WERNER ENTERPRISES INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Werner Enterprises, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Werner Enterprises, Inc. and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, stockholders’ equity and temporary equity - redeemable noncontrolling interest, and cash flows for each of the years in the three‑year period ended December 31, 2022, and the related notes and financial statement schedule II valuation and qualifying accounts (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. 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, 2022, 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 27, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter 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 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. 27 Table of Contents Evaluation of insurance and claims accruals 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 $78.6 million and $244.9 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 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 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 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. /s/ KPMG LLP We have served as the Company’s auditor since 1999. Omaha, Nebraska February 27, 2023 28 Table of Contents WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, (In thousands, except per share amounts) 2022 2021 2020 Operating revenues $ 3,289,978 $ 2,734,372 $ 2,372,178 Operating expenses: Salaries, wages and benefits 1,020,609 895,012 795,847 Fuel 437,299 245,866 157,124 Supplies and maintenance 253,096 206,701 175,842 Taxes and licenses 97,929 96,095 95,746 Insurance and claims 147,365 98,658 109,816 Depreciation and amortization 279,923 267,700 263,286 Rent and purchased transportation 777,464 641,159 519,184 Communications and utilities 15,856 13,460 14,474 Other ( 62,639 ) ( 39,425 ) 13,421 Total operating expenses 2,966,902 2,425,226 2,144,740 Operating income 323,076 309,146 227,438 Other expense (income): Interest expense 11,828 4,423 4,215 Interest income ( 1,731 ) ( 1,211 ) ( 1,634 ) Gain on investments in equity securities, net ( 12,195 ) ( 40,317 ) — Other 388 236 163 Total other expense (income) ( 1,710 ) ( 36,869 ) 2,744 Income before income taxes 324,786 346,015 224,694 Income tax expense 79,206 84,537 55,616 Net income 245,580 261,478 169,078 Net income attributable to noncontrolling interest ( 4,324 ) ( 2,426 ) — Net income attributable to Werner $ 241,256 $ 259,052 $ 169,078 Earnings per share: Basic $ 3.76 $ 3.84 $ 2.45 Diluted $ 3.74 $ 3.82 $ 2.44 Weighted-average common shares outstanding: Basic 64,125 67,434 69,018 Diluted 64,579 67,855 69,427 See Notes to Consolidated Financial Statements. 29 Table of Contents WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31, (In thousands) 2022 2021 2020 Net income $ 245,580 $ 261,478 $ 169,078 Other comprehensive income (loss): Foreign currency translation adjustments 2,426 ( 1,381 ) ( 2,867 ) Change in fair value of interest rate swaps, net of tax 6,886 3,610 ( 5,238 ) Other comprehensive income (loss) 9,312 2,229 ( 8,105 ) Comprehensive income 254,892 263,707 160,973 Comprehensive income attributable to noncontrolling interest ( 4,324 ) ( 2,426 ) — Comprehensive income attributable to Werner $ 250,568 $ 261,281 $ 160,973 See Notes to Consolidated Financial Statements. 30 Table of Contents WERNER ENTERPRISES, INC. CONSOLIDATED BALANCE SHEETS December 31, (In thousands, except share amounts) 2022 2021 ASSETS Current assets: Cash and cash equivalents $ 107,240 $ 54,196 Accounts receivable, trade, less allowance of $ 10,271 and $ 9,169 , respectively 518,815 460,518 Other receivables 29,875 24,449 Inventories and supplies 14,527 11,140 Prepaid taxes, licenses and permits 17,699 17,549 Other current assets 74,459 63,361 Total current assets 762,615 631,213 Property and equipment, at cost: Land 100,594 77,172 Buildings and improvements 309,241 287,331 Revenue equipment 2,169,172 1,910,874 Service equipment and other 306,634 282,448 Total property and equipment 2,885,641 2,557,825 Less – accumulated depreciation 1,060,365 944,582 Property and equipment, net 1,825,276 1,613,243 Goodwill 132,717 74,618 Intangible assets, net 81,502 55,315 Other non-current assets 295,145 229,324 Total assets $ 3,097,255 $ 2,603,713 LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 124,483 $ 93,987 Current portion of long-term debt 6,250 5,000 Insurance and claims accruals 78,620 72,594 Accrued payroll 49,793 44,333 Accrued expenses 20,358 28,758 Other current liabilities 30,016 24,011 Total current liabilities 309,520 268,683 Long-term debt, net of current portion 687,500 422,500 Other long-term liabilities 59,677 43,314 Insurance and claims accruals, net of current portion 244,946 237,220 Deferred income taxes 313,278 268,499 Total liabilities 1,614,921 1,240,216 Commitments and contingencies Temporary equity - redeemable noncontrolling interest 38,699 35,947 Stockholders’ equity: Common stock, $ 0.01 par value, 200,000,000 shares authorized; 80,533,536 shares issued; 63,223,003 and 65,790,112 shares outstanding, respectively 805 805 Paid-in capital 129,837 121,904 Retained earnings 1,875,873 1,667,104 Accumulated other comprehensive loss ( 11,292 ) ( 20,604 ) Treasury stock, at cost; 17,310,533 and 14,743,424 shares, respectively ( 551,588 ) ( 441,659 ) Total stockholders’ equity 1,443,635 1,327,550 Total liabilities, temporary equity and stockholders’ equity $ 3,097,255 $ 2,603,713 See Notes to Consolidated Financial Statements. 31 Table of Contents WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, (In thousands) 2022 2021 2020 Cash flows from operating activities: Net income $ 245,580 $ 261,478 $ 169,078 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 279,923 267,700 263,286 Deferred income taxes 42,553 29,488 ( 10,233 ) Gain on disposal of property and equipment ( 88,564 ) ( 60,528 ) ( 11,271 ) Non-cash equity compensation 12,486 10,807 8,903 Insurance and claims accruals, net of current portion 7,726 5,582 3,420 Gain on investments in equity securities, net ( 12,195 ) ( 40,317 ) — Other ( 13,295 ) ( 3,105 ) 13,641 Changes in certain working capital items: Accounts receivable, net 3,174 ( 101,007 ) ( 18,258 ) Other current assets ( 18,333 ) ( 27,903 ) ( 7,390 ) Accounts payable ( 3,665 ) 14,742 ( 2,483 ) Other current liabilities ( 6,679 ) ( 24,118 ) 37,216 Net cash provided by operating activities 448,711 332,819 445,909 Cash flows from investing activities: Additions to property and equipment ( 507,252 ) ( 370,850 ) ( 413,065 ) Proceeds from sales of property and equipment 189,673 177,801 146,824 Net cash invested in acquisitions ( 184,118 ) ( 201,845 ) — Investment in equity securities ( 20,250 ) ( 10,000 ) ( 5,000 ) Decrease in notes receivable 7,614 7,593 7,966 Net cash used in investing activities ( 514,333 ) ( 397,301 ) ( 263,275 ) Cash flows from financing activities: Repayments of short-term debt ( 3,750 ) ( 27,500 ) ( 90,000 ) Proceeds from issuance of short-term debt — 5,000 40,000 Repayments of long-term debt ( 100,000 ) — ( 50,000 ) Proceeds from issuance of long-term debt 370,000 250,000 — Dividends on common stock ( 32,162 ) ( 29,083 ) ( 24,888 ) Repurchases of common stock ( 110,400 ) ( 104,444 ) ( 56,521 ) Tax withholding related to net share settlements of restricted stock awards ( 4,082 ) ( 4,270 ) ( 4,553 ) Distribution to noncontrolling interest ( 1,572 ) ( 35 ) — Net cash provided by (used in) financing activities 118,034 89,668 ( 185,962 ) Effect of exchange rate fluctuations on cash 632 ( 324 ) ( 780 ) Net increase (decrease) in cash and cash equivalents 53,044 24,862 ( 4,108 ) Cash and cash equivalents, beginning of period 54,196 29,334 33,442 Cash and cash equivalents, end of period $ 107,240 $ 54,196 $ 29,334 Supplemental disclosures of cash flow information: Interest paid $ 11,186 $ 4,228 $ 4,415 Income taxes paid 40,313 81,185 54,173 Supplemental schedule of non-cash investing and financing activities: Notes receivable issued upon sale of property and equipment $ 5,577 $ 5,953 $ 3,441 Change in fair value of interest rate swaps 6,886 3,610 ( 5,238 ) Property and equipment acquired included in accounts payable 5,937 7,124 12,250 Property and equipment disposed included in other receivables 110 — 30 Dividends accrued but not yet paid at end of period 8,220 7,895 6,114 Noncontrolling interest associated with acquisition — 33,556 — Contingent consideration associated with acquisition 13,400 2,500 — See Notes to Consolidated Financial Statements. 32 Table of Contents WERNER ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND TEMPORARY EQUITY - REDEEMABLE NONCONTROLLING INTEREST (In thousands, except share and per share amounts) Common Stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders’ Equity Temporary Equity - Redeemable Noncontrolling Interest BALANCE, December 31, 2019 $ 805 $ 112,649 $ 1,294,608 $ ( 14,728 ) $ ( 282,326 ) $ 1,111,008 $ — Net income attributable to Werner — — 169,078 — — 169,078 — Other comprehensive loss — — — ( 8,105 ) — ( 8,105 ) — 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 — BALANCE, December 31, 2020 805 116,039 1,438,916 ( 22,833 ) ( 337,887 ) 1,195,040 — Net income attributable to Werner — — 259,052 — — 259,052 — Net income attributable to noncontrolling interest — — — — — — 2,426 Other comprehensive income — — — 2,229 — 2,229 — Purchase of 2,297,911 shares of common stock — — — — ( 104,444 ) ( 104,444 ) — Dividends on common stock ($ 0.46 per share) — — ( 30,864 ) — — ( 30,864 ) — Equity compensation activity, 156,297 shares — ( 4,942 ) — — 672 ( 4,270 ) — Non-cash equity compensation expense — 10,807 — — — 10,807 — Investment in noncontrolling interest — — — — — — 35,322 Purchase accounting adjustments — — — — — — ( 1,766 ) Distribution to noncontrolling interest — — — — — — ( 35 ) BALANCE, December 31, 2021 805 121,904 1,667,104 ( 20,604 ) ( 441,659 ) 1,327,550 35,947 Net income attributable to Werner — — 241,256 — — 241,256 — Net income attributable to noncontrolling interest — — — — — — 4,324 Other comprehensive income — — — 9,312 — 9,312 — Purchase of 2,710,304 shares of common stock — — — — ( 110,400 ) ( 110,400 ) — Dividends on common stock ($ 0.51 per share) — — ( 32,487 ) — — ( 32,487 ) — Equity compensation activity, 143,195 shares — ( 4,553 ) — — 471 ( 4,082 ) — Non-cash equity compensation expense — 12,486 — — — 12,486 — Distribution to noncontrolling interest — — — — — — ( 1,572 ) BALANCE, December 31, 2022 $ 805 $ 129,837 $ 1,875,873 $ ( 11,292 ) $ ( 551,588 ) $ 1,443,635 $ 38,699 See Notes to Consolidated Financial Statements. 33 Table of Contents WERNER ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation : The accompanying consolidated financial statements include the accounts of Werner Enterprises, Inc. and its subsidiaries (collectively, the “Company”). All significant intercompany accounts and transactions relating to these entities have been eliminated. Nature of Business : The Company is a truckload transportation and logistics provider operating under the jurisdiction of the U.S. Department of Transportation, similar governmental transportation agencies in the foreign countries in which we operate and various U.S. state regulatory authorities. Our ten largest customers comprised 46 % of our revenues for the year ended December 31, 2022, and 49 % for the years ended December 31, 2021 and 2020. Our largest customer, Dollar General, accounted for 14 % of our total revenues in 2022 and 2021, and 12 % in 2020. Revenues generated by Dollar General are reported in both of our reportable operating segments. Dollar General accounted for 13 % and 16 % of our accounts receivable, trade balance as of December 31, 2022 and 2021, respectively. Use of Management Estimates : The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the (i) reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and (ii) reported amounts of revenues and expenses during the reporting period. The most significant estimates that affect our financial statements include the accrued liabilities for insurance and claims and useful lives and salvage values of property and equipment. Actual results could differ from those estimates. Cash and Cash Equivalents : We consider all highly liquid investments, purchased with a maturity of three months or less, to be cash equivalents. Accounts at banks with an aggregate excess of the amount of checks issued over cash balances are included in current liabilities in the consolidated balance sheets, and changes in such accounts are reported as a financing activity in the consolidated statements of cash flows. Trade Accounts Receivable: We record trade accounts receivable at the invoiced amounts, net of an allowance for doubtful accounts for potentially uncollectible receivables. We review the financial condition of customers for granting credit and determine the allowance based on analysis of individual customers’ financial condition, historical write-off experience and national economic conditions. We evaluate the adequacy of our allowance for doubtful accounts quarterly. Past due balances over 90 days and exceeding a specified amount are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. We do not have any off-balance-sheet credit exposure related to our customers. Inventories and Supplies : Inventories and supplies are stated at the lower of average cost and net realizable value and consist primarily of revenue equipment parts, tires, fuel and supplies. Tires placed on new revenue equipment are capitalized as a part of the equipment cost. Replacement tires are expensed when placed in service. Property, Equipment, and Depreciation : Additions and improvements to property and equipment are capitalized at cost, while maintenance and repair expenditures are charged to operations as incurred. Gains and losses on the sale or exchange of property and equipment are recorded in other operating expenses. Depreciation is calculated based on the cost of the asset, reduced by the asset’s estimated salvage value, using the straight-line method. Accelerated depreciation methods are used for income tax purposes. The lives and salvage values assigned to certain assets for financial reporting purposes are different than for income tax purposes. For financial reporting purposes, assets are generally depreciated using the following estimated useful lives and salvage values: Lives Salvage Values Building and improvements 30 years 0 % Tractors 80 months $ 0 - $ 10,000 Trailers 12 years $ 6,000 Service and other equipment 3 - 10 years 0 % Depreciation expense was $ 273.8 million, $ 265.8 million, and $ 263.3 million for the years ended December 31, 2022, 2021, and 2020 respectively, and is reported in depreciation and amortization on the consolidated statements of income. 34 Table of Contents Due to the ongoing stronger used trailer market and the increasing cost of new trailers, a change in accounting estimate was made during the first quarter of 2022, which decreased depreciation expense by $ 12.7 million in 2022. 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. Goodwill: Goodwill represents the excess of cost over the fair value of net identifiable tangible and intangible assets acquired in business combinations and is allocated to reporting units that are expected to benefit from the combinations. Goodwill is not amortized, but rather is tested for impairment annually in the fourth quarter, or more frequently if indicators of a potential impairment exist. Impairment exists when the carrying amount of a reporting unit that includes goodwill exceeds its fair value, resulting in an impairment charge for the excess up to the amount of goodwill allocated to the reporting unit. To test goodwill for impairment, we have the option to first perform a qualitative assessment to determine if it is more likely than not that the carrying amount of a reporting unit exceeds its fair value. If a qualitative test indicates a potential for impairment, a quantitative impairment test must be performed. Alternatively, we may bypass the qualitative assessment and perform a quantitative impairment test. A qualitative assessment considers relevant events and circumstances such as macroeconomic, industry, and market conditions; legal, regulatory, and competitive environments; and overall financial performance. For a quantitative impairment test, we estimate the fair values of the goodwill reporting units and compare it to their carrying values. The estimated fair values of the reporting units are established using a combination of the income and market approaches. No impairment charges have resulted from the annual impairment tests. Amortization of Intangible Assets: Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives, ranging from ten to 12 years. Long-Lived Assets and Intangible Assets: We review our long-lived assets and finite-lived intangible assets for impairment whenever events or circumstances indicate the carrying amount of such assets may not be recoverable. If based on that review, changes in circumstances indicate that the carrying amount of such assets may not be recoverable, we evaluate recoverability by comparing the undiscounted cash flows associated with the asset to the asset's carrying amount. We also evaluate the remaining useful lives of intangible assets to determine if events or trends warrant a revision to the remaining period of amortization. An impairment loss would be recognized if the carrying amount of the long-lived asset or intangible asset is not recoverable and the carrying amount exceeds its fair value. For long-lived assets classified as held and used, the carrying amount is not recoverable when the carrying value of the long-lived asset exceeds the sum of the future net cash flows. We do not separately identify assets by operating segment because tractors and trailers are routinely transferred from one operating fleet to another. As a result, none of our long-lived assets have identifiable cash flows from use that are largely independent of the cash flows of other assets and liabilities. Thus, the asset group used to assess impairment would include all of our assets. No impairment charges were recorded during the years ended December 31, 2022, 2021, and 2020. Insurance and Claims Accruals : 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; the costs of group health and workers’ compensation claims are included in salaries, wages and benefits expense. The insurance and claims accruals are recorded at the estimated ultimate payment amounts. 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. 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, 2022 and are responsible for the first $ 10.0 million per claim on all claims with an annual $ 10.0 million aggregate for claims between $ 10.0 million and $ 20.0 million. For the policy year that began August 1, 2021, we were responsible for the first $ 10.0 million per claim on all claims with an annual $ 10.0 million aggregate for claims between $ 10.0 million and $ 15.0 million. For the policy year that began on August 1, 2020, we were responsible for the first $ 10.0 million per claim with no 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 and deductible. We maintain liability insurance coverage with insurance carriers in 35 Table of Contents excess of the $ 10.0 million per claim. We are also responsible for administrative expenses for each occurrence involving bodily injury or property damage. Our SIR for workers’ compensation claims is $ 2.0 million per claim, with premium-based coverage (issued by insurance companies) 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. We also maintain a $ 25.0 million bond for the State of Nebraska and a $ 14.5 million bond for our workers’ compensation insurance carrier. Under these insurance arrangements, we maintained $ 46.8 million in letters of credit as of December 31, 2022. Revenue Recognition: The consolidated statements of income reflect recognition of operating revenues (including fuel surcharge revenues) and related direct costs over time as control of the promised services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. 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). Foreign Currency Translation: Local currencies are generally considered the functional currencies outside the United States. Assets and liabilities are translated at year-end exchange rates for operations in local currency environments. Foreign revenues and expense items denominated in the functional currency are translated at the average rates of exchange prevailing during the year. Foreign currency translation adjustments reflect the changes in foreign currency exchange rates applicable to the net assets of the foreign operations. Foreign currency translation adjustments are recorded in accumulated other comprehensive loss within stockholders’ equity in the consolidated balance sheets and as a separate component of comprehensive income in the consolidated statements of comprehensive income. 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. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 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. We recognize interest and penalties directly related to income tax matters in income tax expense. Common Stock and Earnings Per Share: Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and restricted stock awards. There are no differences in the numerators of our computations of basic and diluted earnings per share for any periods presented. The computation of basic and diluted earnings per share is shown below (in thousands, except per share amounts). Years Ended December 31, 2022 2021 2020 Net income attributable to Werner $ 241,256 $ 259,052 $ 169,078 Weighted average common shares outstanding 64,125 67,434 69,018 Dilutive effect of stock-based awards 454 421 409 Shares used in computing diluted earnings per share 64,579 67,855 69,427 Basic earnings per share $ 3.76 $ 3.84 $ 2.45 Diluted earnings per share $ 3.74 $ 3.82 $ 2.44 There were no options to purchase shares of common stock that were outstanding during the periods indicated above that were excluded from the computation of diluted earnings per share because the option purchase price was greater than the average market price of the common shares during the period. Performance awards are excluded from the calculation of dilutive potential common shares until the threshold performance conditions have been satisfied. 36 Table of Contents Equity Compensation : We have an equity compensation plan that provides for grants of non-qualified stock options, restricted stock and units (“restricted awards”), performance awards and stock appreciation rights to our associates and directors. We apply the fair value method of accounting for equity compensation awards. Issuances of stock upon an exercise of stock options or vesting of restricted stock are made from treasury stock; shares reacquired to satisfy tax withholding obligations upon vesting of restricted stock are recorded as treasury stock. Grants of stock options, restricted stock, and performance awards vest in increments, and we recognize compensation expense over the requisite service period of each award. We accrue compensation expense for performance awards for the estimated number of shares expected to be issued using the most current information available at the date of the financial statements. If the performance objectives are not met, no compensation expense will be recognized, and any previously recognized compensation expense will be reversed. We account for forfeitures in the period in which they occur. Comprehensive Income : Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) refers to revenues, expenses, gains and losses that are not included in net income, but rather are recorded directly in stockholders’ equity. For the years ended December 31, 2022, 2021, and 2020, 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, 2022 and 2021, consisted of foreign currency translation adjustment losses of $ 16.2 million and $ 18.6 million, respectively, and gains of $ 4.9 million and losses of $ 2.0 million related to changes in fair value of interest rate swaps, net of tax, respectively. New Accounting Pronouncements Adopted: In 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 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 2022 Business Acquisitions ReedTMS Acquisition On November 5, 2022, we acquired 100 % of the equity interests in Reed Transport Services, Inc. and RTS-TMS, Inc., doing business as ReedTMS Logistics (“ReedTMS”), for a total purchase price of $ 109.2 million after including the impacts of working capital adjustments, cash acquired, net present value of future insurance payments, and contingent consideration. The contingent consideration arrangement, also referred to as earnout, requires us to pay the former owners of ReedTMS an additional amount in cash if ReedTMS achieves certain performance financial goals over a one-year period beginning January 1, 2023. The potential undiscounted future contingent earnout payment that we could be required to make is between $ 0 and $ 7.5 million. On a pro forma basis (unaudited), operating revenues for ReedTMS for the year ended December 31, 2022 was $ 368.5 million and operating revenues for ReedTMS for the year ended December 31, 2021 was $ 339.8 million. We financed the transaction through existing credit facilities. ReedTMS, based in Tampa, Florida, is an asset-light logistics provider and dedicated truckload carrier that offers a comprehensive suite of freight brokerage and truckload solutions to a diverse customer base. The acquisition further strengthens our freight brokerage capabilities and elevates our logistics portfolio with new customers. The results of operations for ReedTMS are included in our consolidated financial statements beginning November 5, 2022. Freight brokerage and truckload revenues generated by ReedTMS are reported in our Werner Logistics segment and in Dedicated within our Truckload Transportation Services (“TTS”) segment, respectively. We incurred transaction costs related to the acquisition, such as legal and professional fees, of $ 0.7 million for the year ended December 31, 2022, which is included in other operating expenses on the consolidated statements of income. Baylor Acquisition On October 1, 2022, we acquired 100 % of the equity interests in FAB9, Inc., doing business as Baylor Trucking, Inc. (“Baylor”), for a final total purchase price of $ 89.0 million after including the impacts of working capital adjustments, cash acquired, and contingent consideration. The contingent consideration arrangement requires us to pay the former owner of Baylor an additional amount in cash if Baylor achieves certain performance financial goals over a three-year period beginning on November 1, 2022. The potential undiscounted future contingent earnout payment that we could be required to make is between $ 0 and $ 15.0 million. We financed the transaction through existing credit facilities. Baylor, based in Milan, Indiana, operates 200 trucks and 980 trailers in the east central and south central United States. The acquisition expands our terminal, fleet, and professional driver presence in these geographic truckload markets and adds two terminals to our network. 37 Table of Contents The results of operations for Baylor are included in our consolidated financial statements beginning October 1, 2022. Revenues generated by Baylor are reported in One-Way Truckload within our TTS segment. We incurred transaction costs related to the acquisition, such as legal and professional fees, of $ 0.4 million for the year ended December 31, 2022, which is included in other operating expenses on the consolidated statements of income. Purchase Price Allocations We accounted for the ReedTMS and Baylor purchases using the acquisition method of accounting under U.S. generally accepted accounting principles (GAAP). The purchase price of each acquisition 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 for ReedTMS and Baylor, pending the completion of acquired tangible assets valuations, independent valuations of certain acquired intangible assets, and calculations 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 in the ReedTMS and Baylor acquisitions; however, these provisional estimates may be adjusted upon the availability of new information regarding facts and circumstances which existed at the acquisition dates, and such adjustments may impact future earnings. We expect to finalize the valuation of assets and liabilities for ReedTMS and Baylor as soon as practicable, but not later than one year from the respective acquisition dates. Any adjustments to the initial estimates of the fair value of the acquired assets and liabilities assumed in the ReedTMS and Baylor acquisitions will be recorded as adjustments to the respective assets and liabilities, with the residual amounts allocated to goodwill. The provisional purchase price allocations for ReedTMS and Baylor as of December 31, 2022 are summarized as follows (in thousands): ReedTMS Baylor Purchase Price Cash consideration paid $ 116,989 (1) $ 90,150 (2) Cash and cash equivalents acquired ( 12,120 ) ( 10,150 ) Contingent consideration arrangement 5,000 (3) 8,400 (3) Working capital surplus (deficiency) ( 689 ) 643 Total purchase price (fair value of consideration) 109,180 89,043 Purchase Price Allocation Current assets 52,531 11,371 Property and equipment 35,000 54,639 Intangible assets 12,000 20,300 Other non-current assets 7,927 556 Total assets acquired 107,458 86,866 Current liabilities ( 45,497 ) ( 2,993 ) Other long-term liabilities ( 5,622 ) ( 302 ) Total liabilities assumed ( 51,119 ) ( 3,295 ) Goodwill $ 52,841 $ 5,472 (1) Includes $ 0.9 million related to the net present value of future insurance payments. At closing, $ 11.5 million of the cash consideration was placed in escrow to secure certain indemnification obligations of the sellers and to cover post-closing adjustments. (2) At closing, $ 8.5 million of the cash consideration was placed in escrow to secure certain indemnification obligations of the sellers and to cover post-closing adjustments. (3) The estimated fair value of the ReedTMS and Baylor contingent consideration arrangements was based upon probability-adjusted inputs for each acquired entity and are recorded in other long-term liabilities on the consolidated balance sheet as of December 31, 2022. Goodwill and Intangible Assets Goodwill associated with the ReedTMS and Baylor business acquisitions was primarily attributable to acquiring and retaining each of the companies’ existing networks and the anticipated synergies from combining the operations of the Company and the acquired companies. The goodwill associated with the acquisitions above is expected to be deductible for income tax purposes. We have allocated a total of $ 32.3 million of the purchase prices above 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 38 Table of Contents 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. 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 (Years) Customer relationships $ 24,700 10 Trade names 7,600 12 Total intangible assets $ 32,300 2021 Business Acquisitions NEHDS Acquisition On November 22, 2021, we acquired 100 % of the equity interests in NEHDS Logistics, LLC (“NEHDS”). In first quarter 2022, post-closing net working capital changes of $ 0.7 million decreased the purchase price, resulting in a final total purchase price of $ 62.3 million after including the impacts of contingent consideration and net working capital changes. We financed the transaction through a combination of cash on hand and existing credit facilities. NEHDS is a final mile residential delivery provider serving customers primarily in the Northeast and Midwest United States markets. 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. Revenues generated by NEHDS are reported in Final Mile within our Werner Logistics (“Logistics”) segment. The contingent earnout liability was $ 0 and $ 2.5 million as of December 31, 2022 and 2021, respectively. The contingent earnout period related to the NEHDS acquisition ended on December, 31, 2022 and did not result in any additional cash payments, as the financial performance goals were not achieved. This favorable change to the contingent earnout liability was recorded in other operating expense on the consolidated statements of income for the year ended December 31, 2022. We incurred transaction costs related to the acquisition, such as legal and professional fees, of $ 0.6 million for the year ended December 31, 2021, which is included in other operating expenses on the consolidated statements of income. ECM Acquisition On July 1, 2021, we acquired an 80 % ownership interest in ECM Associated, LLC ("ECM”) for a final total purchase price of $ 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 balance sheets. ECM provides regional truckload carrier services in the Mid-Atlantic, Ohio, and Northeast regions of the United States. 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 8 – Debt and Credit Facilities. The results of operations for ECM are included in our consolidated financial statements beginning July 1, 2021. Revenues generated by ECM are reported in our TTS segment. We incurred transaction costs related to the ECM acquisition, such as legal and professional fees, of $ 1.0 million for the year ended December 31, 2021, which is included in other operating expenses on the consolidated statements of income. (3) REVENUE Revenue Recognition Revenues are recognized over time as control of the promised services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. 39 Table of Contents The following table presents our revenues disaggregated by revenue source (in thousands): Years Ended December 31, 2022 2021 2020 Truckload Transportation Services $ 2,428,686 $ 2,045,073 $ 1,843,209 Werner Logistics 793,492 622,461 469,791 Inter-segment eliminations ( 5,218 ) ( 899 ) ( 107 ) Transportation services 3,216,960 2,666,635 2,312,893 Other revenues 73,018 67,737 59,285 Total revenues $ 3,289,978 $ 2,734,372 $ 2,372,178 The following table presents our revenues disaggregated by geographic areas in which we conduct business (in thousands). Operating revenues for foreign countries include revenues for (i) shipments with an origin or destination in that country and (ii) other services provided in that country. If both the origin and destination are in a foreign country, the revenues are attributed to the country of origin. Years Ended December 31, 2022 2021 2020 United States $ 3,051,788 $ 2,532,720 $ 2,144,105 Mexico 191,126 156,405 149,438 Other 47,064 45,247 78,635 Total revenues $ 3,289,978 $ 2,734,372 $ 2,372,178 Transportation Services We generate nearly all of our revenues by transporting truckload freight shipments for our customers. Transportation services are carried out by our TTS segment and our Logistics segment. The TTS segment utilizes company-owned and independent contractor trucks to deliver shipments, while the Logistics segment uses third-party capacity providers. We generate revenues from billings for transportation services under contracts with customers, generally on a rate per mile or per shipment, based on origin and destination of the shipment. Our performance obligation arises when we receive a shipment order to transport a customer’s freight and is satisfied upon delivery of the shipment. The transaction price may be defined in a transportation services agreement or negotiated with the customer prior to accepting the shipment order. A customer may submit several shipment orders for transportation services at various times throughout a service agreement term, but each shipment represents a distinct service that is a separately identified performance obligation. We often provide additional or ancillary services as part of the shipment (such as loading/unloading and stops in transit) which are not distinct or are not material in the context of the contract; therefore, the revenues for these services are recognized with the freight transaction price. The average transit time to complete a shipment is approximately 3 days. Invoices for transportation services are typically generated soon after shipment delivery and, while payment terms and conditions vary by customer, are generally due within 30 days after the invoice date. The consolidated statements of income reflect recognition of transportation revenues (including fuel surcharge revenues) and related direct costs over time as the shipment is being delivered. We use distance shipped (for the TTS segment) and transit time (for the Logistics segment) to measure progress and the amount of revenues recognized over time, as the customer simultaneously receives and consumes the benefit. Determining a measure of progress requires us to make judgments that affect the timing of revenues recognized. We have determined that the methods described provide a faithful depiction of the transfer of services to the customer. 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. 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. Other Revenues Other revenues include revenues from our driver training schools, transportation-related activities such as third-party equipment maintenance and equipment leasing, and other business activities. These revenues are generally recognized over time and 40 Table of Contents accounted for 2 % of our total revenues in 2022, 2021 and 2020. Revenues from our driver training schools require us to make judgments regarding price concessions in determining the amount of revenues to recognize. Contract Balances and Accounts Receivable A receivable is an unconditional right to consideration and is recognized when shipments have been completed and the related performance obligation has been fully satisfied. At December 31, 2022 and 2021, the accounts receivable, trade, net, balance was $ 518.8 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 December 31, 2022 and 2021, the balance of contract assets was $ 8.9 million and $ 9.0 million, respectively. We have recognized contract assets within the other current assets financial statement caption on the consolidated balance sheets. These contract assets are considered current assets as they will be settled in less than 12 months. Contract liabilities represent advance consideration received from customers and are recognized as revenues over time as the related performance obligation is satisfied. At December 31, 2022 and 2021, the balance of contract liabilities was $ 0.9 million and $ 1.2 million, respectively. The amount of revenues recognized in 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 balance sheets. These contract liabilities are considered current liabilities as they will be settled in less than 12 months. Performance Obligations We have elected to apply the practical expedient in 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 2022, 2021, and 2020, revenues recognized from performance obligations related to prior periods (for example, due to changes in transaction price) were not material. (4) GOODWILL AND INTANGIBLE ASSETS The following table summarizes changes in the carrying amount of goodwill by segment for the years ended December 31, 2022 and 2021 (in thousands): TTS Werner Logistics Total Balance as of December 31, 2020 $ — $ — $ — Goodwill recorded in acquisition of NEHDS — 36,534 36,534 Goodwill recorded in acquisition of ECM 44,710 — 44,710 Purchase accounting adjustments (1) ( 6,626 ) — ( 6,626 ) Balance as of December 31, 2021 38,084 36,534 74,618 Goodwill recorded in acquisition of ReedTMS 10,341 42,500 52,841 Goodwill recorded in acquisition of Baylor 5,472 — 5,472 Purchase accounting adjustments (2) — ( 214 ) ( 214 ) Balance as of December 31, 2022 $ 53,897 $ 78,820 $ 132,717 (1) The purchase accounting adjustments are primarily attributable to post-closing adjustments related to net assets assumed in, and the redeemable noncontrolling interest associated with, the acquisition of ECM. (2) The purchase accounting adjustments consist of post-closing adjustments related to net assets assumed in the acquisition of NEHDS. 41 Table of Contents Acquired intangible assets consists of the following as of December 31, 2022 and 2021 (in thousands): December 31, 2022 2021 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships $ 64,900 $ ( 5,714 ) $ 59,186 $ 40,200 $ ( 1,177 ) $ 39,023 Trade names 24,600 ( 2,284 ) 22,316 17,000 ( 708 ) 16,292 Total intangible assets $ 89,500 $ ( 7,998 ) $ 81,502 $ 57,200 $ ( 1,885 ) $ 55,315 Amortization expense on intangible assets was $ 6.1 million and $ 1.9 million for the years ended December 31, 2022 and 2021, respectively, and is reported in depreciation and amortization on the consolidated statements of income. No amortization expense on intangible assets was recorded for the year ended December 31, 2020. As of December 31, 2022, the estimated future amortization expense for intangible assets by year is as follows (in thousands): Estimated Amortization Expense 2023 $ 8,540 2024 8,540 2025 8,540 2026 8,540 2027 8,540 Thereafter (to 2034) 38,802 Total $ 81,502 (5) LEASES We have entered into operating leases primarily for real estate. The leases have terms which range from 1 year to 18 years, and some include options to renew. Renewal terms are included in the lease term when it is reasonably certain that we will exercise the option to renew. Operating leases are included in other non-current assets, other current liabilities and other long-term liabilities on the consolidated balance sheets. These assets and liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date, using our incremental borrowing rate because the rate implicit in each lease is not readily determinable. We have certain contracts for real estate that may contain lease and non-lease components which we have elected to treat as a single lease component. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Variable lease expense is recognized in the period in which the obligation for those payments is incurred. Lease expense is reported in rent and purchased transportation on the consolidated statements of income. The following table presents balance sheet and other operating lease information (dollars in thousands): December 31, 2022 2021 Balance Sheet Classification Right-of-use assets (recorded in other non-current assets) $ 40,963 $ 28,458 Current lease liabilities (recorded in other current liabilities) $ 9,396 $ 6,380 Long-term lease liabilities (recorded in other long-term liabilities) 32,897 22,634 Total operating lease liabilities $ 42,293 $ 29,014 Other Information Weighted-average remaining lease term for operating leases 6.43 years 7.63 years Weighted-average discount rate for operating leases 3.3 % 2.7 % 42 Table of Contents The following table presents the maturities of operating lease liabilities as of December 31, 2022 (in thousands): Maturity of Lease Liabilities 2023 $ 10,595 2024 9,502 2025 7,441 2026 5,700 2027 3,887 Thereafter 9,429 Total undiscounted operating lease payments $ 46,554 Less: Imputed interest ( 4,261 ) Present value of operating lease liabilities $ 42,293 Cash Flows During the years ended December 31, 2022, 2021, and 2020, right-of-use assets of $ 14.7 million, $ 8.2 million, and $ 2.8 million, respectively, were recognized as non-cash asset additions that resulted from new operating lease liabilities, and we acquired right-of-use assets of $ 8.3 million and $ 15.6 million as a result of our business acquisitions during the years ended December 31, 2022 and 2021, respectively. Cash paid for amounts included in the present value of operating lease liabilities was $ 8.5 million, $ 4.6 million, and $ 3.9 million during the years ended December 31, 2022, 2021, and 2020, respectively, and are included in operating cash flows. Operating Lease Expense Operating lease expense was $ 22.1 million, $ 15.7 million, and $ 10.1 million during the years ended December 31, 2022, 2021, and 2020, respectively. This expense included $ 9.4 million, $ 4.8 million, and $ 3.8 million for long-term operating leases for the years ended December 31, 2022, 2021, and 2020, 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. Revenues for the years ended December 31, 2022, 2021, and 2020 were $ 10.7 million, $ 11.7 million, and $ 12.6 million, respectively. The following table presents information about the maturities of these operating leases as of December 31, 2022 (in thousands): 2023 $ 7,244 2024 575 2025 287 2026 295 2027 74 Thereafter — Total $ 8,475 (6) FAIR VALUE Fair Value Measurement — Definition and Hierarchy ASC 820-10, Fair Value Measurement , defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. ASC 820-10 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of the Company. Unobservable inputs reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability, developed based on the best information available in the circumstances. 43 Table of Contents The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows: Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Level 2 — Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Such inputs include quoted prices in markets that are not active, quoted prices for similar assets and liabilities in active and inactive markets, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means. 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. In general, and where applicable, we use quoted prices in active markets for identical assets or liabilities to determine fair value. This pricing methodology applies to our Level 1 assets and liabilities. If quoted prices in active markets for identical assets and liabilities are not available to determine fair value, then we use quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable, either directly or indirectly. This pricing methodology would apply to Level 2 assets and liabilities. The following table presents the Company's fair value hierarchy for assets and liabilities measured at fair value on a recurring basis (in thousands): Fair Value Level in Fair December 31, Value Hierarchy 2022 2021 Assets: Other non-current assets: Equity securities (1) 1 $ 723 $ 17,166 Liabilities: Other long-term liabilities: Contingent consideration associated with acquisitions 3 13,400 2,500 (1) Represents our investments in autonomous technology companies. For additional information regarding the valuation of these equity securities, see Note 7 – Investments. The following table presents changes in the fair value of contingent consideration for the years ended December 31, 2022 and 2021 (in thousands): Balance as of December 31, 2020 $ — Contingent consideration associated with the acquisition of NEHDS (1) 2,500 Balance as of December 31, 2021 2,500 Contingent consideration associated with the acquisition of Baylor (1) 8,400 Contingent consideration associated with the acquisition of ReedTMS (1) 5,000 Change in fair value (2) ( 2,500 ) Balance as of December 31, 2022 $ 13,400 (1) The estimated fair value of our contingent consideration arrangements were based upon probability-adjusted inputs for each acquired entity. For additional information regarding our contingent consideration arrangements, see Note 2 – Business Acquisitions. (2) The contingent earnout period related to the NEHDS acquisition ended on December, 31, 2022 and did not result in any additional cash payments, as the financial performance goals were not achieved. The change in the contingent earnout liability was recorded in other operating expense on the consolidated statements of income. Our ownership interests in Mastery Logistics Systems, Inc. (“MLSI”) and Fleet Defender, Inc. do not have readily determinable fair values and are accounted for using the measurement alternative in ASC 321, Investments - Equity Securities . For additional information regarding the valuation of these investments, see Note 7 – Investments. 44 Table of Contents Fair Value of Financial Instruments Not Recorded at Fair Value Cash and cash equivalents, accounts receivable trade, and accounts payable are short-term in nature and accordingly are carried at amounts that approximate fair value. 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 amount of our fixed-rate debt not measured at fair value on a recurring basis was $ 93.8 million and $ 97.5 million as of December 31, 2022 and 2021, respectively. The estimated fair value of our fixed-rate debt using the income approach, based on its net present value, discounted at our current borrowing rate, was $ 87.2 million as of December 31, 2022 (categorized as Level 2 of the fair value hierarchy) and approximated the carrying value as of December 31, 2021. The carrying amount of our variable-rate long-term debt approximates fair value due to the duration of our credit arrangement and the variable interest rate (categorized as Level 2 of the fair value hierarchy). (7) INVESTMENTS Equity Investments without Readily Determinable Fair Values Our strategic equity investments without readily determinable fair values include MLSI, a transportation management systems company, and Fleet Defender, Inc., a platform cybersecurity company for fleet owners. MLSI is developing a cloud-based transportation management system using MLSI's SaaS technology which we have agreed to license. These investments are being accounted for under ASC 321 using the measurement alternative, and are recorded in other noncurrent assets on the consolidated balance sheets. We record changes in the values of these investments based on events that occur that would indicate the values have changed, in gain or loss on investments in equity securities on the consolidated statements of income. As of December 31, 2022 and 2021, the value of our investment in MLSI was $ 86.8 million and $ 38.2 million, respectively, and the value of our investment in Fleet Defender, Inc. was $ 250 thousand as of December 31, 2022. The following table summarizes the activity related to our equity investments without readily determinable fair values during the periods presented. Years Ended December 31, 2022 2021 2020 Investment in equity securities $ 20,250 $ 5,000 $ 5,000 Upward adjustments (1) 28,638 28,151 — (1) During 2022 and 2021, investments by third-parties resulted in the remeasurements of our investment in MLSI. Our updated investment values were based upon the prices paid by third parties. As of December 31, 2022, cumulative upward adjustments on our equity securities without readily determinable fair values totaled $ 56.8 million. Equity Investments with Readily Determinable Fair Values 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 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. As of December 31, 2022 and 2021, the value of these investments were $ 0.7 million and $ 17.2 million, respectively. We recognized a net unrealized loss of $ 16.4 million and a net unrealized gain of $ 12.1 million on these investments for the years ended December 31, 2022 and 2021, respectively. For additional information regarding the fair value of these equity investments, see Note 6 – Fair Value. (8) DEBT AND CREDIT FACILITIES On December 20, 2022, we entered into a $ 1.075 billion unsecured credit facility with a group of lenders (the “2022 Credit Agreement”), replacing our previous unsecured credit facility with BMO Harris Bank N.A. (“BMO Harris”), dated May 14, 2019, as amended (the “BMO Line of Credit”), and the credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”), dated March 25, 2022 (the “Wells Credit Agreement”). The BMO Line of Credit and Wells Credit Agreement are described below. The 2022 Credit Agreement is scheduled to mature on December 20, 2027 and has a $ 100.0 million maximum limit for the aggregate amount of letters of credit issued. The proceeds of the 2022 Credit Agreement may be used for working capital and other general corporate purposes, including the financing of acquisitions and other investments permitted under the agreement. Revolving credit loans drawn under the 2022 Credit Agreement bear interest, at our option, at (i) the Base Rate (the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.50 %, or (c) the one-month Term SOFR plus 1.10 %), plus a margin 45 Table of Contents ranging between 0.125 % and 0.750 %, or (ii) Term SOFR plus 0.10 % and a margin ranging between 1.125 % and 1.750 %. Swingline loans drawn under the 2022 Credit Agreement bear interest at the Base Rate, as defined above, plus a margin ranging between 0.125 % and 0.750 %. The 2022 Credit Agreement also requires us to pay quarterly (i) a letter of credit commission on the daily amount available to be drawn under such standby letters of credit at rates ranging between 1.125 % and 1.750 % per annum and (ii) a nonrefundable commitment fee on the average daily unused amount of the commitment at rates ranging between 0.125 % and 0.250 % per annum. The margin, letter of credit commission, and commitment fee rates are based on our ratio of net funded debt to earnings before interest, income taxes, depreciation and amortization (“EBITDA”). There are no scheduled principal payments due on the 2022 Credit Agreement until the maturity date, and interest is payable in arrears at periodic intervals not to exceed three months. On March 25, 2022, we entered into the Wells Credit Agreement and a second amendment to the BMO Line of Credit. The Wells Credit Agreement replaced our previous credit agreement with Wells Fargo dated May 14, 2019, as amended. The Wells Credit Agreement provided 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 was scheduled to expire on May 14, 2024. The Wells Credit Agreement also provided for an unsecured term loan commitment not to exceed a principal amount of $ 100.0 million ("Wells Term Loan"). The Wells Term Loan was fully funded on March 25, 2022 and there were no principal payments required prior to its scheduled maturity on May 14, 2024. Amounts drawn under the Wells Line of Credit and the outstanding principal balance of the Wells Term Loan bore interest either, at our option, at a variable or fixed interest rate based on SOFR plus a SOFR rate adjustment and a margin rate based on our ratio of total funded debt to EBITDA, payable monthly. The second amendment to the BMO Line of Credit increased the borrowing capacity 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 bore interest, for a selected interest period, at a variable rate based on the SOFR plus a SOFR rate adjustment and a margin rate based on our ratio of total funded debt to EBITDA, payable at the end of the applicable interest period. On December 20, 2022, we paid off and terminated the Wells Line of Credit and Wells Term Loan under the Wells Credit Agreement and the BMO Line of Credit using the proceeds from the 2022 Credit Agreement discussed above. On June 30, 2021, we entered into 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 December 31, 2022 and 2021, our outstanding debt totaled $ 693.8 million and $ 427.5 million, respectively. As of December 31, 2022, we had an outstanding revolving credit loan balance of $ 600.0 million under the 2022 Credit Agreement, including (i) $ 450.0 million at a variable interest rate of 5.67 % and (ii) $ 150.0 million which is effectively fixed at 2.78 % with two interest rate swap agreements through May 14, 2024. In addition, as of December 31, 2022, we had $ 93.8 million outstanding under the BMO Term Loan at a fixed interest rate of 1.28 %. The $ 1.075 billion of borrowing capacity under our 2022 Credit Agreement at December 31, 2022, is further reduced by $ 58.8 million in stand-by letters of credit under which we are obligated. Availability of such funds under the current debt agreements is conditional upon various customary terms and covenants. Such covenants include, among other things, two financial covenants requiring us (i) not to exceed a maximum ratio of net funded debt to EBITDA and (ii) to exceed a minimum ratio of EBITDA to interest expense. As of December 31, 2022 we were in compliance with these covenants. At December 31, 2022, the aggregate future maturities of long-term debt by year are as follows (in thousands): 2023 $ 6,250 2024 87,500 2025 — 2026 — 2027 600,000 Total $ 693,750 46 Table of Contents (9) NOTES RECEIVABLE We provide financing to some individuals who want to become independent contractors by purchasing a tractor from us and leasing their services to us. We maintain a primary security interest in the tractor until the independent contractor pays the note balance in full. Independent contractor notes receivable are included in other current assets and other non-current assets in the consolidated balance sheets. At December 31, notes receivable consisted of the following (in thousands): December 31, 2022 2021 Independent contractor notes receivable $ 8,287 $ 7,358 Other notes receivable 7,921 10,665 Notes receivable 16,208 18,023 Less current portion 2,691 3,386 Notes receivable – non-current $ 13,517 $ 14,637 We also provide financing to some individuals who attended our driver training schools. The student notes receivable are included in other receivables and other non-current assets in the consolidated balance sheets. At December 31, student notes receivable consisted of the following (in thousands): December 31, 2022 2021 Student notes receivable $ 63,351 $ 62,791 Allowance for doubtful student notes receivable ( 23,491 ) ( 22,911 ) Total student notes receivable, net of allowance 39,860 39,880 Less current portion, net of allowance 12,574 13,416 Student notes receivable – non-current $ 27,286 $ 26,464 Subsequent Event - MLSI Subordinated Promissory Note On January 24, 2023, we purchased a $ 25.0 million subordinated promissory note from MLSI with a maturity date of January 24, 2030. The proceeds of the promissory note may be used by MLSI for working capital and general business purposes, including a limited amount for possible repayment of certain advances. There are no scheduled principal payments due on the promissory note until the maturity date, and interest accrues at 7.5 % compounded annually, with the first accrued interest payment due on January 24, 2028, and at the end of each calendar year thereafter. (10) INCOME TAXES Income tax expense consisted of the following (in thousands): Years Ended December 31, 2022 2021 2020 Current: Federal $ 23,741 $ 42,049 $ 53,297 State 12,423 12,787 12,106 Foreign 489 213 446 36,653 55,049 65,849 Deferred: Federal 38,521 27,593 ( 8,988 ) State 4,032 1,895 ( 1,245 ) 42,553 29,488 ( 10,233 ) Total income tax expense $ 79,206 $ 84,537 $ 55,616 47 Table of Contents The effective income tax rate differs from the federal corporate tax rate of 21% in 2022, 2021, and 2020 as follows (in thousands): Years Ended December 31, 2022 2021 2020 Tax at statutory rate $ 68,205 $ 72,663 $ 47,186 State income taxes, net of federal tax benefits 12,999 11,599 8,580 Other, net ( 1,998 ) 275 ( 150 ) Total income tax expense $ 79,206 $ 84,537 $ 55,616 At December 31, deferred income tax assets and liabilities consisted of the following (in thousands): December 31, 2022 2021 Deferred income tax assets: Insurance and claims accruals $ 59,275 $ 55,233 Compensation-related accruals 10,767 12,203 Allowance for uncollectible accounts 3,218 3,958 Operating lease liabilities 10,324 7,033 Other 981 1,644 Gross deferred income tax assets 84,565 80,071 Deferred income tax liabilities: Property and equipment 344,896 305,002 Investments in equity securities 12,818 10,985 Prepaid expenses 7,526 7,269 Operating lease right-of-use assets 10,056 6,955 Investment in partnership 19,745 17,076 Other 2,802 1,283 Gross deferred income tax liabilities 397,843 348,570 Net deferred income tax liability $ 313,278 $ 268,499 Deferred income tax assets are more likely than not to be realized as a result of the reversal of deferred income tax liabilities. We recognized a $ 54 thousand and $ 49 thousand increase in the net liability for unrecognized tax benefits for the year ended December 31, 2022, and 2021, respectively. We recognized net interest expense of $ 42 thousand, $ 10 thousand, and $ 3 thousand during 2022, 2021, and 2020, respectively. If recognized, $ 2.0 million and $ 1.9 million of unrecognized tax benefits as of December 31, 2022 and 2021, respectively, would impact our effective tax rate. Interest of $ 0.5 million and $ 0.4 million as of December 31, 2022 and 2021, respectively, has been reflected as a component of the total liability. We expect no other significant increases or decreases for uncertain tax positions during the next 12 months. The reconciliations of beginning and ending gross balances of unrecognized tax benefits for 2022 and 2021 are shown below (in thousands). December 31, 2022 2021 Unrecognized tax benefits, beginning balance $ 2,425 $ 2,363 Gross increases – tax positions in prior period 99 65 Gross increases – current period tax positions 320 320 Settlements ( 349 ) ( 323 ) Unrecognized tax benefits, ending balance $ 2,495 $ 2,425 We file U.S. federal income tax returns, as well as income tax returns in various states and several foreign jurisdictions. The years 2019 and forward are open for examination by the U.S. Internal Revenue Service (“IRS”), and various years are open for examination by state and foreign tax authorities. State and foreign jurisdictional statutes of limitations generally range from three to four years. 48 Table of Contents (11) EQUITY COMPENSATION AND EMPLOYEE BENEFIT PLANS Equity Compensation Plan 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. 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 December 31, 2022, there were 6,273,659 shares available for granting additional awards. Equity compensation expense is included in salaries, wages and benefits within the consolidated statements of income. As of December 31, 2022, the total unrecognized compensation cost related to non-vested equity compensation awards was approximately $ 14.9 million and is expected to be recognized over a weighted average period of 2.4 years. The following table summarizes the equity compensation expense and related income tax benefit recognized in the consolidated statements of income (in thousands): Years Ended December 31, 2022 2021 2020 Restricted awards: Pre-tax compensation expense $ 7,803 $ 6,349 $ 5,409 Tax benefit 1,954 1,587 1,379 Restricted stock expense, net of tax $ 5,849 $ 4,762 $ 4,030 Performance awards: Pre-tax compensation expense $ 4,690 $ 4,452 $ 3,503 Tax benefit 1,174 1,113 893 Performance award expense, net of tax $ 3,516 $ 3,339 $ 2,610 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 2023. Stock Options Stock options are granted at prices equal to the market value of the common stock on the date the option award is granted. No stock option awards were outstanding as of December 31, 2022 or 2021, and there were no stock option awards granted or exercised during the years ended December 31, 2022, 2021, or 2020. 49 Table of Contents 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 year ended December 31, 2022: Number of Restricted Awards (in thousands) Weighted- Average Grant Date Fair Value ($) Nonvested at beginning of period 356 $ 39.27 Granted 313 42.27 Vested ( 169 ) 38.46 Forfeited ( 8 ) 41.86 Nonvested at end of period 492 41.42 We estimate the fair value of restricted awards based upon the market price of the underlying common stock on the date of grant, reduced by the present value of estimated future dividends because the awards are not entitled to receive dividends prior to vesting. Our estimate of future dividends is based on the most recent quarterly dividend rate at the time of grant, adjusted for any known future changes in the dividend rate. Cash settled restricted stock units are recorded as a liability within the consolidated balance sheets and are adjusted to fair value each reporting period. The weighted-average grant date fair value of restricted awards granted during the years ended December 31, 2022, 2021, and 2020 was $ 42.27 , $ 42.69 , and $ 38.73 , respectively. The total fair value of previously granted restricted awards vested during the years ended December 31, 2022, 2021, and 2020 was $ 7.3 million, $ 6.8 million, and $ 5.4 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 year ended December 31, 2022: Number of Performance Awards (in thousands) Weighted- Average Grant Date Fair Value ($) Nonvested at beginning of period 229 $ 34.77 Granted 128 39.28 Vested ( 68 ) 32.88 Forfeited — — Nonvested at end of period 289 37.21 The 2022 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, 2022 to December 31, 2023. 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, 2024, relative to the total shareholder return of a peer group of companies for the same period. 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 2022 and 2021 performance awards will vest in one installment on the third anniversary from the respective grant dates. In January 2023, the Compensation Committee determined the 2020 fiscal year 50 Table of Contents performance objectives were achieved at a level above the target level, and the additional shares earned above the target are included in the granted shares in the activity table above. 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 weighted-average grant date fair value of performance awards granted during the years ended December 31, 2022, 2021, and 2020 was $ 39.28 , $ 38.48 , and $ 32.96 , respectively. The vesting date fair value of performance awards that vested during the years ended December 31, 2022, 2021, or 2020 was $ 3.0 million, $ 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. Employee Stock Purchase Plan Employee associates that meet certain eligibility requirements may participate in our Employee Stock Purchase Plan (the “Purchase Plan”). Eligible participants designate the amount of regular payroll deductions and/or a single annual payment (each subject to a yearly maximum amount) that is used to purchase shares of our common stock on the over-the-counter market. The maximum annual contribution amount is currently $ 20,000 . These purchases are subject to the terms of the Purchase Plan. We contribute an amount equal to 15 % of each participant’s contributions under the Purchase Plan. Interest accrues on Purchase Plan contributions at a rate of 5.25 % until the purchase is made. We pay the trading commissions and administrative charges related to purchases of common stock under the Purchase Plan. Our contributions for the Purchase Plan were as follows (in thousands): 2022 $ 309 2021 297 2020 283 401(k) Retirement Savings Plan We have an Employees’ 401(k) Retirement Savings Plan (the “401(k) Plan”). Associates are eligible to participate in the 401(k) Plan if they have been continuously employed with us or one of our subsidiaries for six months or more. We match a portion of each associate’s 401(k) Plan elective deferrals. Salaries, wages and benefits expense in the accompanying consolidated statements of income includes our 401(k) Plan contributions and administrative expenses, which were as follows (in thousands): 2022 $ 5,921 2021 4,904 2020 4,748 Nonqualified Deferred Compensation Plan The Executive Nonqualified Excess Plan (the “Excess Plan”) is our nonqualified deferred compensation plan for the benefit of eligible key managerial associates whose 401(k) Plan contributions are limited because of IRS regulations affecting highly compensated associates. Under the terms of the Excess Plan, participants may elect to defer compensation on a pre-tax basis within annual dollar limits we establish. At December 31, 2022, there were 44 participants in the Excess Plan. Although our current intention is not to do so, we may also make matching credits and/or profit sharing credits to participants’ accounts as we so determine each year. Each participant is fully vested in all deferred compensation and earnings; however, these amounts are subject to general creditor claims until distributed to the participant. Under current federal tax law, we are not allowed a current income tax deduction for the compensation deferred by participants, but we are allowed a tax deduction when a distribution payment is made to a participant from the Excess Plan. The accumulated benefit obligation is included in other long-term liabilities in the consolidated balance sheets. We purchased life insurance policies to fund the future liability. The aggregate market value of the life insurance policies is included in other non-current assets in the consolidated balance sheets. 51 Table of Contents The accumulated benefit obligation and aggregate market value of the life insurance policies were as follows (in thousands): December 31, 2022 2021 Accumulated benefit obligation $ 10,883 $ 12,755 Aggregate market value 8,509 10,621 (12) COMMITMENTS AND CONTINGENCIES We have committed to property and equipment purchases of approximately $ 278.6 million at December 31, 2022. We are involved in certain claims and pending litigation, including those described herein, arising in the ordinary course of business. The majority of these claims relate to bodily injury, property damage, cargo and workers’ compensation incurred in the transportation of freight, as well as certain class action litigation related to personnel and employment matters. We accrue for the uninsured portion of contingent losses from these and other pending claims when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Based on the knowledge of the facts, management believes the resolution of claims and pending litigation, taking into account existing reserves, will not have a material adverse effect on our consolidated financial statements. Moreover, the results of complex legal proceedings are difficult to predict, and our view of these matters may change in the future as the litigation and related events unfold. On May 17, 2018, in Harris County District Court in Houston, Texas, a jury rendered an adverse verdict against the Company in a lawsuit arising from a December 30, 2014 accident between a Werner tractor-trailer and a passenger vehicle. On July 30, 2018, the court entered a final judgment against Werner for $ 92.0 million, including pre-judgment interest. The Company has premium-based liability insurance to cover the potential outcome from this jury verdict. Under the Company’s insurance policies in effect on the date of this accident, the Company’s maximum liability for this accident is $ 10.0 million (plus pre-judgment and post-judgment interest) with premium-based coverage that exceeds the jury verdict amount. As a result of this jury verdict, the Company had recorded a liability of $ 34.1 million and $ 28.8 million as of December 31, 2022 and 2021, respectively. Under the terms of the Company’s insurance policies, the Company is the primary obligor of the verdict, and as such, the Company has also recorded a $ 79.2 million receivable from its third-party insurance providers in other non-current assets and a corresponding liability of the same amount in the long-term portion of insurance and claims accruals in the consolidated balance sheets as of December 31, 2022 and 2021. The Company is pursuing an appeal of this verdict. No assurances can be given regarding the outcome of any such appeal. We have been involved in class action litigation in the U.S. District Court for the District of Nebraska, in which the plaintiffs allege that we owe drivers for unpaid wages under the Fair Labor Standards Act (“FLSA”) and the Nebraska Wage Payment and Collection Act and that we failed to pay minimum wage per hour for drivers in our Career Track Program, related to short break time and sleeper berth time. The period covered by this class action suit is August 2008 through March 2014. The case was tried to a jury in May 2017, resulting in a verdict of $ 0.8 million in plaintiffs’ favor on the short break matter and a verdict in our favor on the sleeper berth matter. As a result of various post-trial motions, the court awarded $ 0.5 million to the plaintiffs for attorney fees and costs. Plaintiffs appealed the post-verdict amounts awarded by the trial court for fees, costs and liquidated damages, and the Company filed a cross appeal on the verdict that was in plaintiffs’ favor. The United States Court of Appeals for the Eighth Circuit denied Plaintiffs’ appeal and granted Werner’s appeal, vacating the judgment in favor of the plaintiffs. The appellate court sent the case back to the trial court for proceedings consistent with the appellate court’s opinion. On June 22, 2020, the trial court denied Plaintiffs’ request for a new trial and entered judgment in favor of the Company, dismissing the case with prejudice. On July 21, 2020, Plaintiffs’ counsel filed a notice of appeal of that dismissal. On August 3, 2022, the Eighth Circuit Court of Appeals vacated the district court’s judgment and remanded the case, for the trial court to determine whether the plaintiffs should be granted a new trial on the short break claim. On January 10, 2023, the trial court denied Plaintiff’s motion for a new trial and entered judgment in Werner’s favor on all claims. As of December 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. Based on the knowledge of the facts, management does not currently believe the outcome of these class actions is likely to have a material adverse effect on our financial position or results of operations. However, the final disposition of these matters and the impact of such final dispositions cannot be determined at this time. 52 Table of Contents (13) SEGMENT INFORMATION We have two reportable segments – Truckload Transportation Services and Werner Logistics. The TTS segment consists of two operating units, Dedicated and One-Way Truckload. These units are aggregated because they have similar economic characteristics and meet the other aggregation criteria described in the accounting guidance for segment reporting. Dedicated provides truckload services dedicated to a specific customer, generally for a retail distribution center or manufacturing facility, utilizing either dry van or specialized trailers. One-Way Truckload is comprised of the following operating fleets: (i) the medium-to-long-haul van (“Van”) fleet transports a variety of consumer nondurable products and other commodities in truckload quantities over irregular routes using dry van trailers, including Mexico cross-border routes; (ii) the expedited (“Expedited”) fleet provides time-sensitive truckload services utilizing driver teams; (iii) the regional short-haul (“Regional”) fleet provides comparable truckload van service within geographic regions across the United States; and (iv) the Temperature Controlled fleet provides truckload services for temperature sensitive products over irregular routes utilizing temperature-controlled trailers. Revenues for the TTS segment include a small amount of non-trucking revenues which consist primarily of the intra-Mexico portion of cross-border shipments delivered to or from Mexico where we utilize a third-party capacity provider. The Werner Logistics segment is a non-asset based transportation and logistics provider. Werner Logistics provides services throughout North America and generates the majority of our non-trucking revenues through three operating units. These three Werner Logistics operating units are as follows: (i) Truckload Logistics, which uses contracted carriers to complete shipments for brokerage customers and freight management customers for which we offer a full range of single-source logistics management services and solutions; (ii) the intermodal (“Intermodal”) unit offers rail transportation through alliances with rail and drayage providers as an alternative to truck transportation; and (iii) Werner Final Mile (“Final Mile”) 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. In 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. Prior to the sale of WGL, Werner Logistics provided international services throughout Asia, with additional coverage throughout Australia, Europe, South America, and Africa. 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 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 property and equipment 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. 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): Years Ended December 31, 2022 2021 2020 Revenues by Segment Truckload Transportation Services $ 2,428,686 $ 2,045,073 $ 1,843,209 Werner Logistics 793,492 622,461 469,791 Other 71,185 66,108 57,276 Corporate 1,833 1,629 2,009 Subtotal 3,295,196 2,735,271 2,372,285 Inter-segment eliminations ( 5,218 ) ( 899 ) ( 107 ) Total $ 3,289,978 $ 2,734,372 $ 2,372,178 53 Table of Contents Years Ended December 31, 2022 2021 2020 Operating Income (Loss) by Segment Truckload Transportation Services $ 294,555 $ 281,823 $ 222,007 Werner Logistics 36,184 27,873 6,005 Other ( 2,604 ) 4,947 3,839 Corporate ( 5,059 ) ( 5,497 ) ( 4,413 ) Total $ 323,076 $ 309,146 $ 227,438 Years Ended December 31, 2022 2021 2020 Depreciation and Amortization by Segment Truckload Transportation Services $ 256,768 $ 245,169 $ 239,858 Werner Logistics 9,989 8,833 7,712 Other 11,258 10,786 11,705 Corporate 1,908 2,912 4,011 Total $ 279,923 $ 267,700 $ 263,286 Information about the geographic areas in which we conduct business is summarized below (in thousands) as of and for the years ended December 31, 2022, 2021, and 2020. Operating revenues for foreign countries include revenues for (i) shipments with an origin or destination in that country and (ii) other services provided in that country. If both the origin and destination are in a foreign country, the revenues are attributed to the country of origin. 2022 2021 2020 Revenues United States $ 3,051,788 $ 2,532,720 $ 2,144,105 Foreign countries Mexico 191,126 156,405 149,438 Other 47,064 45,247 78,635 Total foreign countries 238,190 201,652 228,073 Total $ 3,289,978 $ 2,734,372 $ 2,372,178 Long-lived Assets United States $ 1,795,337 $ 1,583,766 $ 1,506,862 Foreign countries Mexico 29,819 29,421 36,222 Other 120 56 174 Total foreign countries 29,939 29,477 36,396 Total $ 1,825,276 $ 1,613,243 $ 1,543,258 We generate substantially all of our revenues within the United States or from North American shipments with origins or destinations in the United States. Our largest customer, Dollar General, accounted for 14 % of our total revenues in 2022 and 2021, and 12 % in 2020. Revenues generated by Dollar General are reported in both of our reportable operating segments. 54 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE No disclosure under this item was required within the two most recent fiscal years ended December 31, 2022, or any subsequent period, involving a change of accountants or disagreements on accounting and financial disclosure.