What changed in this filing

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Item 1. Financial Statements

2022-05-09 compared with 2021-11-09 · 147 added, 324 removed, 311 unchanged (60% of the section changed)

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, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

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 2020 Form 10-K.

WERNER ENTERPRISES, INC.

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

(In thousands, except per share amounts) 2022 2021

15 unchanged sentences

Interest income ( 275 ) ( 297 )

Gain on investments in equity securities, net ( 16,090 ) — ( 36,281 ) —

Other 50 55 146 123

Loss on investments in equity securities 9,806 —

Total other expense (income) 11,043 583

Income before income taxes 72,468 61,888

Income taxes 21,278 15,152 61,275 35,029

Income tax expense 17,433 15,396

Net income 55,035 46,492

11 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(In thousands) 2022 2021

10 unchanged sentences

CONSOLIDATED CONDENSED BALANCE SHEETS

(In thousands, except share amounts) September 30,

(In thousands, except share amounts) March 31,

2022 December 31,

46 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

September 30,

Three Months Ended

(In thousands) 2022 2021

8 unchanged sentences

Other ( 2,080 ) 1,285

Gain on investments in equity securities, net ( 36,281 ) —

Loss on investments in equity securities 9,806 —

Changes in certain working capital items:

13 unchanged sentences

Repayments of short-term debt ( 1,250 ) ( 25,000 )

Proceeds from issuance of short-term debt 5,000 —

Repayments of long-term debt ( 100,000 ) —

3 unchanged sentences

Tax withholding related to net share settlements of restricted stock awards ( 3,658 ) ( 3,740 )

Other cash flows from financing activities ( 35 ) —

Net cash provided by (used in) financing activities 71,869 ( 156,408 )

Net cash used in financing activities ( 48,983 ) ( 40,361 )

Effect of exchange rate fluctuations on cash 317 ( 419 )

Net increase in cash, cash equivalents and restricted cash 16,094 7,034

Cash, cash equivalents and restricted cash, beginning of period 29,334 33,442

Cash, cash equivalents and restricted cash, end of period $ 45,428 $ 40,476

Net increase in cash and cash equivalents 71,753 53,796

Cash and cash equivalents, beginning of period 54,196 29,334

Cash and cash equivalents, end of period $ 125,949 $ 83,130

Supplemental disclosures of cash flow information:

7 unchanged sentences

Dividends accrued but not yet paid at end of period 7,807 6,792

Redeemable noncontrolling interest associated with acquisition 35,322 —

See Notes to Consolidated Financial Statements (Unaudited).

WERNER ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND

TEMPORARY EQUITY - REDEEMABLE NONCONTROLLING INTEREST

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

5 unchanged sentences

Stockholders’

Equity Temporary Equity - Redeemable Noncontrolling Interest

BALANCE, December 31, 2021 $ 805 $ 121,904 $ 1,667,104 $ ( 20,604 ) $ ( 441,659 ) $ 1,327,550 $ 35,947

Net income — — 46,492 — — 46,492

Other comprehensive loss — — — ( 265 ) — ( 265 )

Purchases of 130,446 shares of common stock

— — — — ( 5,507 ) ( 5,507 )

Dividends on common stock ($ 0.10 per share)

— — ( 6,792 ) — — ( 6,792 )

Equity compensation activity, 116,868 shares

— ( 3,953 ) — — 213 ( 3,740 )

Non-cash equity compensation expense — 2,502 — — — 2,502

BALANCE, March 31, 2021 805 114,588 1,478,616 ( 23,098 ) ( 343,181 ) 1,227,730

Net income — — 72,032 — — 72,032

Net income attributable to Werner — — 53,749 — — 53,749 —

Net income attributable to noncontrolling interest — — — — — — 1,286

Other comprehensive income — — — 4,784 — 4,784 —

Dividends on common stock ($ 0.12 per share)

— — ( 8,151 ) — — ( 8,151 )

Equity compensation activity, 13,725 shares

— ( 266 ) — — 266 —

Non-cash equity compensation expense — 2,747 — — — 2,747

BALANCE, June 30, 2021 805 117,069 1,542,497 ( 20,873 ) ( 342,915 ) 1,296,583

Net income — — 63,761 — — 63,761

Other comprehensive loss — — — ( 719 ) — ( 719 )

Purchases of 845,100 shares of common stock

5 unchanged sentences

Non-cash equity compensation expense — 3,026 — — — 3,026 —

BALANCE, September 30, 2021 $ 805 $ 119,776 $ 1,598,232 $ ( 21,592 ) $ ( 390,664 ) $ 1,306,557

See Notes to Consolidated Financial Statements (Unaudited).

WERNER ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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

Stock Paid-In

Capital Retained

Earnings Accumulated

Comprehensive

Loss Treasury

Stockholders’

BALANCE, March 31, 2022 $ 805 $ 121,157 $ 1,713,046 $ ( 15,820 ) $ ( 477,724 ) $ 1,341,464 $ 37,233

BALANCE, December 31, 2020 $ 805 $ 116,039 $ 1,438,916 $ ( 22,833 ) $ ( 337,887 ) $ 1,195,040 $ —

Net income — — 23,058 — — 23,058

Net income attributable to Werner — — 46,492 — — 46,492 —

Other comprehensive loss — — — ( 265 ) — ( 265 ) —

7 unchanged sentences

BALANCE, March 31, 2021 $ 805 $ 114,588 $ 1,478,616 $ ( 23,098 ) $ ( 343,181 ) $ 1,227,730 $ —

Net income — — 39,132 — — 39,132

Other comprehensive income — — — 306 — 306

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

Net income — — 46,332 — — 46,332

Other comprehensive income — — — 1,183 — 1,183

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).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1) Accounting Policies

(1) Basis of Presentation and Recent Accounting Pronouncements

Basis of Presentation

The accompanying unaudited interim consolidated financial statements include the accounts of Werner Enterprises, Inc.

and its controlled subsidiaries (collectively, the “Company” or “Werner”).

Noncontrolling interest on the consolidated condensed balance sheets represents the portion of a consolidated entity in which we do not have a direct equity ownership.

In these notes, the terms “we,” “us,” or “our” refer to Werner Enterprises, Inc.

and its subsidiaries.

All significant intercompany accounts and transactions relating to these entities have been eliminated.

These consolidated financial statements have been prepared in accordance with the U.S.

Securities and Exchange Commission (SEC) instructions to Form 10-Q and, in the opinion of management, reflect all adjustments, which are all of normal recurring nature, necessary to present fairly the financial condition, results of operations and cash flows for the periods presented in conformity with U.S.

generally accepted accounting principles (“GAAP”).

These consolidated financial statements do not include all information and footnotes required by GAAP 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 period ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31 , 2022.

These consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and accompanying notes contained in our 2021 Form 10-K.

New Accounting Pronouncements Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 Company adopted ASU 2019-12 as of January 1, 2021.

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

Accounting Standards Updates Not Yet Effective

In March 2020, the FASB issued ASU No.

In the first quarter 2022, we adopted Accounting Standards Update (“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.

(2) Business Acquisition

ECM Acquisition

On July 1, 2021, pursuant to a Unit Purchase Agreement, we acquired an 80 % ownership interest in ECM Associated, LLC ("ECM”) for $ 141.3 million after net working capital changes and net of cash acquired.

We have an exclusive option to purchase the remaining 20 % ownership interest in ECM upon the occurrence of certain events or after a period of five years following transaction close, based on a fixed multiple of ECM’s average annual adjusted earnings before interest, taxes, depreciation and amortization.

The noncontrolling interest holder also has an option to put the remaining 20 % ownership interest to us on the same terms.

We record the 20 % remaining interest in temporary equity – redeemable noncontrolling interest in the consolidated condensed balance sheets.

We recorded net income attributable to noncontrolling interest of $ 1.3 million and a distribution to the noncontrolling interest holder of $ 35 thousand for the three months ended September 30, 2021.

ECM, through its ECM Transport, LLC (“ECM Transport”) and Motor Carrier Service (“MCS”) subsidiaries, provides regional truckload carrier services in the Mid-Atlantic, Ohio, and Northeast regions of the United States and operates nearly 500 trucks and 2,000 trailers in its network of eight terminals and 18 drop yard facilities.

The primary reason for this acquisition was to expand our fleet size, terminal network, geographic market presence, and short-haul expertise in a segment in which consumer demand and supply chain needs are growing.

We financed the cash transaction through a combination of cash on hand, existing credit facilities, and the addition of a $ 100.0 million unsecured fixed-rate term loan commitment with BMO Harris Bank N.A.

on June 30, 2021.

For more information regarding our debt, see Note 7 – Credit Facilities.

The results of operations for ECM are included in our consolidated financial statements beginning July 1, 2021.

We incurred transaction costs related to the acquisition, such as legal and professional fees, of $ 1.0 million for the nine months ended September 30, 2021, which is included in other operating expenses on the consolidated statements of income.

Provisional Purchase Price Allocation

We accounted for the purchase of ECM using the acquisition method of accounting under U.S.

generally accepted accounting principles (GAAP).

The purchase price has been allocated to the assets acquired and liabilities assumed using market data and valuation techniques.

The estimated fair values of the assets acquired and liabilities assumed are considered provisional, pending the completion of the valuation of acquired tangible assets, an independent valuation of certain acquired intangible assets, and the calculation of deferred taxes based upon the underlying tax basis of assets acquired and liabilities assumed.

The determination of estimated fair values requires management to make significant estimates and assumptions.

We believe that the information available provides a reasonable basis for estimating the values of assets acquired and liabilities assumed;

however, these provisional estimates may be adjusted upon the availability of new information regarding facts and circumstances which existed at the acquisition date, and such adjustments may impact future earnings.

We expect to finalize the valuation of assets and liabilities as soon as practicable, but not later than one year from the acquisition date.

Any adjustments to the initial

estimates of the fair value of the acquired assets and liabilities assumed will be recorded as adjustments to the respective assets and liabilities, with the residual amounts allocated to goodwill.

The provisional purchase price allocation for ECM is summarized as follows (in thousands):

Purchase Price

Cash consideration paid (1)

Cash and cash equivalents acquired ( 13,327 )

Working capital surplus (deficiency) ( 1,068 )

Total purchase price (fair value of consideration) 141,291

Provisional Purchase Price Allocation

Accounts receivable, trade 16,170

Other receivables 43

Inventories and supplies 204

Prepaid taxes, licenses and permits 700

Other current assets 351

Property and equipment 68,772

Intangible assets 52,200

Other non-current assets 3,644

Total assets acquired 142,084

Accounts payable ( 510 )

Insurance and claims accruals ( 890 )

Accrued payroll ( 2,130 )

Accrued expenses ( 3,006 )

Other current liabilities ( 1,185 )

Other long-term liabilities ( 2,460 )

Total liabilities assumed ( 10,181 )

Temporary equity - redeemable noncontrolling interest in ECM ( 35,322 )

Goodwill $ 44,710

(1) At closing, $0.8 million and $0.7 million of the cash consideration was placed in escrow to cover post-closing adjustments and to secure certain indemnification obligations of the sellers, respectively.

As of September 30, 2021, the indemnification escrow payment remains subject to adjustment.

Goodwill and Intangible Assets

Goodwill represents the excess of cost over the fair value of net identifiable tangible and intangible assets acquired in a business combination.

Goodwill and intangible assets with indefinite lives are not amortized.

Goodwill is reviewed for potential impairment on an annual basis or more frequently if indicators of a potential impairment exist.

Goodwill associated with the acquisition was primarily attributable to acquiring and retaining the existing ECM network and the anticipated synergies from combining the operations of the Company and ECM.

The goodwill associated with the acquisition is expected to be deductible for income tax purposes.

All goodwill is assigned to our Truckload Transportation Services (“TTS”) segment.

We have allocated $52.2 million of the purchase price to finite-lived intangible assets, consisting of customer relationships and trade names.

The estimated fair values of the intangible assets were determined, with the assistance of an independent third-party valuation firm, using the multi-period excess earnings method for customer relationships and the relief-from-royalty method for trade names.

All methods are forms of the income approach, which require a forecast of all the expected future cash flows.

Intangible assets with finite lives are amortized on the straight-line method.

Amortization expense on acquired intangible assets was $ 1.2 million for three and nine months ended September 30, 2021.

The following table summarizes the major classes of intangible assets and the respective weighted-average estimated amortization periods:

Estimated Fair Value

(in thousands) Weighted-Average Estimated Amortization Period

Customer relationships $ 33,200 10

Trade names 19,000 12

Total intangible assets $ 52,200

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 the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform.

The adoption of the new guidance did not have a material impact on our consolidated financial statements.

(2) Business Acquisitions

On July 1, 2021, we acquired an 80 % ownership interest in ECM Associated, LLC ("ECM”) for a final purchase price of $ 141.3 million after net working capital changes and net of cash acquired.

ECM, through its ECM Transport, LLC (“ECM Transport”) and Motor Carrier Service, LLC (“MCS”) subsidiaries, provides regional truckload carrier services in the Mid-Atlantic, Ohio, and Northeast regions of the United States.

The results of operations for ECM are included in our consolidated financial statements beginning July 1, 2021, and the noncontrolling interest is presented as a separate component of the consolidated financial statements.

On November 22, 2021, we acquired 100 % of the equity interests in NEHDS Logistics, LLC (“NEHDS”) for a final purchase price of $ 62.3 million after including the impacts of contingent consideration and net working capital changes.

The purchase price allocation for NEHDS is considered final as of March 31, 2022.

NEHDS is a final mile residential delivery provider serving customers primarily in the Northeast and Midwest U.S.

NEHDS delivers primarily big and bulky products (primarily furniture and appliances) using 2-person delivery teams performing residential and commercial deliveries.

The results of operations for NEHDS are included in our consolidated financial statements beginning November 22, 2021.

Amortization expense on intangible assets was $ 1.4 million for the three months ended March 31, 2022.

Revenue Recognition

2 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Truckload Transportation Services $ 558,417 $ 462,949

8 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

United States $ 710,904 $ 555,239

4 unchanged sentences

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, 2021 and December 31, 2020, the accounts receivable, trade, net, balance was $ 426.3 million and $ 341.1 million, respectively.

At March 31, 2022 and December 31, 2021, the accounts receivable, trade, net, balance was $ 449.6 million and $ 460.5 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, 2021 and December 31, 2020, the balance of contract assets was $ 9.2 million and $ 6.9 million, respectively.

At March 31, 2022 and December 31, 2021, the balance of contract assets was $ 10.9 million and $ 9.0 million, respectively.

We have recognized contract assets within the other current assets financial statement caption on the consolidated condensed balance sheets.

1 unchanged sentence

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 $ 1.2 million as of September 30, 2021 and $ 1.5 million as of December 31, 2020.

The amount of revenues recognized in the nine months ended September 30, 2021 that was included in the December 31, 2020 contract liability balance was $ 1.5 million.

The balance of contract liabilities was $ 1.2 million at both March 31, 2022 and December 31, 2021 .

The amount of revenues recognized in the three months ended March 31, 2022 that was included in the December 31, 2021 contract liability balance was $ 1.2 million.

We have recognized contract liabilities within the accounts payable and other current liabilities financial statement captions on the consolidated condensed balance sheets.

1 unchanged sentence

Performance Obligations

We have elected to apply the practical expedient in Accounting Standards Codification (“ASC”) Topic 606 to not disclose the value of remaining performance obligations for contracts with an original expected length of one year or less.

We have elected to apply the practical expedient in Accounting Standards Codification (“ASC”) Topic 606, Revenue From Contracts With Customers , 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, 2021 and September 30, 2020, revenues recognized from performance obligations related to prior periods (for example, due to changes in transaction price) were not material.

During the three months ended March 31, 2022 and 2021, revenues recognized from performance obligations related to prior periods (for example, due to changes in transaction price) were not material.

We have entered into operating leases primarily for real estate.

7 unchanged sentences

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, 2021.

(In thousands) September 30, 2021

Maturity of Lease Liabilities

2021 (remaining) $ 1,240

Thereafter 2,711

Total undiscounted operating lease payments $ 15,055

Imputed interest ( 1,010 )

Present value of operating lease liabilities $ 14,045

The following table presents balance sheet and other operating lease information (dollars in thousands):

March 31, 2022 December 31, 2021

Balance Sheet Classification

4 unchanged sentences

Other Information

Weighted-average remaining lease term for operating leases 4.90 years

Weighted-average remaining lease term for operating leases 7.45 years 7.63 years

Weighted-average discount rate for operating leases 2.6 % 2.7 %

During the nine months ended September 30, 2021 and September 30, 2020, right-of-use assets of $ 3.9 million and $ 2.4 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 $ 3.2 million and $ 3.0 million for the nine months ended September 30, 2021 and September 30, 2020, respectively, and is included in operating cash flows.

The following table presents the maturities of operating lease liabilities as of March 31, 2022 (in thousands):

Maturity of Lease Liabilities

2022 (remaining) $ 6,074

Thereafter 11,883

Total undiscounted operating lease payments $ 41,354

Imputed interest ( 3,832 )

Present value of operating lease liabilities $ 37,522

During the three months ended March 31, 2022 and 2021, right-of-use assets of $ 10.2 million and $ 0.5 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 $ 1.8 million and $ 0.9 million for the three months ended March 31, 2022 and 2021, respectively, and are included in operating cash flows.

Operating Lease Expense

Operating lease expense was $ 4.2 million and $ 11.3 million for the three and nine months ended September 30, 2021, respectively, and $ 2.7 million and $ 6.8 million for the three and nine months ended September 30, 2020, respectively.

This expense included $ 1.3 million and $ 3.3 million for the three and nine months ended September 30, 2021, respectively, and $ 0.9 million and $ 2.8 million for the three and nine months ended September 30, 2020, respectively, for long-term operating leases, with the remainder for variable and short-term lease expense .

Operating lease expense was $ 5.1 million and $ 3.6 million for the three months ended March 31, 2022 and 2021, respectively.

This expense included $ 2.1 million and $ 1.0 million for the three months ended March 31, 2022 and 2021, respectively, for long-term operating leases, with the remainder for variable and short-term lease expense .

Lessor Operating Leases

1 unchanged sentence

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

Revenues were $ 2.9 million and $ 9.0 million for the three and nine months ended September 30, 2021, respectively, and $ 3.0 million and $ 9.4 million for the three and nine months ended September 30, 2020, respectively.

The following table presents information about the maturities of these operating leases as of September 30, 2021.

(In thousands) September 30, 2021

Revenues were $ 3.2 million and $ 3.1 million for the three months

ended March 31, 2022 and 2021, respectively.

The following table presents information about the maturities of these operating leases as of March 31, 2022 (in thousands):

2022 (remaining) $ 6,124

11 unchanged sentences

Level 3 — Unobservable inputs for the asset or liability, where there is little, if any, observable market activity or data for the asset or liability.

The following table presents the Company's fair value hierarchy for assets measured at fair value on a recurring basis (in thousands):

Level in Fair Fair Value

Value Hierarchy September 30, 2021 December 31, 2020

Other non-current assets:

Equity securities (1)

1 $ 13,129 N/A

(1) Represents our investment in TuSimple Class A common stock.

For additional information regarding the valuation of our investment in TuSimple, see Note 6 – Investments.

Our investment in Mastery Logistics Systems, Inc.

(“MLSI”) is estimated at fair value on a nonrecurring basis, as MLSI does not have a readily determinable fair value.

MLSI is accounted for using the measurement alternative under ASC 321,

“Investments - Equity Securities” (categorized as Level 3 of the fair value hierarchy).

For additional information regarding the valuation of our investment in MLSI, see Note 6 – Investments.

Valuation Techniques

In general, and where applicable, we use quoted prices in active markets for identical assets or liabilities to determine fair value.

2 unchanged sentences

This pricing methodology would apply to Level 2 assets and liabilities.

The following table presents the Company's fair value hierarchy for assets measured at fair value on a recurring basis (in thousands):

Hierarchy Fair Value

March 31, 2022 December 31, 2021

Other non-current assets:

Equity securities (1)

1 $ 7,360 $ 17,166

(1) Represents our investments in autonomous technology companies.

For additional information regarding the valuation of these equity securities, see Note 6 – Investments.

We have no material liabilities measured at fair value on a recurring basis for the periods presented.

Our ownership interest in Mastery Logistics Systems, Inc.

(“MLSI”) does not have a readily determinable fair value and is accounted for using the measurement alternative in ASC 321, Investments - Equity Securities .

For additional information regarding the valuation of our investment in MLSI, see Note 6 – Investments.

Fair Value of Financial Instruments Not Recorded at Fair Value

1 unchanged sentence

These financial instruments are recorded at or near their respective transaction prices and historically have been settled or converted to cash at approximately that value (categorized as Level 2 of the fair value hierarchy).

The carrying amounts of our long-term debt approximate fair value due to the duration of our credit facilities and the variable interest rates (categorized as Level 2 of the fair value hierarchy).

The carrying amounts of our long-term debt approximate fair value due to the duration of our credit arrangements and the variable interest rates (categorized as Level 2 of the fair value hierarchy).

(6) Investments

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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 both November 2020 and September 2021, we paid MLSI $5.0 million for shares of its preferred stock.

As of September 30, 2021, our ownership percentage in MLSI was approximately 9.8 %.

This investment is being accounted for under ASC 321, “Investments - Equity Securities,” using the measurement alternative, and is recorded in other noncurrent assets on the consolidated condensed balance sheets.

We record changes in the value of our investment, based on events that occur that would indicate the value of our investment in MLSI has changed, in other expense (income) on the consolidated statements of income.

During third quarter 2021, an investment by a third-party resulted in the remeasurement of our investment in MLSI, and in the three and nine months ended September 30, 2021, we recognized a $ 28.2 million unrealized gain on our investment based upon the price paid by the third party.

As of September 30, 2021 and December 31, 2020, the fair value of our investment was $ 38.2 million and $ 5.0 million, respectively.

This minority equity investment is being accounted for under ASC 321 using the measurement alternative, and is recorded in other noncurrent assets on the consolidated condensed balance sheets.

As of March 31, 2022 and December 31, 2021, the value of our investment was $ 38.2 million.

We record changes in the value of this investment, based on events that occur that would indicate the value of our investment in MLSI has changed, in gain or loss on investments in equity securities on the consolidated statements of income.

No gains or losses were recorded in the three months ended March 31, 2022 and 2021.

At March 31, 2022, cumulative unrealized gains on our investment in MLSI totaled $ 28.2 million.

Equity Investments with Readily Determinable Fair Values

On January 8, 2021, we made a $ 5.0 million equity investment in TuSimple, an autonomous technology company.

Upon completion of TuSimple’s initial public offering in April 2021, our equity investment was converted to Class A common shares.

Our interest, which represents an ownership percentage of less than 1%, is being accounted for under ASC 321, “Investments - Equity Securities” and is recorded in other noncurrent assets on the consolidated condensed balance sheets.

We record changes in the value of our investment, based on the share price reported by Nasdaq, in other expense (income) on the consolidated statements of income.

In the three and nine months ended September 30, 2021, we recognized a $ 12.1 million unrealized loss and $ 8.1 million unrealized gain on our investment.

As of September 30, 2021, the fair value of our investment was $ 13.1 million.

For additional information on the fair value of our investment in TuSimple, see Note 5 – Fair Value.

(7) Credit Facilities

On June 30, 2021, we amended our existing credit agreement, dated May 14, 2019, with BMO Harris Bank N.A.

The amendment added an unsecured fixed-rate term loan commitment not to exceed a principal amount of $100.0 million and increased our borrowing capacity with BMO Harris Bank N.A.

from $200.0 million to $300.0 million.

The outstanding principal balance of the term loan bears interest at a fixed rate of 1.28%.

As of September 30, 2021, we had a $ 300.0 million and a $ 200.0 million unsecured committed credit facility with Wells Fargo Bank, N.A.

and BMO Harris Bank N.A., respectively, which will expire on May 14, 2024 .

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

We also had a new $100.0 million unsecured fixed-rate term loan commitment with BMO Harris Bank N.A., as described above, with quarterly principal payments of $ 1.25 million beginning September 30, 2021 and a final payment of principal and interest due and payable on May 14, 2024 .

As of September 30, 2021 and December 31, 2020, our outstanding debt totaled $ 350.0 million and $ 200.0 million, respectively.

Under the credit facilities as of September 30, 2021, we had $ 100.0 million outstanding at a variable interest rate of 0.76 % and $ 100.0 million outstanding at a fixed interest rate of 1.28 %.

We had (i) an additional $ 75.0 million outstanding under the Wells Fargo Bank, N.A.

credit facility at a variable interest rate of 0.76 % as of September 30, 2021, 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 interest rate of 0.78 % as of September 30, 2021, which is effectively fixed at 2.36 % with an interest rate swap agreement through May 14, 2024 .

Subsequent to the end of the quarter, in October 2021, we borrowed an additional $ 50.0 million under our BMO Harris Bank N.A.

credit facility, which will be classified as long-term in the consolidated condensed balance sheets.

The $ 600.0 million of borrowing capacity under our credit arrangements at September 30, 2021, is further reduced b y $ 50.9 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, 2021, we were in compliance with these covenants.

At September 30, 2021, the aggregate future maturities of long-term debt by year are as follows (in thousands):

We own strategic minority equity investments in autonomous technology companies, which are being accounted for under ASC 321 and are recorded in other noncurrent assets on the consolidated condensed balance sheets.

We record changes in the value of these investments, based on the share prices reported by Nasdaq, in gain or loss on investments in equity securities on the consolidated statements of income.

In the three months ended March 31, 2022, we recognized a $ 9.8 million unrealized loss on these investments.

No gains or losses were recorded in the three months ended March 31, 2021.

For additional information regarding the fair value of these equity investments, see Note 5 – Fair Value.

(7) Debt and Credit Facilities

On March 25, 2022, we entered into a new credit agreement (the “Wells Credit Agreement”) with Wells Fargo Bank, National Association ("Wells Fargo"), replacing our previous credit agreement with Wells Fargo dated May 14, 2019, as amended.

The Wells Credit Agreement provides for a $ 300.0 million unsecured revolving line of credit ("Wells Line of Credit"), with a $ 75.0 million maximum limit for the aggregate amount of letters of credit issued, and expires on May 14, 2024 .

The Wells Credit Agreement also provides for an unsecured term loan commitment not to exceed a principal amount of $ 100.0 million ("Wells Term Loan"), with the outstanding principal balance due and payable in full on May 14, 2024 .

The proceeds of the Wells Line of Credit and Wells Term Loan may be used for the Company's general corporate purposes.

Amounts drawn under the Wells Line of Credit and the outstanding principal balance of the Wells Term Loan bear interest either, at our option, (i) at a variable rate based on the daily Secured Overnight Financing Rate (" SOFR ") plus 0.10 % and a margin ranging between 0.675 % and 0.925 %, or (ii) at a fixed rate based on the Term SOFR in effect on the first day of an applicable interest period designated by us plus 0.10 % in the case of one month Term SOFR, 0.15 % in the case of three month Term SOFR, 0.25 % in the case of six month Term SOFR, and plus, in each case, a margin ranging between 0.675 % and 0.925 %, payable monthly.

The margin rates are based on our ratio of total funded debt to earnings before interest, income taxes, depreciation and amortization (“EBITDA”).

The Wells Credit Agreement also requires us to pay Wells Fargo (i) an annualized letter of credit fee based on the face amount of each letter of credit outstanding at rates ranging between 0.55 % and 0.80 % per annum and (ii) a nonrefundable commitment fee on the average daily unused amount of the Wells Line of Credit (after deducting undrawn letters of credit) at rates ranging between 0.11 % and 0.15 % per annum.

The rates for the letter of credit and nonrefundable commitment fees are based on our ratio of total funded debt to EBITDA.

On March 25, 2022, we also entered into a second amendment to our existing unsecured revolving line of credit agreement, dated May 14, 2019, with BMO Harris Bank N.A.

(“BMO Harris”), expiring May 14, 2024 (“BMO Line of Credit”).

The second amendment increased our BMO Line of Credit from $ 200.0 million to $ 300.0 million and changed the variable interest rate calculation by replacing the LIBOR with the SOFR .

Amounts drawn under the BMO Line of Credit bear interest, for a selected interest period, at a variable rate based on the SOFR plus 0.10 % and a margin ranging between 0.70 % and 1.50 %, based on our ratio of total funded debt to EBITDA, payable at the end of the applicable interest period.

No changes were made to the annualized letter of credit fee, nonrefundable commitment fee, and financial covenants as a result of the second amendment.

We also have a $ 100.0 million unsecured fixed-rate term loan commitment with BMO Harris, with quarterly principal payments of $ 1.25 million, which began on September 30, 2021, and a final payment of principal and interest due and

payable on May 14, 2024 ("BMO Term Loan").

The outstanding principal balance of the BMO Term Loan bears interest at a fixed rate of 1.28 %, payable quarterly in arrears.

As of March 31, 2022 and December 31, 2021, our outstanding debt totaled $ 426.3 million and $ 427.5 million, respectively.

As of March 31, 2022, we had a total of $ 230.0 million outstanding under our revolving lines of credit, including (i) $ 80.0 million at a weighted average variable interest rate of 1.02 %;

(ii) $ 75.0 million at a variable interest rate of 0.99 %, which is effectively fixed at 2.32 % with an interest rate swap agreement through May 14, 2024 ;

and (iii) $ 75.0 million at a variable interest rate of 0.93 %, which is effectively fixed at 2.36 % with an interest rate swap agreement through May 14, 2024 .

The total borrowing capacity of $ 600.0 million under our revolving lines of credit at March 31, 2022, is further reduced by $ 53.9 million in stand-by letters of credit under which we are obligated.

In addition, as of March 31, 2022, we had $ 100.0 million outstanding under the Wells Term Loan at a variable interest rate of 1.05 % and $ 96.3 million outstanding under the BMO Term Loan at a fixed interest rate of 1.28 %.

Availability of such funds under the debt agreements is conditional upon various customary terms and covenants.

Such covenants include, 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).

As of March 31, 2022 we were in compliance with these covenants.

At March 31, 2022, the aggregate future maturities of long-term debt by year are as follows (in thousands):

2022 (remaining) $ 3,750

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(8) Commitments and Contingencies

As of September 30, 2021, we have committed to property and equipment purchases of approximately $ 109.7 million .

We have committed to property and equipment purchases of approximately $ 182.3 million at March 31, 2022 .

We are involved in certain claims and pending litigation, including those described herein, arising in the ordinary course of business.

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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 May 17, 2018, in Harris County District Court in Houston, Texas, a jury rendered an adverse verdict against 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.

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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 $ 27.5 million as of September 30, 2021, and $ 23.6 million as of December 31, 2020.

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 condensed balance sheets as of September 30, 2021 and December 31, 2020.

As a result of this jury verdict, the Company had recorded a liability of $ 30.1 million as of March 31, 2022, and $ 28.8 million as of December 31, 2021.

The Company is pursuing an appeal of this verdict.

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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.

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.

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.

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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.

As of September 30, 2021, we have an accrual for the jury’s award, attorney fees and costs in the short break matter and had not accrued for the sleeper berth matter.

On July 21, 2020, Plaintiffs’ counsel filed a notice of appeal of that dismissal, and that appeal remains pending.

As of March 31, 2022, we have an accrual for the jury’s award, attorney fees and costs in the short break matter and had not accrued for the sleeper berth matter.

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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Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Net income attributable to Werner $ 53,749 $ 46,492

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Diluted earnings per share $ 0.82 $ 0.68

(10) Equity Compensation

The Werner Enterprises, Inc.

Amended and Restated Equity Plan (the “Equity Plan”), approved by the Company’s shareholders in 2013, 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, and no stock option awards are outstanding.

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, 2021, there were 6,527,854 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, 2021, the total unrecognized compensation cost related to non-vested equity compensation awards was approximately $ 13.3 million and is expected to be recognized over a weighted average period of 1.7 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,

2021 2020 2021 2020

Restricted awards:

Pre-tax compensation expense $ 1,606 $ 1,375 $ 4,693 $ 3,863

Tax benefit 410 351 1,197 985

Restricted stock expense, net of tax $ 1,196 $ 1,024 $ 3,496 $ 2,878

Performance awards:

Pre-tax compensation expense $ 1,144 $ 1,086 $ 3,299 $ 2,149

Tax benefit 291 277 841 548

Performance award expense, net of tax $ 853 $ 809 $ 2,458 $ 1,601

We do not have a formal policy for issuing shares upon 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 2021.

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, 2021:

thousands) Weighted

Average Grant

Nonvested at beginning of period 367 $ 35.78

Granted 130 41.96

Vested ( 123 ) 35.09

Forfeited ( 13 ) 36.88

Nonvested at end of period 361 38.20

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 condensed 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, 2021 and September 30, 2020 was $ 5.2 million and $ 3.4 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.

The following table summarizes performance award activity for the nine months ended September 30, 2021:

thousands) Weighted

Average Grant

Nonvested at beginning of period 262 $ 32.96

Granted 77 38.48

Vested ( 100 ) 33.04

Forfeited — —

Nonvested at end of period 239 34.70

The 2021 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, 2021 to December 31, 2022.

Shares earned based on cumulative diluted earnings per share may be capped based on the Company’s total shareholder return during the three-year period ended December 31, 2023, relative to the total shareholder return of a peer group of companies for the same period.

The 2021 performance awards will vest in one installment on the third anniversary from the grant date.

In January 2021, the Compensation Committee determined the 2018 fiscal year performance objectives were achieved at a level above the target level;

the additional shares earned above the target level were included in 2020 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, 2021 and September 30, 2020 was $ 4.1 million and $ 5.8 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.

(10) Segment Information

We have two reportable segments – Truckload Transportation Services and Werner Logistics.

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.

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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;

and (iii) 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.

In first quarter 2021, we completed the previously-announced sale of the Werner Global Logistics (“WGL”) freight forwarding services for international ocean and air shipments to Scan Global Logistics Group, and we realized a $ 1.0 million gain when the transaction closed on February 26, 2021.

Werner Logistics will continue to provide North American truck brokerage, freight management, intermodal and final mile services.

and (iii) Werner Final Mile (“Final Mile”), including NEHDS, offers residential and commercial deliveries of large or heavy items using third-party agents, independent contractors, and Company employees with two-person delivery teams operating a liftgate straight truck.

first quarter 2021, we completed the sale of the Werner Global Logistics (“WGL”) freight forwarding services for international ocean and air shipments to Scan Global Logistics Group, and we realized a $ 1.0 million gain when the transaction closed on February 26, 2021.

Werner Logistics continues to provide North American truck brokerage, freight management, intermodal and final mile services.

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.

As a result, these operations are grouped in “Other” in the tables 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):

Based on our operations, certain revenue-generating assets (primarily tractors and trailers) are interchangeable between segments.

Depreciation for these interchangeable assets is allocated to segments based on the actual number of units utilized by the segment during the period.

Other depreciation and amortization is allocated to segments based on specific identification or as a percentage of a metric such as average number of tractors.

Inter-segment eliminations represent transactions between reporting segments that are eliminated in consolidation.

The following tables summarize our segment information (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Revenues by Segment

Truckload Transportation Services $ 558,417 $ 462,949

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Total $ 764,605 $ 616,446

Operating Income

Three Months Ended

Operating Income (loss) by Segment

Truckload Transportation Services $ 76,093 $ 57,628

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Total $ 83,511 $ 62,471

Three Months Ended

Depreciation and Amortization by Segment

Truckload Transportation Services 61,837 58,525

Werner Logistics 2,268 2,221

Other 2,681 2,729

Corporate 443 476

Total $ 67,229 $ 63,951

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-Q

Item 1. Financial Statements