What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-02-24 compared with 2020-02-27 · 202 added, 155 removed, 609 unchanged (37% of the section changed)

9 unchanged sentences

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 24, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Changes in Accounting Principles

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases as of January 1, 2019 due to the adoption of ASC Topic 842, Leases.

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for revenues as of January 1, 2018 due to the adoption of ASC Topic 606, Revenue from Contracts with Customers.

Basis for Opinion

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The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment.

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of insurance and claims accruals

The insurance and claims accruals were $298,028,000 as of December 31, 2019.

As described in note 1 to the consolidated financial statements, the Company estimates the insurance and claims accruals related to bodily injury, property damage, workers’ compensation, cargo loss and group health.

The accruals specifically for bodily injury, property damage, and workers’ compensation (claims reserves) are based upon individual case estimates and actuarial estimates of incurred-but-not-reported losses using loss development factors based upon past experience.

In order to determine the loss development factors, the Company makes judgments relating to the comparability of historical claims to current incurred-but-not-reported losses.

As discussed in Note 1 to the consolidated financial statements, the Company estimates the insurance and claims accruals related to (1) cargo loss and damage, (2) bodily injury and property damage, (3) group health, and (4) workers’ compensation claims not covered by insurance.

The Company’s current and non-current insurance and claims accruals were $76.9 million and $231.6 million, respectively.

The accruals specifically for bodily injury, property damage, and workers’ compensation are based upon individual case estimates and actuarial estimates of loss development for reported losses and incurred-but-not-reported losses using loss development factors based upon past experience.

In order to determine the loss development factors, the Company makes judgments relating to the comparability of historical claims to current claims.

These judgments consider the nature, frequency, severity and age of claims, and industry, regulatory, and company-specific trends impacting the development of claims.

The Company has an independent actuary review their calculation of the undiscounted claims reserves.

We identified the evaluation of the Company’s insurance and claims accruals related to bodily injury, property damage, and workers’ compensation as a critical audit matter.

Specifically, evaluating the assumptions related to the determination of the loss development factors used to determine the incurred-but-not-reported losses involved a high degree of complexity and subjectivity.

Changes in the assumptions could have a significant impact on the amount accrued.

In addition, specialized skills were needed to evaluate the Company’s calculation of the undiscounted claims reserves.

The primary procedures we performed to address this critical audit matter included the following.

We tested certain internal controls over the Company’s claims reserves processes, including controls to determine loss development factors used to determine the incurred-but-not-reported loss accrual.

The Company has an independent actuary review their calculation of these undiscounted insurance and claims accruals.

We identified the evaluation of the Company’s insurance and claims accruals related to bodily injury, property damage, and workers’ compensation claims not covered by insurance as a critical audit matter.

Specifically, evaluating the loss development factors used to determine these insurance and claims accruals involved a high degree of complexity and subjectivity.

In addition, specialized skills were needed to evaluate the Company’s models to calculate these undiscounted insurance and claims accruals.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to these insurance and claims accruals, including controls related to the determination of loss development factors used to determine these insurance and claims accruals.

We involved actuarial professionals with specialized skills and knowledge who assisted in:

assessing the calculations used by the Company to determine its incurred-but-not-reported losses for consistency with generally accepted actuarial standards;

assessing the determination of loss development factors used in the calculations for consistency with historical Company data and industry, regulatory, and company-specific trends;

developing an independent expectation of the Company’s claims reserves and comparing to the Company’s estimate.

We tested historical claims paid and reported (not paid) used as an input to the calculations for consistency with data used in the prior year.

We tested actual claims paid and claims reported (not paid) for the current year used as an input to the calculations for consistency with the Company’s actual claims paid and claims reported (not paid).

We compared the Company’s prior period claims reserves to actual claims in the current period to assess the Company’s ability to accurately estimate costs.

• assessing the models used by the Company to determine these insurance and claims accruals for consistency with generally accepted actuarial standards

• assessing the determination of loss development factors used in the models for consistency with historical Company data and industry, regulatory, and company-specific trends

• developing an independent expectation of the Company’s insurance and claims accruals and comparing to the Company’s estimate.

We tested historical claims paid and claims reported, but not paid, that are used as an input to the Company’s models to calculate these insurance and claims accruals for consistency with data used in the prior year.

We tested actual claims paid and claims reported, but not paid, for the current year that are used as an input to the Company’s models to calculate these insurance and claims accruals for consistency with the Company’s actual claims paid and claims reported, but not paid.

We compared the Company’s prior period insurance and claims accruals to actual claims in the current period to assess the Company’s ability to accurately estimate costs.

We have served as the Company’s auditor since 1999.

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Salaries, wages and benefits 795,847 818,487 781,064

Fuel 157,124 235,928 254,564

Supplies and maintenance 175,842 182,909 185,074

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Insurance and claims 109,816 88,913 98,133

Depreciation 263,286 249,527 230,151

Rent and purchased transportation 519,184 549,438 589,002

Communications and utilities 14,474 15,303 16,063

Other 13,421 2,199 ( 7,670 )

Total operating expenses 2,144,740 2,238,229 2,233,699

3 unchanged sentences

Interest income ( 1,634 ) ( 3,326 ) ( 2,737 )

Other 163 38 376

Total other expense (income) 2,744 3,566 334

Income before income taxes 224,694 221,906 223,881

Income tax expense (benefit)

Income tax expense 55,616 54,962 55,733

Net income $ 169,078 $ 166,944 $ 168,148

Earnings per share:

Basic $ 2.45 $ 2.40 $ 2.35

Diluted $ 2.44 $ 2.38 $ 2.33

Weighted-average common shares outstanding:

Basic 69,018 69,567 71,694

Diluted 69,427 70,026 72,057

See Notes to Consolidated Financial Statements.

3 unchanged sentences

(In thousands) 2020 2019 2018

Net income $ 169,078 $ 166,944 $ 168,148

Other comprehensive income (loss):

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Accounts receivable, trade, less allowance of $ 8,686 and $ 7,921 , respectively

341,104 322,846

Other receivables 23,491 52,221

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Property and equipment, at cost:

72,103 63,244

Buildings and improvements

253,708 199,734

Revenue equipment

1,798,511 1,812,186

Service equipment and other

281,013 268,372

Total property and equipment

2,405,335 2,343,536

Less – accumulated depreciation

862,077 817,260

Property and equipment, net

1,543,258 1,526,276

Other non-current assets 156,502 151,254

Total assets $ 2,156,676 $ 2,143,864

LIABILITIES AND STOCKHOLDERS’ EQUITY

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Accrued payroll 35,594 38,347

Accrued expenses 25,032 11,072

Other current liabilities 28,208 19,977

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12,601,810 and 11,289,011 shares, respectively

( 337,887 ) ( 282,326 )

Total stockholders’ equity 1,195,040 1,111,008

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Cash flows from operating activities:

Net income $ 169,078 $ 166,944 $ 168,148

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation 263,286 249,527 230,151

Deferred income taxes ( 10,233 ) 16,401 37,694

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Insurance and claims accruals, net of current portion 3,420 14,188 26,570

Other 13,641 ( 3,360 ) ( 4,774 )

Changes in certain working capital items:

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Proceeds from sales of property and equipment 146,824 136,873 170,900

Investment in equity securities ( 5,000 ) — —

Decrease in notes receivable 7,966 11,566 20,898

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Cash, cash equivalents and restricted cash, end of period (1)

$ 29,334 $ 33,442 $ 33,930

Supplemental disclosures of cash flow information:

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share and per share amounts)

(In thousands, except share and per share amounts) Common

Stock Paid-In

Capital Retained

Earnings Accumulated

Comprehensive

Income (Loss)

Income (Loss) Treasury

Stockholders’

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Comprehensive income — — 168,148 ( 238 ) — 167,910

Dividends on common stock ($0.27 per share)

Purchase of 2,077,101 shares of common stock

— — — — ( 72,165 ) ( 72,165 )

Dividends on common stock ($ 0.34 cents per share)

— — ( 24,284 ) — — ( 24,284 )

Equity compensation activity, 109,852 shares

— ( 2,502 ) — — 1,607 ( 895 )

Non-cash equity compensation expense — 7,394 — — — 7,394

3 unchanged sentences

Purchase of 1,300,000 shares of common stock

Dividends on common stock ($0.34 cents per share)

— — — — ( 42,301 ) ( 42,301 )

Dividends on common stock ($ 4.11 per share)

— — ( 286,082 ) — — ( 286,082 )

Equity compensation activity, 102,552 shares

— ( 2,883 ) — — 1,155 ( 1,728 )

Non-cash equity compensation expense — 8,077 — — — 8,077

Cumulative effect of accounting change

BALANCE, December 31, 2019 805 112,649 1,294,608 ( 14,728 ) ( 282,326 ) 1,111,008

1 unchanged sentence

Purchase of 1,482,992 shares of common stock

— — — — ( 56,521 ) ( 56,521 )

Dividends on common stock ($ 0.36 per share)

— — ( 24,770 ) — — ( 24,770 )

Equity compensation activity, 170,193 shares

— ( 5,513 ) — — 960 ( 4,553 )

Non-cash equity compensation expense — 8,903 — — — 8,903

10 unchanged sentences

For the years ended December 31, 2020, 2019 and 2018, our ten largest customers comprised 49 %, 41 % and 45 %, respectively, of our revenues.

No single customer generated more than 9% of the Company’s total revenues in 2019, 2018, and 2017.

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

Revenues generated by Dollar General are reported in both of our reportable operating segments.

No single customer generated more than 9% of our total revenues in 2019 and 2018.

Principles of Consolidation :

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For financial reporting purposes, assets are generally depreciated using the following estimated useful lives and salvage values:

Salvage Values

Building and improvements

Service and other equipment

During fourth quarter 2016, due to the weak used truck market, we reduced the estimated life of certain trucks to more rapidly depreciate the trucks to their residual values.

The effect of this change in accounting estimate was to increase 2017 depreciation expense and decrease operating income by $ 3.4 million .

We completed the sale of these specific trucks in 2017.

Lives Salvage Values

Building and improvements 30 years 0 %

Tractors 80 months 0 %

Trailers 12 years $ 1,000

Service and other equipment 3-10 years 0 %

During first quarter 2020, we changed the estimated life of certain trucks expected to be sold in 2020 to more rapidly depreciate the trucks to their estimated residual values due to the weak used truck market.

The effect of this change in accounting estimate was a $ 9.6 million increase to 2020 depreciation expense.

These trucks continued to depreciate at the same higher rate per truck, until all were sold in 2020.

Long-Lived Assets:

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Insurance and Claims Accruals :

Insurance and claims accruals (both current and non-current) reflect the estimated cost (including estimated loss development and loss adjustment expenses) for (i) cargo loss and damage, (ii) bodily injury and property damage, (iii) group health and (iv) workers’ compensation claims not covered by insurance.

Insurance and claims accruals (both current and non-current) reflect the estimated cost (including estimated loss development, incurred-but-not-reported losses and loss adjustment expenses) for (i) cargo loss and damage, (ii) bodily injury and property damage, (iii) group health and (iv) workers’ compensation claims not covered by insurance.

The costs for cargo, bodily injury and property damage insurance and claims are included in insurance and claims expense in the Consolidated Statements of Income;

1 unchanged sentence

The insurance and claims accruals are recorded at the estimated ultimate payment amounts.

The accruals for bodily injury, property damage and and workers’ compensation are based upon individual case estimates and actuarial estimates of incurred-but-not-reported losses using loss development factors based upon past experience.

In order to determine the loss development factors, we make judgments relating to the comparability of historical claims to current incurred-but-not-reported losses.

The accruals for bodily injury, property damage and workers’ compensation are based upon individual case estimates and actuarial estimates of loss development for reported losses and incurred-but-not-reported losses using loss development factors based upon past experience.

In order to determine the loss development factors, we make judgments relating to the comparability of historical claims to current claims.

These judgments consider the nature, frequency, severity, and age of claims, and industry, regulatory, and company-specific trends impacting the development of claims.

1 unchanged sentence

An independent actuary reviews our calculation of the undiscounted self-insurance reserves for bodily injury and property damage claims and workers’ compensation claims at year-end.

We renewed our liability insurance policies on August 1, 2019 with the same deductibles and aggregates that first became effective with the August 1, 2017 renewal.

Our self-insured retention (“SIR”) and deductible amount continues to be $ 3.0 million , plus administrative expenses, for each occurrence involving bodily injury or property damage.

We also have an annual $ 6.0 million aggregate for claims between $ 3.0 million and $ 5.0 million and an additional $ 5.0 million deductible per claim for each claim between $ 5.0 million and $ 10.0 million .

Our SIR/deductible was $ 2.0 million for policy years from August 1, 2004 through July 31, 2017, and we were also responsible for varying annual aggregate amounts of liability for claims in excess of the SIR/deductible (see page 10).

Liability claims in excess of these aggregates are covered under premium-based policies (issued by insurance companies) to coverage levels that our management considers adequate.

We renewed our liability insurance policies on August 1, 2020 and are now responsible for the first $ 10.0 million per claim on all claims with no annual aggregates.

Our self-insured retention (“SIR”) and deductible amount was $ 3.0 million, with an additional $ 5.0 million deductible per claim for each claim between $ 5.0 million and $ 10.0 million, for policy years from August 1, 2017 through July 31, 2020, and we were also responsible for annual aggregate amounts of liability for claims in excess of the SIR/ deductible.

We maintain liability insurance coverage with insurance carriers in excess of the $ 10.0 million per claim, to coverage levels that our management considers adequate.

We are also responsible for administrative expenses for each occurrence involving bodily injury or property damage.

Our SIR for workers’ compensation claims is $ 1.0 million per claim, with premium-based insurance coverage for claims exceeding this amount.

Our SIR for workers’ compensation claims increased from $ 1.0 million to $ 2.0 million per claim on April 1, 2020, with premium-based insurance coverage (issued by insurance companies) for claims exceeding this amount.

We also maintain a $ 25.5 million bond for the State of Nebraska and a $ 13.4 million bond for our workers’ compensation insurance carrier.

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In accounting for uncertain tax positions, we recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a

greater than 50% likelihood of being realized upon ultimate settlement.

The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

We recognize interest and penalties directly related to income tax matters in income tax expense.

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Years Ended December 31,

2020 2019 2018

Net income $ 169,078 $ 166,944 $ 168,148

Weighted average common shares outstanding 69,018 69,567 71,694

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For the years ended December 31, 2020, 2019 and 2018, comprehensive income consists of net income, foreign currency translation adjustments and change in fair value of interest rate swaps.

The components of accumulated other comprehensive loss reported in the Consolidated Balance Sheets as of December 31, 2020, consisted of $ 17,198 of foreign currency translation adjustments and $ 5,635 related to our interest rate swaps.

New Accounting Pronouncements Adopted:

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.

The Company adopted ASU 2014-09 and related amendments, which is also known as Accounting Standards Codification (“ASC”) Topic 606, as of January 1, 2018 using the modified retrospective transition method.

Results for periods beginning January 1, 2018 and later are presented under ASC Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy for revenue recognition.

We recorded a $ 2.0 million net increase to the opening balance of retained earnings as of January 1, 2018, for the cumulative impact of adopting the new guidance.

The impact primarily related to the change in accounting for shipments in transit as of December 31, 2017.

ASC Topic 606 requires us to recognize revenue and related direct costs over time as the shipment is being delivered.

Prior to adopting the new guidance, we recognized revenue and related direct costs when the shipment was delivered.

Under the modified retrospective method of adoption, we are required to disclose the impact to our financial statements had we continued to follow our accounting policies under the previous revenue recognition guidance.

Had we continued to recognize revenues and direct costs upon delivery, our operating revenues and operating expenses for the year ended December 31, 2019, would have been higher by approximately $ 1.4 million and $ 1.0 million , respectively, and for the year ended December 31, 2018, would have been higher by approximately $ 0.5 million and $ 0.7 million , respectively.

Additionally, under ASC Topic 606, we recorded a $ 14.1 million reduction of revenues for the year ended December 31, 2019, and a $ 14.3 million reduction of revenues

for the year ended December 31, 2018, related to our driver training schools that would have been reported as bad debt expense prior to the new standard.

In February 2016, the FASB issued ASU No.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-02, “Leases,” to increase transparency and comparability by recognizing a right-of-use asset and a lease liability on the balance sheet and disclosing key information about leasing arrangements.

On January 1, 2019, we adopted ASU No.

2016-02 and related amendments, which is also known as ASC Topic 842, using the transition approach, which applies the provisions of the new guidance at the effective date without adjusting the comparative periods presented.

We elected the following practical expedients upon adoption:

2016-02 and related amendments, which is also known as Accounting Standards Codification (“ASC”) Topic 842, using the transition approach, which applies the provisions of the new guidance at the effective date without adjusting the comparative periods presented.

We elected the following practical expedients upon adoption of ASU No.

not to reassess whether any existing contracts are or contain leases, not to reassess the lease classification for any existing leases, not to reassess initial direct costs for any existing leases and not to separately identify lease and non-lease components for all underlying classes of assets.

2 unchanged sentences

The new standard did not have a significant impact on the consolidated statement of income.

In August 2017, the FASB issued ASU No.

2017-12, “Derivatives and Hedging (Topic 815):

Targeted Improvements to Accounting for Hedging Activities,” with the objective of improving the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements.

The Company adopted ASU 2017-12 as of January 1, 2019.

Upon adoption, this update had no effect on our financial position, results of operations and cash flows.

In February 2018, the FASB issued ASU No.

2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Comprehensive Income,” which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act.

The Company adopted ASU 2018-02 as of January 1, 2019.

Upon adoption, this update had no effect on our financial position, results of operations and cash flows.

Accounting Standards Updates Not Yet Effective:

In June 2016, the FASB issued ASU No.

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Measurement of Credit Losses on Financial Statements,” which requires measurement and recognition of expected versus incurred credit losses for financial assets.

The provisions of this update are effective for fiscal years beginning after December 15, 2019.

Based on our evaluation, the adoption of this standard will not have a material effect on our consolidated financial statements.

We 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.

2 unchanged sentences

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 provisions of this update are effective for fiscal years beginning after December 15, 2019.

Based on our evaluation, the adoption of this standard will not have a material effect on our consolidated financial statements because we do not currently disclose any fair value measurements subject to the amendments.

We 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.

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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 provisions of this update are effective for fiscal years beginning after December 15, 2019.

Based on our evaluation, the adoption of this standard will not have a material effect on our consolidated financial statements.

We 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.

2 unchanged sentences

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.

Based on our evaluation, the adoption of this standard will not have a material effect on our consolidated financial statements.

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.

Revenue Recognition

2 unchanged sentences

Years Ended December 31,

2020 2019 2018

Truckload Transportation Services $ 1,843,209 $ 1,909,776 $ 1,881,323

8 unchanged sentences

Years Ended December 31,

2020 2019 2018

United States $ 2,144,105 $ 2,191,560 $ 2,145,098

Mexico 149,438 197,470 233,116

Other 78,635 74,671 79,700

Total revenues $ 2,372,178 $ 2,463,701 $ 2,457,914

16 unchanged sentences

For shipments where a third-party capacity provider (including independent contractors under contract with us) is utilized to provide some or all of the service, we evaluate whether we are the principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis).

Generally, we report such revenues on a gross basis, that is, we recognize both revenues for the

service we bill to the customer and rent and purchased transportation expense for transportation costs we pay to the third-party provider.

Generally, we report such revenues on a gross basis, that is, we recognize both revenues for the service we bill to the customer and rent and purchased transportation expense for transportation costs we pay to the third-party provider.

Where we are the principal, we control the transportation service before it is provided to our customers, which is supported by us being primarily responsible for fulfilling the shipment obligation to the customer and having a level of discretion in establishing pricing with the customer.

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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 December 31, 2019 and 2018 , the accounts receivable, net, balance was $ 322.8 million and $ 337.9 million , respectively.

At December 31, 2020 and 2019, the accounts receivable, trade, net, balance was $ 341.1 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.

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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 the other non-current assets, other current liabilities and other long-term liabilities on the consolidated condensed balance sheets.

Operating leases are included in the other non-current assets, other current liabilities and other long-term liabilities on the consolidated 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 in not readily determinable.

2 unchanged sentences

Variable lease expense is recognized in the period in which the obligation for those payments is incurred.

Lease expense is reported in rent and purchase transportation on the consolidated statements of income.

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 December 31, 2020 .

(In thousands)

December 31, 2019

(In thousands) December 31, 2020

Maturity of Lease Liabilities

Thereafter 473

Total undiscounted operating lease payments $ 11,062

7 unchanged sentences

Other Information

Weighted-average remaining lease term for operating leases

Weighted-average remaining lease term for operating leases 3.82 years

Weighted-average discount rate for operating leases 3.3 %

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.

Additional right-of-use assets of $ 6.1 million were recognized as non-cash asset additions that resulted from new operating lease liabilities during the year ended December 31, 2019 .

Cash paid for amounts included in the present value of operating lease liabilities was $ 3.8 million during the year ended December 31, 2019 , and is included in operating 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 years ended December 31, 2020 and December 31, 2019, additional right-of-use assets of $ 2.8 million and $ 6.1 million 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 $ 3.9 million and $ 3.8 million during the years ended December 31, 2020 and December 31, 2019, respectively, and is included in operating cash flows.

Operating Lease Expense

Operating lease expense was $ 8.5 million during the year ended December 31, 2019 .

This expense included $ 3.8 million for the year ended December 31, 2019 for long-term operating leases, with the remainder for variable and short-term lease expense .

Operating lease expense was $ 6.8 million and $ 8.5 million during the years ended December 31, 2020 and December 31, 2019, respectively.

This expense included $ 3.8 million for long-term operating leases for both years ended December 31, 2020 and December 31, 2019, respectively, 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, and revenues for the year ended December 31, 2019 were $ 13.9 million .

We recognize revenue for such leases on a straight-line basis over the term of the lease.

Revenues for the years ended December 31, 2020 and December 31, 2019 were $ 12.6 million and $ 13.9 million, respectively.

The following table presents information about the maturities of these operating leases as of December 31, 2020 .

(In thousands)

December 31, 2019

(In thousands) December 31, 2020

Total $ 9,703

(4) INVESTMENTS

Investment in Mastery Logistics Systems, Inc.

On November 19, 2020, we entered into a strategic partnership with Mastery Logistics Systems, Inc.

(“MLSI”), a transportation technology development company, which included an agreement that allows us to purchase a non-controlling interest in MLSI.

We are collaborating with MLSI to develop a cloud-based transportation management system using MLSI's SaaS technology which we have agreed to license.

In the year ended December 31, 2020, we paid MLSI $ 5.0 million for shares of preferred stock of MLSI which represent approximately 5 % ownership in MLSI.

This investment is being accounted for under ASC 321, Investments - Equity Securities and is recorded in other noncurrent assets on the consolidated balance sheet.

As of December 31, 2020, no events have occurred that would indicate that the value of our investment in MLSI has changed.

Subsequent Event - Investment in TuSimple

On January 8, 2021, we made an equity investment in TuSimple, an autonomous trucking technology company.

Our non-controlling interest will be accounted for under ASC 321, Investments - Equity Securities.

(5) CREDIT FACILITIES

On May 14, 2019, we entered into new five-year, unsecured revolving credit facilities with Wells Fargo Bank, N.A.

and BMO Harris Bank N.A., replacing the previous credit facilities with both lenders.

We replaced our previous $100.0 million credit facility and $75.0 million term commitment with Wells Fargo Bank, N.A.

with a $ 300.0 million credit facility which will expire on May 14, 2024 .

Also on May 14, 2019, we replaced our previous $75.0 million credit facility with BMO Harris Bank N.A.

with a $ 200.0 million credit facility which will expire on May 14, 2024 .

We also have an unsecured line of credit of $ 75.0 million credit facility with U.S.

Bank, N.A., which will expire on July 13, 2020 .

As of December 31, 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 .

On October 20, 2020, we amended our agreement with Wells Fargo Bank, N.A.

to increase the maximum amount of outstanding letters of credit.

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.

expired on July 13, 2020.

Borrowings under these credit facilities bear variable interest based on the London Interbank Offered Rate (“LIBOR”).

On July 2, 2019, we (i) terminated our previous $75.0 million interest rate swap agreement with Wells Fargo Bank, N.A., (ii) entered into a new $ 75.0 million interest rate swap agreement with Wells Fargo Bank, N.A., and (iii) entered into a $ 75.0 million interest rate swap agreement with BMO Harris Bank N.A.

As of December 31, 2020 and 2019, our outstanding debt totaled $ 200.0 million and $ 300.0 million, respectively.

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credit facility at a variable rate of 0.85 % as of December 31, 2020, which is effectively fixed at 2.36 % with an interest rate swap agreement through May 14, 2024 .

Subsequent to the end of the year, in February 2020, we repaid $ 50.0 million of debt using cash provided by working capital activities to-date in 2020.

Subsequent to the end of the year, in January 2021, we repaid $ 25.0 million of debt, which we classified as current in the Consolidated Balance Sheets.

The $ 500.0 million of borrowing capacity under our credit facilities at December 31, 2020, is further reduced by $ 50.9 million in stand-by letters of credit under which we are obligated.

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At December 31, 2020, the aggregate future maturities of long-term debt by year are as follows (in thousands):

2021 $ 25,000

Total $ 200,000

The carrying amounts of our long-term debt approximate fair value due to the duration of the notes and the variable interest rates.

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(7) INCOME TAXES

The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was enacted on December 22, 2017, and lowered the federal corporate income tax rate to 21 % from 35 % effective January 1, 2018.

In accounting for income taxes, deferred income 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 income tax assets and liabilities are measured using the enacted tax rates that are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

As a result of the reduction of the federal corporate income tax rate under the Tax Act, the Company revalued its ending net deferred income tax liabilities at December 31, 2017 and recognized a provisional $ 110.5 million income tax benefit.

The SEC staff issued Staff Accounting Bulletin No.

118 to address the application of U.S.

GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Act.

The Company recognized the provisional tax impact related to the revaluation of deferred income tax assets and liabilities and included the amount in its consolidated financial statements for the year ended December 31, 2017.

During third quarter 2018, the Company filed its 2017 Federal Income Tax Return which resulted in an immaterial adjustment to the deferred tax liability and the tax expense.

Accordingly, the Company’s accounting for the federal rate reduction under the Tax Act was completed in 2018.

Income tax expense consisted of the following (in thousands):

Years Ended December 31,

Total income tax expense (benefit)

The effective income tax rate differs from the federal corporate tax rate of 21 % in 2019 and 2018 and 35% in 2017 as follows (in thousands):

2020 2019 2018

Federal $ 53,297 $ 29,102 $ 7,428

State 12,106 9,547 9,841

Foreign 446 ( 88 ) 770

65,849 38,561 18,039

Federal ( 8,988 ) 15,094 37,284

State ( 1,245 ) 1,307 410

( 10,233 ) 16,401 37,694

Total income tax expense $ 55,616 $ 54,962 $ 55,733

The effective income tax rate differs from the federal corporate tax rate of 21 % in 2020, 2019, and 2018 as follows (in thousands):

Years Ended December 31,

2020 2019 2018

Tax at statutory rate $ 47,186 $ 46,600 $ 47,015

Change in federal income tax rate

State income taxes, net of federal tax benefits 8,580 8,575 8,098

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Equity compensation ( 821 ) ( 207 ) ( 312 )

Total income tax expense (benefit)

Other, net 968 477 1,688

Total income tax expense $ 55,616 $ 54,962 $ 55,733

At December 31, deferred income tax assets and liabilities consisted of the following (in thousands):

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Allowance for uncollectible accounts 4,070 3,690

Other 5,374 1,863

Gross deferred income tax assets 80,411 62,157

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Prepaid expenses 6,333 4,928

Other 3,803 1,323

Gross deferred income tax liabilities 318,281 311,826

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We accrued interest expense of $ 0.1 million during 2020 and 2019, excluding from both years the reversal of accrued interest related to the adjustment of uncertain tax positions.

If recognized, $ 2.0 million of unrecognized tax benefits as of December 31, 2019 and 2018 would impact our effective tax rate.

If recognized, $ 1.8 million and $ 2.0 million of unrecognized tax benefits as of December 31, 2020 and 2019, respectively, would impact our effective tax rate.

Interest of $ 0.4 million as of December 31, 2020 and 2019 has been reflected as a component of the total liability.

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Gross increases – tax positions in prior period 92 127

Gross decreases – tax positions in prior period

Gross increases – current period tax positions 220 222

Settlements ( 490 ) ( 385 )

Unrecognized tax benefits, ending balance $ 2,363 $ 2,541

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Years Ended December 31,

Stock options:

Pre-tax compensation expense

Stock option expense, net of tax

2020 2019 2018

Restricted awards:

Pre-tax compensation expense $ 5,409 $ 4,943 $ 4,143

Tax benefit 1,379 1,258 1,056

Restricted stock expense, net of tax $ 4,030 $ 3,685 $ 3,087

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Pre-tax compensation expense $ 3,503 $ 3,156 $ 3,152

Tax benefit 893 803 804

Performance award expense, net of tax $ 2,610 $ 2,353 $ 2,348

We do not have a formal policy for issuing shares upon an exercise of stock options or vesting of restricted and performance awards.

We do not have a formal policy for issuing shares for equity compensation.

Such shares are generally issued from treasury stock.

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Stock options are granted at prices equal to the market value of the common stock on the date the option award is granted.

Option awards exercised in 2019 became exercisable in installments from 24 to 72 months after the date of grant.

The options were exercisable over a period not to exceed ten years and one day from the date of grant.

No stock options are outstanding as of December 31, 2019.

The following table summarizes stock option activity for the year ended December 31, 2019:

(in thousands)

Intrinsic Value

(in thousands)

Outstanding at beginning of period

Outstanding at end of period

Exercisable at end of period

We did not grant any stock options during the years ended December 31, 2019, 2018 and 2017.

The fair value of stock option grants is estimated using a Black-Scholes valuation model.

The total intrinsic value of stock options exercised was as follows (in thousands):

No stock option awards were outstanding as of December 31, 2020, and there were no stock option awards granted or exercised during the year ended December 31, 2020.

No stock options were granted during the years ended December 31, 2019 or 2018, and the total intrinsic value of stock options exercised during the years ended December 31, 2019 and 2018 was $ 136 thousand and $ 484 thousand, respectively.

Restricted Awards

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The following table summarizes restricted award activity for the year ended December 31, 2020:

thousands) Weighted

Average Grant

Nonvested at beginning of period 369 $ 32.83

Granted 181 38.73

Vested ( 137 ) 31.83

Forfeited ( 46 ) 35.43

Nonvested at end of period 367 35.78

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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, over periods ranging from 12 to 60 months from the grant date of the award.

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.

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Performance Awards (in

thousands) Weighted

Average Grant

Nonvested at beginning of period 327 $ 28.75

Granted 133 32.96

Vested ( 151 ) 23.61

Forfeited ( 47 ) 32.95

Nonvested at end of period 262 32.96

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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 are recorded as treasury stock.

The shares withheld to satisfy the tax withholding obligations were recorded as treasury stock.

Employee Stock Purchase Plan

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No assurances can be given regarding the outcome of any such appeal.

We are involved in class action litigation in the U.S.

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.

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The appellate court sent the case back to the trial court for proceedings consistent with the appellate court’s opinion.

The litigation of this matter will continue in the trial court.

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.

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(10) RELATED PARTY TRANSACTIONS

The Company leases land from a trust in which the Company’s principal stockholder is the sole trustee.

The Company leases land from a trust in which the Company’s Chairman is the sole trustee.

The annual rent payments under this lease are $ 1.00 per year.

The Company is responsible for all real estate taxes and maintenance costs related to the property, which were $ 80,000 in 2019, $ 72,000 in 2018, and $ 72,000 in 2017 and are recorded as expenses in the Consolidated Statements of Income.

The Company is responsible for all real estate taxes and maintenance costs related to the property, which are recorded as expenses in the Consolidated Statements of Income.

The Company has made leasehold improvements to the land for facilities used for business meetings and customer promotion.

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(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;

(iii) Werner Global Logistics international (“WGL”) provided 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.

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Years Ended December 31,

2020 2019 2018

Truckload Transportation Services $ 1,843,209 $ 1,909,776 $ 1,881,323

Werner Logistics 469,791 489,729 518,078

Other 57,276 61,850 56,903

Corporate 2,009 2,589 2,759

Subtotal 2,372,285 2,463,944 2,459,063

Inter-segment eliminations ( 107 ) ( 243 ) ( 1,149 )

Total $ 2,372,178 $ 2,463,701 $ 2,457,914

Operating Income

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Werner Logistics 6,005 16,288 20,378

Other 3,839 5,535 ( 453 )

Corporate ( 4,413 ) 989 1,709

Total $ 227,438 $ 225,472 $ 224,215

Information about the geographic areas in which we conduct business is summarized below (in thousands) as of and for the years ended December 31, 2020, 2019 and 2018.

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If both the origin and destination are in a foreign country, the revenues are attributed to the country of origin.

2020 2019 2018

United States $ 2,144,105 $ 2,191,560 $ 2,145,098

Foreign countries

Mexico 149,438 197,470 233,116

Other 78,635 74,671 79,700

Total foreign countries 228,073 272,141 312,816

Total $ 2,372,178 $ 2,463,701 $ 2,457,914

Long-lived Assets

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Foreign countries

Mexico 36,222 38,428 34,741

Other 174 257 289

Total foreign countries 36,396 38,685 35,030

Total $ 1,543,258 $ 1,526,276 $ 1,487,562

We generate substantially all of our revenues within the United States or from North American shipments with origins or destinations in the United States.

No customer generated more than 9% of our total revenues for 2019, 2018 and 2017.

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

Revenues generated by Dollar General are reported in both of our reportable operating segments.

No single customer generated more than 9% of our total revenues in 2019 and 2018.

(12) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

(In thousands, except per share amounts)

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

(In thousands, except per share amounts) First Quarter Second Quarter Third Quarter Fourth Quarter

Operating revenues $ 592,703 $ 568,959 $ 590,214 $ 620,302

Operating income 31,066 52,818 62,103 81,451

Net income 23,058 39,132 46,332 60,556

Basic earnings per share 0.33 0.57 0.67 0.88

Diluted earnings per share 0.33 0.56 0.67 0.88

(In thousands, except per share amounts)

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

(In thousands, except per share amounts) First Quarter Second Quarter Third Quarter Fourth Quarter

Operating revenues $ 596,117 $ 627,533 $ 618,264 $ 621,787

Operating income 48,019 58,442 53,357 65,654

Net income 36,086 43,318 39,044 48,496

Basic earnings per share 0.51 0.62 0.56 0.70

3 unchanged sentences

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 8. Financial Statements and Supplementary Data