included in operating cash flows. Operating Lease Expense Operating lease expense was $ 2.7 million and $ 6.8 million for the three and nine months ended September 30, 2020, respectively, and $ 2.0 million and $ 6.2 million for the three and nine months ended September 30, 2019, respectively. This expense included $ 0.9 million and $ 2.8 million for the three and nine months ended September 30, 2020, respectively, and $ 0.9 12 Table of Contents million and $ 2.7 million for the three and nine months ended September 30, 2019, respectively, for long-term operating leases, with the remainder for variable and short-term lease expense . Lessor Operating Leases We are the lessor of tractors and trailers under operating leases with initial terms of 2 to 10 years. We recognize revenue for such leases on a straight-line basis over the term of the lease. Revenues were $ 3.0 million and $ 9.4 million for the three and nine months ended September 30, 2020, respectively, and $ 3.6 million and $ 10.4 million for the three and nine months ended September 30, 2019, respectively. The following table presents information about the maturities of these operating leases as of September 30, 2020. (In thousands) September 30, 2020 2020 (remaining) $ 2,746 2021 6,809 2022 56 2023 — 2024 — Thereafter — Total $ 9,611 (4) Credit Facilities As of September 30, 2020, we had unsecured committed credit facilities with two banks. We had with Wells Fargo Bank, N.A. a $ 300.0 million credit facility which will expire on May 14, 2024 . We also had a $ 200.0 million credit facility with BMO Harris Bank N.A., which will expire on May 14, 2024 . Our unsecured line of credit with U.S. Bank, N.A. expired on July 13, 2020 . Borrowings under these credit facilities bear variable interest based on the London Interbank Offered Rate (“LIBOR”). As of September 30, 2020 and December 31, 2019, our outstanding debt totaled $ 175.0 million and $ 300.0 million, respectively. We had $ 25.0 million outstanding under the credit facilities at a variable interest rate of 0.83 % as of September 30, 2020. We had (i) an additional $ 75.0 million outstanding under the Wells Fargo Bank, N.A. credit facility at a variable rate of 0.83 % as of September 30, 2020, which is effectively fixed at 2.32 % with an interest rate swap agreement through May 14, 2024 and (ii) an additional $ 75.0 million outstanding under the BMO Harris Bank N.A. credit facility at a variable rate of 0.86 % as of September 30, 2020, which is effectively fixed at 2.36 % with an interest rate swap agreement through May 14, 2024 . The $ 500.0 million of borrowing capacity under our credit facilities at September 30, 2020, is further reduced b y $ 44.6 million in stand-by letters of credit under which we are obligated. Each of the debt agreements includes, among other things, financial covenants requiring us (i) to exceed a minimum ratio of earnings before interest, income taxes, depreciation and amortization to interest expense and/or (ii) not to exceed a maximum ratio of total funded debt to earnings before interest, income taxes, depreciation and amortization (as such terms are defined in each credit facility). At September 30, 2020, we were in compliance with these covenants. At September 30, 2020, the aggregate future maturities of long-term debt by year are as follows (in thousands): 2020 $ — 2021 — 2022 — 2023 — 2024 175,000 Total $ 175,000 The carrying amounts of our long-term debt approximate fair value due to the duration of the notes and the variable interest rates. 13 Table of Contents (5) Commitments and Contingencies As of September 30, 2020, we have committed to property and equipment purchases of approximately $ 133.6 million. We are involved in certain claims and pending litigation, including those described herein, arising in the ordinary course of business. The majority of these claims relate to bodily injury, property damage, cargo and workers’ compensation incurred in the transportation of freight, as well as certain class action litigation related to personnel and employment matters. We accrue for the uninsured portion of contingent losses from these and other pending claims when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Based on the knowledge of the facts, management believes the resolution of claims and pending litigation, taking into account existing reserves, will not have a material adverse effect on our consolidated financial statements. Moreover, the results of complex legal proceedings are difficult to predict, and our view of these matters may change in the future as the litigation and related events unfold. On May 17, 2018, in Harris County District Court in Houston, Texas, a jury rendered an adverse verdict against Werner Enterprises, Inc. (the “Company”) in a lawsuit arising from a December 30, 2014 accident between a Werner tractor-trailer and a passenger vehicle. On July 30, 2018, the court entered a final judgment against Werner for $ 92.0 million, including pre-judgment interest. The Company has premium-based liability insurance to cover the potential outcome from this jury verdict. Under the Company’s insurance policies in effect on the date of this accident, the Company’s maximum liability for this accident is $ 10.0 million (plus pre-judgment and post-judgment interest) with premium-based coverage that exceeds the jury verdict amount. As a result of this jury verdict, the Company had recorded a liability of $ 22.4 million as of September 30, 2020, and $ 18.8 million as of December 31, 2019. Under the terms of the Company’s insurance policies, the Company is the primary obligor of the verdict, and as such, the Company has also recorded a $ 79.2 million receivable from its third-party insurance providers in other non-current assets and a corresponding liability of the same amount in the long-term portion of insurance and claims accruals in the consolidated balance sheets as of September 30, 2020 and December 31, 2019. The Company is pursuing an appeal of this verdict. No assurances can be given regarding the outcome of any such appeal. We have been involved in class action litigation in the U.S. District Court for the District of Nebraska, in which the plaintiffs allege that we owe drivers for unpaid wages under the Fair Labor Standards Act (“FLSA”) and the Nebraska Wage Payment and Collection Act and that we failed to pay minimum wage per hour for drivers in our Career Track Program, related to short break time and sleeper berth time. The period covered by this class action suit is August 2008 through March 2014. The case was tried to a jury in May 2017, resulting in a verdict of $ 0.8 million in plaintiffs’ favor on the short break matter and a verdict in our favor on the sleeper berth matter. As a result of various post-trial motions, the court awarded $ 0.5 million to the plaintiffs for attorney fees and costs. As of September 30, 2020, we had accrued for the jury’s award, attorney fees and costs in the short break matter and had not accrued for the sleeper berth matter. Plaintiffs appealed the post-verdict amounts awarded by the trial court for fees, costs and liquidated damages, and the Company filed a cross appeal on the verdict that was in plaintiffs’ favor. The United States Court of Appeals for the Eighth Circuit denied Plaintiffs’ appeal and granted Werner’s appeal, vacating the judgment in favor of the plaintiffs. The appellate court sent the case back to the trial court for proceedings consistent with the appellate court’s opinion. On June 22, 2020, the trial court denied Plaintiffs’ request for a new trial and entered judgment in favor of the Company, dismissing the case with prejudice. On July 21, 2020, Plaintiffs’ counsel filed a notice of appeal of that dismissal. We are also involved in certain class action litigation in which the plaintiffs allege claims for failure to provide meal and rest breaks, unpaid wages, unauthorized deductions and other items. Based on the knowledge of the facts, management does not currently believe the outcome of these class actions is likely to have a material adverse effect on our financial position or results of operations. However, the final disposition of these matters and the impact of such final dispositions cannot be determined at this time. 14 Table of Contents (6) Earnings Per Share Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and restricted stock awards. There are no differences in the numerators of our computations of basic and diluted earnings per share for any periods presented. The computation of basic and diluted earnings per share is shown below (in thousands, except per share amounts). Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Net income $ 46,332 $ 39,044 $ 108,522 $ 118,448 Weighted average common shares outstanding 69,097 69,198 69,148 69,684 Dilutive effect of stock-based awards 352 402 352 369 Shares used in computing diluted earnings per share 69,449 69,600 69,500 70,053 Basic earnings per share $ 0.67 $ 0.56 $ 1.57 $ 1.70 Diluted earnings per share $ 0.67 $ 0.56 $ 1.56 $ 1.69 There were no options to purchase shares of common stock that were outstanding during the periods indicated above that 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 during the period. Performance awards are excluded from the calculation of dilutive potential common shares until the threshold performance conditions have been satisfied. (7) Equity Compensation The Werner Enterprises, Inc. Amended and Restated Equity Plan (the “Equity Plan”), approved by the Company’s shareholders, provides for grants to employees and non-employee directors of the Company in the form of nonqualified stock options, restricted stock and units (“restricted awards”), performance awards, and stock appreciation rights. The Board of Directors or the Compensation Committee of our Board of Directors determines the terms of each award, including the type, recipients, number of shares subject to and vesting conditions of each award. No awards of stock appreciation rights have been issued under the Equity Plan to date. The maximum number of shares of common stock that may be awarded under the Equity Plan is 20,000,000 shares. The maximum aggregate number of shares that may be awarded to any one person in any one calendar year under the Equity Plan is 500,000 . As of September 30, 2020, there were 6,686,021 shares available for granting additional awards. Equity compensation expense is included in salaries, wages and benefits within the Consolidated Statements of Income. As of September 30, 2020, the total unrecognized compensation cost related to non-vested equity compensation awards was approximately $ 11.0 million and is expected to be recognized over a weighted average period of 1.8 years . The following table summarizes the equity compensation expense and related income tax benefit recognized in the Consolidated Statements of Income (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Restricted awards: Pre-tax compensation expense $ 1,375 $ 1,310 $ 3,863 $ 3,786 Tax benefit 351 335 985 966 Restricted stock expense, net of tax $ 1,024 $ 975 $ 2,878 $ 2,820 Performance awards: Pre-tax compensation expense $ 1,086 $ 680 $ 2,149 $ 2,577 Tax benefit 277 173 548 657 Performance award expense, net of tax $ 809 $ 507 $ 1,601 $ 1,920 15 Table of Contents We do not have a formal policy for issuing shares upon an exercise of stock options or vesting of restricted and performance awards. Such shares are generally issued from treasury stock. From time to time, we repurchase shares of our common stock, the timing and amount of which depends on market and other factors. Historically, the shares acquired from such repurchases have provided us with sufficient quantities of stock to issue for equity compensation. Based on current treasury stock levels, we do not expect to repurchase additional shares specifically for equity compensation during 2020. Stock Options Stock options are granted at prices equal to the market value of the common stock on the date the option award is granted. No stock option awards were outstanding as of September 30, 2020. There were no stock option awards granted or exercised in the nine-month period ended September 30, 2020. No stock options were granted in the nine-month period ended September 30, 2019, and the total intrinsic value of stock options exercised in the nine-month period ended September 30, 2019 was $ 136 thousand. Restricted Awards Restricted stock entitles the holder to shares of common stock when the award vests. Restricted stock units entitle the holder to a combination of cash or stock equal to the value of common stock when the unit vests. The value of these shares may fluctuate according to market conditions and other factors. Restricted awards currently outstanding vest over periods ranging from 12 to 60 months from the grant date of the award. The restricted awards do not confer any voting or dividend rights to recipients until such shares vest and do not have any post-vesting sales restrictions. The following table summarizes restricted award activity for the nine months ended September 30, 2020: Number of Restricted Awards (in thousands) Weighted Average Grant Date Fair Value ($) Nonvested at beginning of period 369 $ 32.83 Granted 151 38.43 Vested ( 87 ) 32.86 Forfeited ( 44 ) 35.52 Nonvested at end of period 389 34.70 We estimate the fair value of restricted awards based upon the market price of the underlying common stock on the date of grant, reduced by the present value of estimated future dividends because the awards are not entitled to receive dividends prior to vesting. Our estimate of future dividends is based on the most recent quarterly dividend rate at the time of grant, adjusted for any known future changes in the dividend rate. Cash settled restricted stock units are recorded as a liability within the Consolidated Balance Sheets and are adjusted to fair value each reporting period. The total fair value of previously granted restricted awards vested during the nine-month periods ended September 30, 2020 and September 30, 2019 was $ 3.4 million and $ 1.8 million , respectively. We withheld shares based on the closing stock price on the vesting date to settle the employees’ statutory obligation for the applicable income and other employment taxes. The shares withheld to satisfy the tax withholding obligations were recorded as treasury stock. Performance Awards Performance awards entitle the recipient to shares of common stock upon attainment of performance objectives as pre-established by the Compensation Committee. If the performance objectives are achieved, performance awards currently outstanding vest, subject to continued employment, 36 months after the grant date of the award. The performance awards do not confer any voting or dividend rights to recipients until such shares vest and do not have any post-vesting sales restrictions. 16 Table of Contents The following table summarizes performance award activity for the nine months ended September 30, 2020: Number of Performance Awards (in thousands) Weighted Average Grant Date Fair Value ($) Nonvested at beginning of period 327 $ 28.75 Granted 100 37.65 Vested ( 151 ) 23.61 Forfeited ( 47 ) 34.44 Nonvested at end of period 229 34.68 The 2020 performance awards are earned based upon the level of attainment by the Company of specified performance objectives related to cumulative diluted earnings per share for the two-year period from January 1, 2020 to December 31, 2021. Shares earned based on cumulative diluted earnings per share may be capped based on absolute total shareholder return during the three-year period ended December 31, 2022. The 2020 performance awards will vest in one installment on the third anniversary from the grant date. In January 2020, the Compensation Committee determined the 2017 fiscal year performance objectives were achieved at a level above the target level; the additional shares earned above the target level were included in 2019 shares granted. We estimate the fair value of performance awards based upon the market price of the underlying common stock on the date of grant, reduced by the present value of estimated future dividends because the awards are not entitled to receive dividends prior to vesting. Our estimate of future dividends is based on the most recent quarterly dividend rate at the time of grant, adjusted for any known future changes in the dividend rate. The vesting date fair value of performance awards that vested during the nine-month periods ended September 30, 2020 and September 30, 2019 was $ 5.8 million and $ 1.2 million, respectively. We withheld shares based on the closing stock price on the vesting date to settle the employees’ statutory obligation for the applicable income and other employment taxes. The shares withheld to satisfy the tax withholding obligations were recorded as treasury stock. (8) Segment Information We have two reportable segments – Truckload Transportation Services (“TTS”) and Werner Logistics. The TTS segment consists of two operating units, Dedicated and One-Way Truckload. These units are aggregated because they have similar economic characteristics and meet the other aggregation criteria described in the accounting guidance for segment reporting. Dedicated provides truckload services dedicated to a specific customer, generally for a retail distribution center or manufacturing facility, utilizing either dry van or specialized trailers. One-Way Truckload is comprised of the following operating fleets: (i) the medium-to-long-haul van (“Van”) fleet transports a variety of consumer nondurable products and other commodities in truckload quantities over irregular routes using dry van trailers, including Mexico cross-border routes; (ii) the expedited (“Expedited”) fleet provides time-sensitive truckload services utilizing driver teams; (iii) the regional short-haul (“Regional”) fleet provides comparable truckload van service within geographic regions across the United States; and (iv) the Temperature Controlled fleet provides truckload services for temperature sensitive products over irregular routes utilizing temperature-controlled trailers. Revenues for the TTS segment include a small amount of non-trucking revenues which consist primarily of the intra-Mexico portion of cross-border shipments delivered to or from Mexico where we utilize a third-party capacity provider. The Werner Logistics segment generates the majority of our non-trucking revenues through four operating units that provide non-trucking services to our customers. These four Werner Logistics operating units are as follows: (i) Truckload Logistics, which uses contracted carriers to complete shipments for brokerage customers and freight management customers for which we offer a full range of single-source logistics management services and solutions; (ii) the intermodal (“Intermodal”) unit offers rail transportation through alliances with rail and drayage providers as an alternative to truck transportation; (iii) Werner Global Logistics international (“WGL”) provides complete management of global shipments from origin to destination using a combination of air, ocean, truck and rail transportation modes; and (iv) Werner Final Mile (“Final Mile”) offers home and business deliveries of large or heavy items using third-party agents with two associates operating a liftgate straight truck. 17 Table of Contents We generate other revenues from our driver training schools, transportation-related activities such as third-party equipment maintenance and equipment leasing, and other business activities. None of these operations meets the quantitative reporting thresholds. As a result, these operations are grouped in “Other” in the table below. “Corporate” includes revenues and expenses that are incidental to our activities and are not attributable to any of our operating segments, including gains and losses on sales of assets not attributable to our operating segments. We do not prepare separate balance sheets by segment and, as a result, assets are not separately identifiable by segment. Inter-segment eliminations in the table below represent transactions between reporting segments that are eliminated in consolidation. The following table summarizes our segment information (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Revenues Truckload Transportation Services $ 458,256 $ 480,351 $ 1,368,172 $ 1,423,201 Werner Logistics 117,351 121,331 339,678 369,584 Other 14,156 15,896 42,539 47,464 Corporate 481 687 1,542 1,905 Subtotal 590,244 618,265 1,751,931 1,842,154 Inter-segment eliminations ( 30 ) ( 1 ) ( 55 ) ( 240 ) Total $ 590,214 $ 618,264 $ 1,751,876 $ 1,841,914 Operating Income Truckload Transportation Services $ 63,080 $ 48,870 $ 143,394 $ 143,488 Werner Logistics ( 852 ) 3,028 3,372 12,921 Other 566 1,709 2,932 5,181 Corporate ( 691 ) ( 250 ) ( 3,711 ) ( 1,772 ) Total $ 62,103 $ 53,357 $ 145,987 $ 159,818 18 Table of Contents