What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2021-02-24 compared with 2020-02-27 · 50 added, 41 removed, 73 unchanged (55% of the section changed)

3 unchanged sentences

Also refer to the Cautionary Note Regarding Forward-Looking Statements in Item 7 of Part II of this Form 10-K.

Risks Related to our Business and Industry

Our business is subject to overall economic conditions that could have a material adverse effect on our results of operations.

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We may be negatively affected by future economic conditions including employment levels, business conditions, fuel and energy costs, public health crises, interest rates and tax rates.

It is unknown whether and how global supply chains may be affected by the developing situation with the coronavirus.

Economic conditions may also impact the financial condition of our customers, resulting in a greater risk of bad debt losses, and that of our suppliers, which may affect negotiated pricing or availability of needed goods and services.

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Independent contractor availability may also be affected by both inflationary cost increases that are the responsibility of independent contractors and the availability of equipment financing.

On-going state legislative challenges to the independent contractor model could also affect independent contractor availability.

On-going federal and state legislative challenges to the independent contractor model could also affect independent contractor availability.

In recent years, the topic of the classification of individuals as employees or independent contractors has gained increased attention among federal and state

regulators as well as the plaintiffs’ bar.

Various legislative or regulatory proposals have been introduced at the federal and state levels that may affect the classification status of individuals as independent contractors or employees for either employment tax purposes (e.g., withholding, social security, Medicare and unemployment taxes) or other benefits available to employees (e.g., workers’ compensation benefits and minimum wage).

Recently, certain states (most prominently, California) have seen significant increased activity by tax and other regulators and numerous class action lawsuits filed against transportation companies that engage independent contractors.

Potential changes, if any, that could impact the legal classification of the independent contractor relationship between us and our independent contractors could have a material adverse effect on our ability to recruit and retain independent contractors.

If a shortage of independent contractors occurs, additional increases in per-mile settlement rates (for independent contractors) and driver pay rates (for company drivers) may become necessary to attract and retain a sufficient number of drivers.

These increases would negatively affect our results of operations to the extent that we would be unable to obtain corresponding freight rate increases.

Moreover, class action litigation in this area against other transportation companies has resulted in significant damage awards and/or monetary settlements for workers who have been allegedly misclassified as independent contractors.

Increases in fuel prices and shortages of fuel can have a material adverse effect on the results of operations and profitability.

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These programs generally enable us to recover a majority, but not all, of the fuel price increases.

The remaining portion is generally not recoverable because it results from empty and out-of-route miles (which are not billable to customers) and truck idle time.

Fuel prices that change rapidly in short time periods also impact our recovery because the surcharge rate in most programs only changes once per week.

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As of December 31, 2020, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.

On January 1, 2020, the International Maritime Organization regulations limiting sulfur content of bunker fuel (IMO 2020) took effect.

While the regulations do not apply to domestic transportation modes, IMO 2020 will significantly increase the demand and competition for low-sulfur fuel, which is expected to result in higher diesel fuel prices for truck and rail transportation and may also constrict supply.

We cannot predict the extent to which fuel prices will increase or decrease in the future or the extent to which fuel surcharges could be collected.

We operate in a highly competitive industry, which may limit growth opportunities and reduce profitability.

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We compete primarily with other truckload carriers in our TTS segment.

Logistics companies, digital brokers,

intermodal companies, railroads, less-than-truckload carriers and private carriers also provide a lesser degree of competition in our TTS segment, but such providers are more direct competitors in our Werner Logistics segment.

Logistics companies, digital brokers, intermodal companies, railroads, less-than-truckload carriers and private carriers also provide a lesser degree of competition in our TTS segment, but such providers are more direct competitors in our Werner Logistics segment.

Competition for the freight we transport or manage is based primarily on service, efficiency, available capacity and, to some degree, on freight rates alone.

This competition could have an adverse effect on either the number of shipments we transport or the freight rates we receive, which could limit our growth opportunities and reduce our profitability.

We operate in a highly regulated industry.

Changes in existing regulations or violations of existing or future regulations could adversely affect our operations and profitability.

We are regulated by the DOT and its agency the FMCSA in the United States and similar governmental transportation agencies in foreign countries in which we operate.

We are also regulated by agencies in certain U.S.

These regulatory agencies have the authority to govern transportation-related activities, such as safety, authorization to conduct motor carrier operations and other matters.

The Regulations subsection in Item 1 of Part I of this Form 10-K describes several proposed and pending regulations that may have a significant effect on our operations including our productivity, driver recruitment and retention and capital expenditures.

The subsidiaries of WGL hold a variety of licenses required to carry out its international services, and the loss of any of these licenses would adversely impact the operations of WGL.

The seasonal pattern generally experienced in the trucking industry may affect our periodic results during traditionally slower shipping periods and winter months.

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During 2020, our largest 5, 10, 25 and 50 customers accounted for 36%, 49%, 67%, and 79% of revenues, respectively.

No single customer generated more than 9% of our revenues in 2019.

Our largest customer, Dollar General, accounted for 12% of the our total revenues in 2020.

We do not have long-term contractual relationships with many of our key One-Way Truckload customers.

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We are subject to risks of doing business internationally, including fluctuations in foreign currencies, changes in the economic strength of the countries in which we do business, difficulties in enforcing contractual obligations and intellectual property rights, burdens of complying with a wide variety of international and United States export and import laws, and social, political, and economic instability.

Additional risks associated with our foreign operations, including restrictive trade policies and imposition of duties, taxes, or government royalties by foreign governments, are present but largely mitigated by the terms of NAFTA for Mexico and Canada.

The agreement

permitting cross border movements for both United States and Mexican based carriers into the United States and Mexico presents additional risks in the form of potential increased competition and the potential for increased congestion on the cross border lanes between countries.

On November 30, 2018, the United States, Canada and Mexico signed the USMCA as an overhaul and update to NAFTA.

The United States and Mexico have ratified the USMCA, and ratification by Canada is pending.

It is currently difficult to anticipate the full impact of this agreement on foreign trade and our Mexico operations.

Our earnings could be reduced by increases in the number of insurance claims, cost per claim, costs of insurance premiums or availability of insurance coverage.

We are self-insured for a significant portion of liability resulting from bodily injury, property damage, cargo and associate workers’ compensation and health benefit claims.

This is supplemented by premium-based insurance with licensed insurance companies above our self-insurance level for each type of coverage.

To the extent we experience a significant increase in the number of claims, cost per claim (including costs resulting from large verdicts) or insurance premium costs for coverage in excess of our retention amounts, our operating results would be negatively affected.

Healthcare legislation and inflationary cost increases could also have a negative effect on our results.

Decreased demand for our used revenue equipment could result in lower unit sales, resale values and gains on sales of assets.

We are sensitive to changes in used equipment prices and demand, especially with respect to tractors.

We have been in the business of selling our company-owned trucks since 1992, when we formed our wholly-owned subsidiary Werner Fleet Sales.

Reduced demand for used equipment could result in a lower volume of sales or lower sales prices, either of which could negatively affect our gains on sales of assets.

Our operations are subject to applicable environmental laws and regulations, the violation of which could result in substantial fines or penalties.

In addition to direct regulation by DOT, FMCSA, EPA and other federal, state, and local agencies, we are subject to applicable environmental laws and regulations dealing with the handling of hazardous materials, aboveground and underground fuel storage tanks, discharge and retention of storm-water, and emissions from our vehicles.

We operate in industrial areas, where truck terminals and other industrial activities are located and where groundwater or other forms of environmental contamination have occurred.

Our operations involve the risks of fuel spillage or seepage, environmental damage and hazardous waste disposal, among others.

We also maintain bulk fuel storage at several of our facilities.

If we are involved in a spill or other accident involving hazardous substances, or if we are found to be in violation of applicable laws or regulations, it could have a material adverse effect on our business and operating results.

If we fail to comply with applicable environmental regulations, we could be subject to substantial fines or penalties and to civil and criminal liability.

Tractors and trailers used in our daily operations have been affected by regulatory changes related to air emissions and fuel efficiency, and may be adversely affected in the future by new regulatory actions.

Additional risks associated with our foreign operations, including restrictive trade policies and imposition of duties, taxes, or government royalties by foreign governments, are present but have been largely mitigated by the terms of NAFTA for Mexico and Canada.

The United States, Canada and Mexico ratified the USMCA as an overhaul and update to NAFTA, and it became effective in July 2020.

We believe we are one of the largest truckload carriers in terms of freight volume shipped to and from the United States, Mexico, and Canada.

It is currently difficult for Werner to anticipate the full impact of this agreement on foreign trade and our Mexico operations.

The agreement permitting cross border movements for both United States and Mexican based carriers into the United States and Mexico presents additional risks in the form of potential increased competition and the potential for increased congestion on the cross border lanes between countries.

We rely on the services of key personnel, the loss of which could impact our future success.

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Our information systems are used for planning loads, communicating with and dispatching drivers and other capacity providers, billing customers, paying vendors and providing financial reports.

We rely on one vendor for GPS and satellite communication services, which are integrated in our information systems.

We rely on strategic vendors for GPS and satellite communication services, which are integrated in our information systems.

If any of our critical information systems fail or become unavailable, or those of our service providers, we would have to perform certain functions manually, which could temporarily affect our ability to efficiently manage our operations.

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In addition, recently, there has also been heightened regulatory and enforcement focus on data protection in the U.S., and failure to comply with applicable U.S.

data protection regulations or other data protection standards may expose us to litigation, fines, sanctions or other penalties, which could harm our reputation and adversely impact our business, results of operations and financial condition.

data protection regulations or other data protection standards may expose us to litigation, fines,

sanctions or other penalties, which could harm our reputation and adversely impact our business, results of operations and financial condition.

The COVID-19 pandemic has adversely impacted our business, as well as the operations of our customers and suppliers.

The COVID-19 pandemic has resulted in a slowdown of economic activity and a disruption in supply chains.

Our business is sensitive to changes in overall economic conditions that impact customer shipping volumes, industry freight demand and industry truck capacity.

Such conditions may also impact the financial condition of our customers, resulting in a greater risk of bad debt losses, and that of our suppliers, which may affect the availability or pricing of needed goods and services.

Although we have taken numerous actions to lessen the adverse impact of the COVID-19 pandemic, our 2021 results could be further impacted by the disruptive effects of COVID-19, including but not limited to adverse effects on freight volumes and pricing and availability of qualified personnel.

The degree of disruption is difficult to predict because of many factors, including the uncertainty surrounding the magnitude and duration of the pandemic, governmental actions that have been and may continue to be imposed, as well as the rate of economic recovery after the pandemic subsides.

The unpredictable nature and uncertainty of the current COVID-19 pandemic could also magnify other risk factors disclosed above and makes it impractical to identify all potential risks.

Risks Related to Laws and Regulations

We operate in a highly regulated industry.

Changes in existing regulations or violations of existing or future regulations could adversely affect our operations and profitability.

We are regulated by the DOT and its agency the FMCSA in the United States and similar governmental transportation agencies in foreign countries in which we operate.

We are also regulated by agencies in certain U.S.

These regulatory agencies have the authority to govern transportation-related activities, such as safety, authorization to conduct motor carrier operations and other matters.

Our operations are subject to applicable environmental laws and regulations, the violation of which could result in substantial fines or penalties.

We operate in industrial areas, where truck terminals and other industrial activities are located and where groundwater or other forms of environmental contamination have occurred.

Our operations involve the risks of fuel spillage or seepage, environmental damage and hazardous waste disposal, among others.

We also maintain bulk fuel storage at some of our facilities.

If we fail to comply with applicable environmental regulations, we could be subject to substantial fines or penalties and to civil and criminal liability.

Risks Related to Financial Matters

Our earnings could be reduced by increases in the number of insurance claims, cost per claim, costs of insurance premiums or availability of insurance coverage.

We are self-insured for a significant portion of liability resulting from bodily injury, property damage, cargo and associate workers’ compensation and health benefit claims.

This is supplemented by premium-based insurance coverage with insurance carriers above our self-insurance level for each type of coverage.

To the extent we experience a significant increase in the number of claims, cost per claim (including costs resulting from large verdicts) or insurance premium costs for coverage in excess of our retention and deductible amounts, our operating results would be negatively affected.

Healthcare legislation and inflationary cost increases could also have a negative effect on our results.

Decreased demand for our used revenue equipment could result in lower unit sales and resale values.

We are sensitive to changes in used equipment prices and demand, especially with respect to tractors.

We have been in the business of selling our company-owned trucks since 1992, when we formed our wholly-owned subsidiary Werner Fleet Sales.

Reduced demand for used equipment could result in a lower volume of sales or lower sales prices, either of which could negatively affect our proceeds from sales of assets.

UNRESOLVED STAFF COMMENTS

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors