UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



[Mark	one]
ý☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2017~~March 31, 2020



¨☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-14690

WERNER ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)



~~NEBRASKA~~Nebraska			47-0648386
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

14507 ~~FRONTIER ROAD~~ ~~POST OFFICE BOX~~Frontier Road
Post Office Box 45308 ~~OMAHA, NEBRASKA~~
Omaha	,	Nebraska	68145-0308
(Address of principal executive offices)			(Zip Code)

~~(402)~~ (402) 895-6640

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 Par Value	WERN	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No ¨☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ý☒ No ¨☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large ~~accelerated filer~~Accelerated Filer	ý☒	Accelerated filer	o ☐
Non-accelerated filer	o ~~(Do not check if a smaller reporting company)~~ ☐	Smaller reporting company	o ☐
~~Emerging growth company~~	o			Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý☒

As of ~~October 31, 2017, 72,336,976~~April 28, 2020, 69,086,736 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.

Table of Contents

WERNER ENTERPRISES, INC.

INDEX



		PAGE
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements:	3
	Consolidated Statements of Income for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~ March 31, 2020 and ~~2016~~2019	4
	Consolidated Statements of Comprehensive Income for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019	5
	Consolidated Condensed Balance Sheets as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~2019	6
	Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019	7
	Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2020 and 2019	8
	Notes to Consolidated Financial Statements (Unaudited) as of ~~September 30, 2017~~March 31, 2020	89
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1518
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	2627
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2728
Item 6.	Exhibits	2829

PART I

FINANCIAL INFORMATION

Cautionary Note Regarding Forward-Looking Statements:

This Quarterly Report on Form 10-Q contains historical information and forward-looking statements based on information currently available to our management. The forward-looking statements in this report, including those made in Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of Part I, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. These safe harbor provisions encourage reporting companies to provide prospective information to investors. Forward-looking statements can be identified by the use of certain words, such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project” and other similar terms and language. We believe the forward-looking statements are reasonable based on currently available information. However, forward-looking statements involve risks, uncertainties and assumptions, whether known or unknown, that could cause our actual results, business, financial condition and cash flows to differ materially from those anticipated in the forward-looking statements. A discussion of important factors relating to forward-looking statements is included in Item 1A (Risk Factors) of Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2019 (“~~2016~~2019 Form 10-K”). and in Item 1A (Risk Factors) of Part II of this Form 10-Q. Readers should not unduly rely on the forward-looking statements included in this Form 10-Q because such statements speak only to the date they were made. Unless otherwise required by applicable securities laws, we undertake no obligation or duty to update or revise any forward-looking statements contained herein to reflect subsequent events or circumstances or the occurrence of unanticipated events.

Item 1. Financial Statements.

The interim consolidated financial statements contained herein reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the financial condition, results of operations and cash flows for the periods presented. The interim consolidated financial statements have been prepared in accordance with the U.S. Securities and Exchange Commission (“SEC”) instructions to Form 10-Q and were also prepared without audit. The interim consolidated financial statements do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements; although in management’s opinion, the disclosures are adequate so that the information presented is not misleading.

Operating results for the three-month ~~and nine-month periods~~period ended ~~September 30, 2017,~~March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2020. In the opinion of management, the information set forth in the accompanying consolidated condensed balance sheets is fairly stated in all material respects in relation to the consolidated balance sheets from which it has been derived.

These interim consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and accompanying notes contained in our ~~2016~~2019 Form 10-K.

WERNER ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF INCOME


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
(In thousands, except per share amounts)	2017			2016			2017			2016			2020			2019
	(Unaudited)												(Unaudited)
Operating revenues	$	528,643		$	508,676		$	1,549,372		$	1,490,159		$	592,703		$	596,117
Operating expenses:
Salaries, wages and benefits	170,238			162,862			500,620			479,298			205,997			202,799
Fuel	50,266			40,638			140,551			112,034			48,771			56,138
Supplies and maintenance	41,986			41,027			120,276			130,559			45,721			45,685
Taxes and licenses	21,671			21,540			64,095			64,353			22,850			22,901
Insurance and claims	20,669			19,106			60,336			59,384			36,064			22,709
Depreciation	53,578			51,781			162,619			152,849			68,837			60,759
Rent and purchased transportation	126,087			133,876			377,146			379,155			126,442			132,836
Communications and utilities	4,199			4,206			12,158			12,110			3,808			4,011
Other	4,075			4,566			12,812			9,303			3,147			260
Total operating expenses	492,769			479,602			1,450,613			1,399,045			561,637			548,098
Operating income	35,874			29,074			98,759			91,114			31,066			48,019
Other expense (income):
Interest expense	492			749			1,892			1,839			1,591			858
Interest income	(766		)	(1,055		)	(2,556		)	(3,154		)	(626		)	(903		)
Other	88			46			293			148			45			(116		)
Total other income	(186		)	(260		)	(371		)	(1,167		)
Total other expense (income)													1,010			(161		)
Income before income taxes	36,060			29,334			99,130			92,281			30,056			48,180
Income taxes	13,543			10,414			37,375			34,963			6,998			12,094
Net income	$	22,517		$	18,920		$	61,755		$	57,318		$	23,058		$	36,086
Earnings per share:
Basic	$	0.31		$	0.26		$	0.85		$	0.80		$	0.33		$	0.51
Diluted	$	0.31		$	0.26		$	0.85		$	0.79		$	0.33		$	0.51
Dividends declared per share	$	0.070		$	0.060		$	0.200		$	0.180
Weighted-average common shares outstanding:
Basic	72,298			72,058			72,239			72,043			69,253			70,274
Diluted	72,601			72,406			72,517			72,364			69,609			70,572

See Notes to Consolidated Financial Statements (Unaudited).

WERNER ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three Months Ended September 30,						Nine Months Ended September 30,					Three Months Ended March 31,
(In thousands)	2017			2016			2017		2016			2020			2019
	(Unaudited)											(Unaudited)
Net income	$	22,517		$	18,920		$	61,755	$	57,318		$	23,058		$	36,086
Other comprehensive income (loss):
Foreign currency translation adjustments	(627		)	(1,023		)	3,205		(3,009		)	(9,893		)	618
Change in fair value of interest rate swap	100			388			334		(517		)
Change in fair value of interest rate swaps, net of tax												(5,597		)	(105		)
Other comprehensive income (loss)	(527		)	(635		)	3,539		(3,526		)	(15,490		)	513
Comprehensive income	$	21,990		$	18,285		$	65,294	$	53,792		$	7,568		$	36,599

See Notes to Consolidated Financial Statements (Unaudited).

WERNER ENTERPRISES, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS


(In thousands, except share amounts)	September 30, 2017			December 31, 2016			March 31, 2020			December 31, 2019
	(Unaudited)						(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	10,733		$	16,962		$	72,237		$	26,418
Accounts receivable, trade, less allowance of $8,410 and $9,183, respectively	279,716			261,372
Accounts receivable, trade, less allowance of $8,678 and $7,921, respectively							310,900			322,846
Other receivables	27,028			15,168			22,575			52,221
Inventories and supplies	11,624			12,768			8,151			9,243
Prepaid taxes, licenses and permits	6,935			15,374			12,757			16,757
Income taxes receivable	6,538			21,497
Other current assets	38,898			29,987			33,023			38,849
Total current assets	381,472			373,128			459,643			466,334
Property and equipment	2,078,229			2,109,991			2,325,615			2,343,536
Less – accumulated depreciation	758,331			747,353			846,871			817,260
Property and equipment, net	1,319,898			1,362,638			1,478,744			1,526,276
Other non-current assets	61,571			57,237			150,511			151,254
Total assets	$	1,762,941		$	1,793,003		$	2,088,898		$	2,143,864
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Checks issued in excess of cash balances	$	3,538		$	—
Accounts payable	72,343			66,618			$	87,698		$	94,634
Current portion of long-term debt	—			20,000			75,000			75,000
Insurance and claims accruals	84,436			83,404			72,987			69,810
Accrued payroll	31,029			26,189			37,650			38,347
Other current liabilities	22,938			18,650			31,336			31,049
Total current liabilities	214,284			214,861			304,671			308,840
Long-term debt, net of current portion	75,000			160,000			175,000			225,000
Other long-term liabilities	14,321			16,711			28,186			21,129
Insurance and claims accruals, net of current portion	107,230			113,875			234,191			228,218
Deferred income taxes	301,199			292,769			244,814			249,669
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value, 200,000,000 shares authorized; 80,533,536 shares
issued; 72,334,476 and 72,166,969 shares outstanding, respectively	805			805
issued; 69,086,736 and 69,244,525 shares outstanding, respectively							805			805
Paid-in capital	103,296			101,035			110,695			112,649
Retained earnings	1,131,805			1,084,796			1,311,448			1,294,608
Accumulated other comprehensive loss	(13,378		)	(16,917		)	(30,218		)	(14,728		)
Treasury stock, at cost; 8,199,060 and 8,366,567 shares, respectively	(171,621		)	(174,932		)
Treasury stock, at cost; 11,446,800 and 11,289,011 shares, respectively							(290,694		)	(282,326		)
Total stockholders’ equity	1,050,907			994,787			1,102,036			1,111,008
Total liabilities and stockholders’ equity	$	1,762,941		$	1,793,003		$	2,088,898		$	2,143,864

See Notes to Consolidated Financial Statements (Unaudited).

WERNER ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months Ended September 30,						Three Months Ended March 31,
(In thousands)	2017			2016			2020			2019
	(Unaudited)						(Unaudited)
Cash flows from operating activities:
Net income	$	61,755		$	57,318		$	23,058		$	36,086
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	162,619			152,849			68,837			60,759
Deferred income taxes	6,492			23,773			(2,912		)	425
Gain on disposal of property and equipment	(6,031		)	(13,250		)	(2,469		)	(5,929		)
Non-cash equity compensation	3,215			2,325			2,406			2,051
Insurance and claims accruals, net of current portion	(6,645		)	(11,070		)	5,973			5,940
Other	(8,755		)	(8,500		)	88			(2,748		)
Changes in certain working capital items:
Accounts receivable, net	(18,344		)	(1,489		)	11,946			24,403
Other current assets	15,184			(11,647		)	12,195			6,216
Accounts payable	7,107			1,898			354			3,642
Other current liabilities	351			8,968			13,900			7,924
Net cash provided by operating activities	216,948			201,175			133,376			138,769
Cash flows from investing activities:
Additions to property and equipment	(205,874		)	(388,386		)	(57,231		)	(120,357		)
Proceeds from sales of property and equipment	84,769			94,372			38,391			36,993
Issuance of notes receivable	(5,000		)	—
Decrease in notes receivable	15,637			14,007			2,316			3,426
Net cash used in investing activities	(110,468		)	(280,007		)	(16,524		)	(79,938		)
Cash flows from financing activities:
Repayments of short-term debt	(45,000		)	(20,000		)
Proceeds from issuance of short-term debt	—			20,000
Repayments of long-term debt	(60,000		)	(40,000		)	(50,000		)	—
Proceeds from issuance of long-term debt	—			115,000
Change in net checks issued in excess of cash balances	3,538			2,665
Dividends on common stock	(13,721		)	(12,966		)	(6,232		)	(6,340		)
Repurchases of common stock							(8,798		)	(20,545		)
Tax withholding related to net share settlements of restricted stock awards	(445		)	(623		)	(3,930		)	(1,179		)
Stock options exercised	2,339			298
Excess tax benefits from equity compensation	—			(17		)
Payment of notes payable	—			(3,117		)
Net cash provided by (used in) financing activities	(113,289		)	61,240
Net cash used in financing activities							(68,960		)	(28,064		)
Effect of exchange rate fluctuations on cash	580			(505		)	(2,073		)	45
Net decrease in cash and cash equivalents	(6,229		)	(18,097		)
Cash and cash equivalents, beginning of period	16,962			31,833
Cash and cash equivalents, end of period	$	10,733		$	13,736
Net increase in cash, cash equivalents and restricted cash							45,819			30,812
Cash, cash equivalents and restricted cash, beginning of period							33,442			33,930
Cash, cash equivalents and restricted cash, end of period⁽¹⁾							$	79,261		$	64,742
Supplemental disclosures of cash flow information:
Interest paid	$	2,004		$	1,838		$	1,811		$	864
Income taxes paid	15,819			4,257			611			556
Supplemental schedule of non-cash investing activities:
Supplemental schedule of non-cash investing and financing activities:
Notes receivable issued upon sale of property and equipment	$	4,058		$	22,952		$	1,099		$	2,092
Change in fair value of interest rate swap	334			(517		)
Change in fair value of interest rate swaps							(5,597		)	(105		)
Property and equipment acquired included in accounts payable	492			821			13,848			15,050
Property and equipment disposed included in other receivables	1,300			259			1,251			72
Dividends accrued but not yet paid at end of period							6,218			6,290

(1) The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the Consolidated Balance Sheets							(1) The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the Consolidated Balance Sheets
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents							$	72,237		$	64,742
Restricted cash included in other current assets							7,024			—
Total cash, cash equivalents and restricted cash							$	79,261		$	64,742

See Notes to Consolidated Financial Statements (Unaudited).

WERNER ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY



(In thousands, except share and per share amounts)	Common Stock		Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Stockholders’ Equity
	(Unaudited)
BALANCE, December 31, 2019	$	805	$	112,649		$	1,294,608		$	(14,728	)	$	(282,326	)	$	1,111,008
Comprehensive income	—		—			23,058			(15,490		)	—			7,568
Purchases of 282,992 shares of common stock	—		—			—			—			(8,798		)	(8,798		)
Dividends on common stock ($0.09 per share)	—		—			(6,218		)	—			—			(6,218		)
Equity compensation activity, 125,203 shares	—		(4,360		)	—			—			430			(3,930		)
Non-cash equity compensation expense	—		2,406			—			—			—			2,406
BALANCE, March 31, 2020	$	805	$	110,695		$	1,311,448		$	(30,218	)	$	(290,694	)	$	1,102,036

BALANCE, December 31, 2018	$	805	$	107,455		$	1,413,746		$	(16,073	)	$	(241,180	)	$	1,264,753
Comprehensive income	—		—			36,086			513			—			36,599
Purchases of 600,000 shares of common stock	—		—			—			—			(20,545		)	(20,545		)
Dividends on common stock ($0.09 per share)	—		—			(6,290		)	—			—			(6,290		)
Equity compensation activity, 46,129 shares	—		(1,578		)	—			—			399			(1,179		)
Non-cash equity compensation expense	—		2,051			—			—			—			2,051
BALANCE, March 31, 2019	$	805	$	107,928		$	1,443,542		$	(15,560	)	$	(261,326	)	$	1,275,389

See Notes to Consolidated Financial Statements (Unaudited).

WERNER ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1) Accounting Policies

New Accounting Pronouncements Adopted

In ~~July 2015,~~June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. ~~2015-11, “Inventory: Simplifying the~~2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of ~~Inventory,~~Credit Losses on Financial Statements,” which requires ~~inventory to be recorded at the lower~~measurement and recognition of ~~cost and net realizable value (instead of lower of cost or market).~~expected versus incurred credit losses for financial assets. The Company adopted ASU ~~No. 2015-11~~2016-13 as of January 1, ~~2017.~~2020. Upon adoption, this update had no effect on our financial position, results of operations and cash flows.

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement,” which modifies the disclosure requirements on fair value measurements. As part of its disclosure framework project, the FASB has eliminated, amended and added disclosure requirements for fair value measurements in Topic 820, Fair Value Measurement. The Company adopted ASU 2018-13 as of January 1, 2020. Upon adoption, this update had no effect on our consolidated financial ~~position, results of operations or cash flows.~~

statements.

In ~~March 2016,~~August 2018, the FASB issued ASU No. ~~2016-09, “Compensation~~2018-15, “Intangibles - ~~Stock Compensation: Improvements to Employee Share-Based Payment~~Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting~~” to simplify several aspects~~ for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force),” which updates the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract to align with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted ASU 2018-15 as of January 1, 2020. Upon adoption, this update had no effect on our financial position, results of operations and cash flows.

Accounting Standards Updates Not Yet Effective

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which reduces complexity in accounting for ~~share-based payment transactions.~~income taxes by removing certain exceptions to the general principles stated in Topic 740 and by clarifying and amending existing guidance to improve consistent application of and simplify other areas of Topic 740. The ~~new~~provisions of this update ~~requires excess tax benefits~~are effective for fiscal years beginning after December 15, 2020. Although we are evaluating the impact of adopting ASU No. 2019-12 on our financial position, results of operations and ~~tax deficiencies~~cash flows, we do not expect a material effect upon adoption.

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848)” which provides optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting. The provisions of this update are effective for all entities as of March 12, 2020 through December 31, 2022 and apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be ~~recorded~~discontinued because of reference rate reform. We are evaluating the impact of the optional expedients in this update and their applicability to modifications of our existing credit facilities and hedging relationships that reference LIBOR.

(2) Revenue

Revenue Recognition

Revenues are recognized over time as control of the promised services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.

The following table presents our revenues disaggregated by revenue source (in thousands):



	Three Months Ended March 31,
	2020			2019
Truckload Transportation Services	$	464,863		$	462,891
Werner Logistics	112,164			117,370
Inter-segment eliminations	(11		)	(205		)
Transportation services	577,016			580,056
Other revenues	15,687			16,061
Total revenues	$	592,703		$	596,117

The following table presents our revenues disaggregated by geographic areas in which we conduct business (in thousands). Operating revenues for foreign countries include revenues for (i) shipments with an origin or destination in that country and (ii) other services provided in that country. If both the origin and destination are in a foreign country, the revenues are attributed to the country of origin.



	Three Months Ended March 31,
	2020		2019
United States	$	530,071	$	526,592
Mexico	43,421		52,814
Other	19,211		16,711
Total revenues	$	592,703	$	596,117

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 March 31, 2020 and December 31, 2019, the accounts receivable, net, balance was $310.9 million and $322.8 million, respectively. Contract assets represent a conditional right to consideration in exchange for goods or services and are transferred to receivables when the rights become unconditional. At March 31, 2020 and December 31, 2019, the balance of contract assets was $7.3 million and $5.9 million, respectively. We have recognized contract assets within the other current assets financial statement caption on the balance sheet. These contract assets are considered current assets as they will be settled in less than 12 months.

Contract liabilities represent advance consideration received from customers and are recognized as revenues over time as the related performance obligation is satisfied. The balance of contract liabilities was $1.3 million as of March 31, 2020 and December 31, 2019. The amount of revenues recognized in the three months ended March 31, 2020 that was included in the December 31, 2019 contract liability balance was $1.3 million. We have recognized contract liabilities within the accounts payable and other current liabilities financial statement captions on the balance sheet. These contract liabilities are considered current liabilities as they will be settled in less than 12 months.

Performance Obligations

We have elected to apply the practical expedient in ASC Topic 606 to not disclose the value of remaining performance obligations for contracts with an original expected length of one year or less. Remaining performance obligations represent the transaction price allocated to future reporting periods for freight shipments started but not completed at the reporting date that we expect to recognize as revenue in the period subsequent to the reporting date; transit times generally average approximately 3 days.

During the three months ended March 31, 2020 and March 31, 2019, revenues recognized from performance obligations related to prior periods (for example, due to changes in transaction price) were not material.

(3) Leases

We have entered into operating leases primarily for real estate. The leases have terms which range from 1 year to 11 years, and some include options to renew. Renewal terms are included in the lease term when it is reasonably certain that we will exercise the option to renew.

Operating leases are included in other non-current assets, other current liabilities and other long-term liabilities on the consolidated ~~statements~~condensed balance sheets. These assets and liabilities are recognized based on the present value of ~~income~~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 ~~component of income tax~~single lease component. Lease expense ~~when share-based awards vest or are settled. The update also eliminates~~for operating leases is recognized on a straight-line basis over the ~~requirement to reclassify cash flows related to excess tax benefits from operating activities to financing activities~~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 cash flows. The standard also provides an accounting policy election to account for forfeitures as they occur and now allows for withholding up to the maximum statutory tax rate on certain share-based awards without triggering liability accounting.income.

The ~~Company adopted ASU No. 2016-09 as of January 1, 2017. Upon adoption, share-based payment excess tax benefits~~following table presents information about the amount, timing and tax deficiencies are recognized in the consolidated statements of income as a component of income tax expense, rather than additional paid-in capital as previously recognized. The Company elected to report excess tax benefits as operating activities in the consolidated statementsuncertainty of cash flows arising from our operating leases as of March 31, 2020.



(In thousands)	March 31, 2020
Maturity of Lease Liabilities
2020 (remaining)	$	2,688
2021	3,233
2022	2,360
2023	1,444
2024	1,404
Thereafter	1,442
Total undiscounted operating lease payments	$	12,571
Less: Imputed interest	(931		)
Present value of operating lease liabilities	$	11,640

Balance Sheet Classification
Right-of-use assets (recorded in other non-current assets)	$	11,278

Current lease liabilities (recorded in other current liabilities)	$	3,225
Long-term lease liabilities (recorded in other long-term liabilities)	8,415
Total operating lease liabilities	$	11,640

Other Information
Weighted-average remaining lease term for operating leases	4.38 years
Weighted-average discount rate for operating leases	3.5		%

Cash Flows

An initial right-of-use asset of $8.7 million was recognized as a non-cash asset addition with the adoption of the new lease accounting standard. During the three months ended March 31, 2020 and March 31, 2019, additional right-of-use assets of $0.9 million and $0.1 million, respectively, were recognized as non-cash asset additions that resulted from new operating lease liabilities. Cash paid for amounts included in the present value of operating lease liabilities was $1.0 million and $0.9 million during the three months ended March 31, 2020 and March 31, 2019, respectively, and is included in operating cash flows.

Operating Lease Expense

Operating lease expense was $2.0 millionand $2.2 million for the three months ended March 31, 2020 and March 31, 2019, respectively. This expense included $1.0 million and $0.9 million for the three months ended March 31, 2020 and March 31, 2019, respectively, for long-term operating leases, with the remainder for variable and short-term lease expense.

Lessor Operating Leases

We are the lessor of tractors and trailers under operating leases with initial terms of 2 to 10 years. We recognize revenue for such leases on a ~~prospective~~straight-line basis over the term of the lease, and ~~prior period amounts have not been adjusted.~~revenues were $3.3 million for the three months ended March 31, 2020 and March 31, 2019. The ~~Company also elected to use actual forfeitures to determine~~following table presents information about the ~~amount~~maturities of ~~share-based compensation expense to be recognized. This change was applied on a modified retrospective basis and resulted in a $0.3 million decrease to retained earnings in first quarter 2017.~~these operating leases as of March 31, 2020.



(In thousands)	March 31, 2020
2020 (remaining)	$	7,270
2021	2,326
2022	53
2023	—
2024	—
Thereafter	—
Total	$	9,649

~~(2)~~(4) Credit Facilities

As of ~~September 30, 2017,~~March 31, 2020, we had unsecured committed credit facilities with three ~~banks as well as a term commitment with one of these~~ banks. We had with Wells Fargo Bank, N.A., a ~~$100.0~~$300.0 million credit facility which will expire on ~~July 12, 2020, and~~May 14, 2024. We had a ~~$75.0~~$200.0 million ~~term commitment~~credit facility with ~~principal due and payable~~BMO Harris Bank N.A. which will expire on ~~September 15, 2019.~~May 14, 2024. We also had an unsecured line of credit of $75.0 million with U.S. Bank, N.A., which will expire on July 13, ~~2020. We also had a $75.0 million credit facility with BMO Harris Bank, N.A., which will expire on March 5, 2020.~~2020. Borrowings under these credit facilities ~~and term note~~ bear variable interest based on the London Interbank Offered Rate (“LIBOR”).

As of ~~September 30, 2017,~~March 31, 2020 and December 31, ~~2016,~~2019, our outstanding debt totaled ~~$75.0~~$250.0 million and ~~$180.0~~$300.0 million, respectively. We had $100.0 million outstanding under the credit facilities at a weighted average variable interest rate of 1.50% as of March 31, 2020. We had (i) an additional $75.0 million outstanding under the ~~term commitment~~Wells Fargo Bank, N.A. credit facility at a variable rate of ~~1.83%~~1.68% as of ~~September 30, 2017,~~March 31, 2020, which is effectively fixed at ~~2.5%~~2.32% with an interest rate swap ~~agreement.~~agreement through May 14, 2024 and (ii) an additional $75.0 million outstanding under the BMO Harris Bank N.A. credit facility at a variable rate of 2.22% as of March 31, 2020, which is effectively fixed at 2.36% with an interest rate swap agreement through May 14, 2024. The ~~$325.0~~$575.0 million of borrowing capacity under our credit facilities at ~~September 30, 2017,~~March 31, 2020, is further reduced by ~~$28.7~~$44.6 million in stand-by letters of credit under which we are obligated. Each of the debt agreements includes, among other things, financial covenants requiring us (i) ~~not~~ to exceed a ~~maximum~~minimum ratio of ~~total debt~~earnings before interest, income taxes, depreciation and amortization to ~~total capitalization~~interest expense and/or (ii) not to exceed a maximum ratio of total funded debt to earnings before interest, income taxes, depreciation and amortization (as such terms are defined in each credit facility). At ~~September 30, 2017,~~March 31, 2020, we were in compliance with these covenants.

At ~~September 30, 2017,~~March 31, 2020, the aggregate future maturities of long-term debt by year are as follows (in thousands):



2020	$	75,000
2021	—
2022	—
2023	—
2024	175,000
Total	$	250,000

2017 $ —
2018 —
2019 75,000
2020 —
2021 —
Total $ 75,000

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

~~(3) Income Taxes~~

We accrued interest expense of $39 thousand and $58 thousand during the three-month periods ended September 30, 2017 and September 30, 2016, respectively, and $142 thousand and $185 thousand during the nine-month periods ended September 30,

2017 and September 30, 2016, respectively, excluding the reversal of accrued interest related to adjustments for the remeasurement of uncertain tax positions. Our total gross liability for unrecognized tax benefits at September 30, 2017 is $4.1 million. If recognized, $2.7 million of unrecognized tax benefits would impact our effective tax rate. Interest of $0.8 million has been reflected as a component of the total liability. We expect no significant increases or decreases for uncertain tax positions during the next twelve months.

We file U.S. federal income tax returns, as well as income tax returns in various states and several foreign jurisdictions. The years 2014 through 2016 are open for examination by the 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.

~~(4)~~(5) Commitments and Contingencies

As of ~~September 30, 2017,~~March 31, 2020, we have committed to property and equipment purchases of approximately ~~$95.2~~$187.9 million.

We are involved in certain claims and pending litigation, including those described herein, arising in the ordinary course of business. The majority of these claims relate to bodily injury, property damage, cargo and workers’ compensation incurred in the transportation of freight, as well as certain class action litigation related to personnel and employment matters. We accrue for the uninsured portion of contingent losses from these and other pending claims when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Based on the knowledge of the facts, management believes the resolution of

claims and pending litigation, taking into account existing reserves, will not have a material adverse effect on our consolidated financial statements. Moreover, the results of complex legal proceedings are difficult to predict, and our view of these matters may change in the future as the litigation and related events unfold.

On May 17, 2018, in Harris County District Court in Houston, Texas, a jury rendered an adverse verdict against Werner Enterprises, Inc. (the “Company”) in a lawsuit arising from a December 30, 2014 accident between a Werner tractor-trailer and a passenger vehicle. On July 30, 2018, the court entered a final judgment against Werner for $92.0 million, including pre-judgment interest.

The Company has premium-based liability insurance to cover the potential outcome from this jury verdict. Under the Company’s insurance policies in effect on the date of this accident, the Company’s maximum liability for this accident is $10.0 million (plus pre-judgment and post-judgment interest) with premium-based coverage that exceeds the jury verdict amount. As a result of this jury verdict, the Company had recorded a liability of $20.0 million as of March 31, 2020, and $18.8 million as of December 31, 2019. Under the terms of the Company’s insurance policies, the Company is the primary obligor of the verdict, and as such, the Company has also recorded a $79.2 million receivable from its third-party insurance providers in other non-current assets and a corresponding liability of the same amount in the long-term portion of insurance and claims accruals in the consolidated balance sheets as of March 31, 2020 and December 31, 2019.

The Company is pursuing an appeal of this verdict. No assurances can be given regarding the outcome of any such appeal.

We are 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)~~(“FLSA”) and the Nebraska Wage Payment and Collection Act and that we failed to pay minimum wage per hour for drivers in our ~~student driver training program,~~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 ~~September 30, 2017,~~various post-trial motions, the court has awarded $0.5 million to the plaintiffs for attorney fees and costs. As of March 31, 2020, we had accrued for the jury’s award, attorney fees and costs in the short break matter and had not accrued for the sleeper berth matter. Plaintiffs appealed the post-verdict amounts awarded by the trial court for fees, costs and liquidated damages, and the Company filed a cross appeal on the verdict that was in plaintiffs’ favor. The United States Court of Appeals for the Eighth Circuit denied Plantiffs’ 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. The litigation of this matter will continue in the trial court.

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.

~~(5)~~(6) Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and restricted stock awards. There are no differences in the numerators of our computations of basic and diluted earnings per share for any ~~period~~periods presented.

The computation of basic and diluted earnings per share is shown below (in thousands, except per share amounts).



	Three Months Ended March 31,
	2020		2019
Net income	$	23,058	$	36,086
Weighted average common shares outstanding	69,253		70,274
Dilutive effect of stock-based awards	356		298
Shares used in computing diluted earnings per share	69,609		70,572
Basic earnings per share	$	0.33	$	0.51
Diluted earnings per share	$	0.33	$	0.51

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Net income $ 22,517
$ 18,920
$ 61,755
$ 57,318
Weighted average common shares outstanding 72,298
72,058
72,239
72,043
Dilutive effect of stock-based awards 303
348
278
321
Shares used in computing diluted earnings per share 72,601
72,406
72,517
72,364
Basic earnings per share $ 0.31
$ 0.26
$ 0.85
$ 0.80
Diluted earnings per share $ 0.31
$ 0.26
$ 0.85
$ 0.79

There were no options to purchase shares of common stock that were outstanding during the periods indicated above that were excluded from the computation of diluted earnings per share because the option purchase price was greater than the average market

price of the common shares during the period. Performance awards are excluded from the calculation of dilutive potential common shares until the threshold performance conditions have been satisfied.

(7) Equity Compensation

The Werner Enterprises, Inc. Amended and Restated Equity Plan (the “Equity Plan”), approved by the Company’s shareholders, provides for grants to employees and non-employee directors of the Company in the form of nonqualified stock options, restricted stock and units (“restricted awards”), performance awards, and stock appreciation rights. The Board of Directors or the Compensation Committee of our Board of Directors determines the terms of each award, including the type, recipients, number of shares subject to and vesting conditions of each award. No awards of stock appreciation rights have been issued under the Equity Plan to date. The maximum number of shares of common stock that may be awarded under the Equity Plan is 20,000,000 shares. The maximum aggregate number of shares that may be awarded to any one person in any one calendar year under the Equity Plan is 500,000. As of ~~September 30, 2017,~~March 31, 2020, there were ~~7,346,315~~6,567,481 shares available for granting additional awards.

Equity compensation expense is included in salaries, wages and benefits within the Consolidated Statements of Income. As of ~~September 30, 2017,~~March 31, 2020, the total unrecognized compensation cost related to non-vested equity compensation awards was approximately ~~$6.1~~$15.4 million and is expected to be recognized over a weighted average period of ~~2.2~~2.0 years. The following table summarizes the equity compensation expense and related income tax benefit recognized in the Consolidated Statements of Income (in thousands):



	Three Months Ended March 31,
	2020		2019
Restricted awards:
Pre-tax compensation expense	$	1,398	$	1,163
Tax benefit	356		297
Restricted stock expense, net of tax	$	1,042	$	866
Performance awards:
Pre-tax compensation expense	$	1,010	$	896
Tax benefit	258		228
Performance award expense, net of tax	$	752	$	668

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Stock options:
Pre-tax compensation expense $ 2
$ 5
$ 5
$ 14
Tax benefit 1
2
2
6
Stock option expense, net of tax $ 1
$ 3
$ 3
$ 8
Restricted awards:

Pre-tax compensation expense $ 941
$ 813
$ 2,440
$ 1,743
Tax benefit 367
317
952
680
Restricted stock expense, net of tax $ 574
$ 496
$ 1,488
$ 1,063
Performance awards:

Pre-tax compensation expense $ 308
$ 517
$ 897
$ 628
Tax benefit 120
202
350
245
Performance award expense, net of tax $ 188
$ 315
$ 547
$ 383

During the nine-month period ended September 30, 2016, we recorded a $1.8 million reduction in compensation expense and a $0.7 million reduction of tax benefit resulting from a change in forfeiture estimates for certain restricted and performance awards, most of which relate to a previously disclosed executive retirement that occurred in February 2016.

We do not have a formal policy for issuing shares upon an exercise of stock options or vesting of restricted and performance awards. Such shares are generally issued from treasury stock. From time to time, we repurchase shares of our common stock, the timing and amount of which depends on market and other factors. Historically, the shares acquired from such repurchases have provided us with sufficient quantities of stock to issue for equity compensation. Based on current treasury stock levels, we do not expect to repurchase additional shares specifically for equity compensation during ~~2017.~~2020.

Stock Options

Stock options are granted at prices equal to the market value of the common stock on the date the option award is granted. Option awards currently outstanding become exercisable in installments from 24 to 72 months after the date of grant. The options are exercisable over a period not to exceed ten years, one day from the date of grant. The following table summarizesNo stock option ~~activity for~~awards were outstanding as of March 31, 2020, and no stock option awards were granted or exercised in the ~~nine months ended September 30, 2017:~~

Number of
Options
(in thousands)

Weighted
Average
Exercise
Price ($)

Weighted
Average
Remaining
Contractual
Term
(Years)

Aggregate
Intrinsic Value
(in thousands)
Outstanding at beginning of period 171
$ 18.19

Granted —
—

Exercised (132 ) 17.72

Forfeited —
—

Expired —
—

Outstanding at end of period 39
19.80
2.53 $ 651
Exercisable at end of period 34
19.45
2.30 $ 584

~~We did not grant any stock options during the nine-month~~three-month periods ended ~~September 30, 2017~~March 31, 2020 and September 30, 2016. The fair value of stock option grants is estimated using a Black-Scholes valuation model. The total intrinsic value of stock options exercised was $1.6 million and $95 thousand for the nine-month periods ended September 30, 2017 and September 30, 2016, respectively.March 31, 2019.

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 8460 months from the grant date of the award. The restricted awards do not confer any voting or dividend rights to recipients until such shares vest and do not have any post-vesting sales restrictions.

The following table summarizes restricted award activity for the ~~nine~~three months ended ~~September 30, 2017:~~March 31, 2020:



	Number of Restricted Awards (in thousands)		Weighted Average Grant Date Fair Value ($)
Nonvested at beginning of period	369		$	32.83
Granted	133		38.00
Vested	(76	)	33.39
Forfeited	(1	)	31.64
Nonvested at end of period	425		34.35

Number of
Restricted
Awards (in
thousands)

Weighted
Average Grant
Date Fair
Value ($)
Nonvested at beginning of period 293
$ 25.98
Granted 81
26.90
Vested (16 ) 24.34
Forfeited (10 ) 26.87
Nonvested at end of period 348
26.24

We estimate the fair value of restricted awards based upon the market price of the underlying common stock on the date of grant, reduced by the present value of estimated future dividends because the awards are not entitled to receive dividends prior to vesting. Our estimate of future dividends is based on the most recent quarterly dividend rate at the time of grant, adjusted for any known future changes in the dividend rate. Cash settled restricted stock units are recorded as a liability within the Consolidated Balance Sheets and are adjusted to fair value each reporting period.

The total fair value of previously granted restricted awards vested during the ~~nine-month period~~three-month periods ended ~~September 30, 2017~~March 31, 2020 and March 31, 2019 was ~~$0.5~~$2.9 million and ~~for the nine-month period ended September 30, 2016 was $0.3 million. When restricted awards vest, we withhold~~$1.6 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 ~~are~~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, over periods ranging from 12 to 60 months from the grant date of the award. The performance awards do not confer any voting or dividend rights to recipients until such shares vest and do not have any post-vesting sales restrictions.

The following table summarizes performance award activity for the ~~nine~~three months ended ~~September 30, 2017:~~March 31, 2020:



	Number of Performance Awards (in thousands)		Weighted Average Grant Date Fair Value ($)
Nonvested at beginning of period	327		$	28.75
Granted	100		37.65
Vested	(151	)	23.61
Forfeited	—		—
Nonvested at end of period	276		34.64

Number of
Performance
Awards (in
thousands)

Weighted
Average Grant
Date Fair
Value ($)
Nonvested at beginning of period 124
$ 27.33
Granted 69
26.89
Vested (35 ) 27.07
Forfeited —
—
Nonvested at end of period 158
27.20

The ~~2017~~2020 performance awards are earned based upon the level of attainment by the Company of specified performance objectives related to cumulative diluted earnings per share for the two-year period from January 1, ~~2017~~2020 to December 31, ~~2018.~~2021. Shares earned based on cumulative diluted earnings per share may be capped based on absolute total shareholder return during the three-year period ended December 31, ~~2019.~~2022. The ~~2017~~2020 performance awards will vest in one installment on the third anniversary from the grant date. In ~~February 2017,~~January 2020, the Compensation Committee determined the ~~2016~~2017 fiscal year ~~results upon which~~performance objectives were achieved at a level above the ~~2016 performance awards were based fell below~~target level; the ~~threshold level; thus, no~~additional shares ~~of common stock were~~ earned ~~and~~above the ~~shares not earned~~target level were included in ~~the 2016 forfeited shares.~~2019 shares granted.

We estimate the fair value of performance awards based upon the market price of the underlying common stock on the date of grant, reduced by the present value of estimated future dividends because the awards are not entitled to receive dividends prior to vesting. Our estimate of future dividends is based on the most recent quarterly dividend rate at the time of grant, adjusted for any known future changes in the dividend rate.

The vesting date fair value of performance awards that vested during the ~~nine-month~~three-month periods ended ~~September 30, 2017~~March 31, 2020 and ~~September 30, 2016~~March 31, 2019 was ~~$1.0~~$5.8 million and ~~$1.6~~$1.2 million, respectively. We ~~withhold~~withheld shares based on the closing stock price on the vesting date to settle the employees’ statutory obligation for the applicable income and other employment taxes. The shares withheld to satisfy the tax withholding obligations ~~are~~were recorded as treasury stock.

~~(7)~~(8) Segment Information

We have two reportable segments – Truckload Transportation Services (“~~Truckload”~~TTS”) and Werner Logistics.

The ~~Truckload~~TTS segment consists of ~~three~~two operating units, ~~One-Way Truckload,~~ Dedicated and ~~Temperature Controlled.~~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;~~trailers, including Mexico cross-border routes; (ii) the expedited (“Expedited”) fleet provides time-sensitive truckload services utilizing driver teams; ~~and~~ (iii) the regional short-haul (“Regional”) fleet provides comparable truckload van service within geographic regions across the United ~~States. 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.~~States; and (iv) the Temperature Controlled fleet provides truckload services for temperature sensitive products over irregular routes utilizing temperature-controlled trailers. ~~(We previously utilized the name “Specialized Services” to encompass the operations of both Dedicated and Temperature Controlled.)~~ Revenues for the ~~Truckload~~TTS segment include a small amount of non-trucking revenues which consist primarily of the intra-Mexico portion of cross-border shipments delivered to or from Mexico where we utilize a third-party capacity provider.

The Werner Logistics segment generates the majority of our non-trucking revenues through ~~five~~four operating units that provide non-trucking services to our customers. These ~~five~~four Werner Logistics operating units are as follows: (i) ~~truck brokerage (“Brokerage”)~~Truckload Logistics, which uses contracted carriers to complete ~~customer shipments; (ii)~~shipments for brokerage customers and freight management ~~(“Freight Management”) offers~~customers for which we offer a full range of single-source logistics management services and solutions; ~~(iii)~~(ii) the intermodal (“Intermodal”) unit offers rail transportation through alliances with rail and drayage providers as an alternative to truck transportation; ~~(iv)~~(iii) Werner Global Logistics international (“WGL”) provides complete management of global shipments from origin to destination using a combination of air, ocean, truck and rail transportation modes; and ~~(v)~~(iv) Werner Final Mile (“Final Mile”) offers home and business deliveries of large or heavy items using third-party agents with two associates operating a liftgate straight truck.

We generate other revenues from our driver training schools, transportation-related activities such as third-party equipment maintenance and equipment leasing, and other business activities. None of these operations meets the quantitative reporting thresholds. As a result, these operations are grouped in “Other” in the table below. “Corporate” includes revenues and expenses that are incidental to our activities and are not attributable to any of our operating segments, including gains and losses on sales of assets not attributable to our operating segments. We do not prepare separate balance sheets by segment and, as a result, assets

are not separately identifiable by segment. Inter-segment eliminations in the table below represent transactions between reporting segments that are eliminated in consolidation.

The following table summarizes our segment information (in thousands):



	Three Months Ended March 31,
	2020			2019
Revenues
Truckload Transportation Services	$	464,863		$	462,891
Werner Logistics	112,164			117,370
Other	15,068			15,472
Corporate	619			589
Subtotal	592,714			596,322
Inter-segment eliminations	(11		)	(205		)
Total	$	592,703		$	596,117

Operating Income
Truckload Transportation Services	$	29,089		$	42,953
Werner Logistics	1,085			4,711
Other	2,900			1,179
Corporate	(2,008		)	(824		)
Total	$	31,066		$	48,019

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Revenues
Truckload Transportation Services $ 407,566
$ 384,312
$ 1,196,071
$ 1,136,478
Werner Logistics 104,568
109,459
305,225
310,001
Other 16,020
14,804
47,257
43,148
Corporate 593
313
1,539
1,300
Subtotal 528,747
508,888
1,550,092
1,490,927
Inter-segment eliminations (104 ) (212 ) (720 ) (768 )
Total $ 528,643
$ 508,676
$ 1,549,372
$ 1,490,159

Operating Income

Truckload Transportation Services $ 34,009
$ 19,846
$ 93,511
$ 74,971
Werner Logistics 1,318
4,894
6,652
16,502
Other 1,001
(1,191 ) 605
(4,964 )
Corporate (454 ) 5,525
(2,009 ) 4,605
Total $ 35,874
$ 29,074
$ 98,759
$ 91,114

~~(8) Derivative Financial Instrument~~

In the normal course of business we are subject to risk from adverse fluctuations in foreign exchange and interest rates and commodity prices. We manage our risks for interest rate changes through use of an interest rate swap. At September 30, 2017, we had one interest rate swap outstanding, which matures in September 2019, with a notional value of $75.0 million and a pre-tax fair value loss of $0.4 million. The counterparty to this contract is a major financial institution. We are exposed to credit loss in the event of non-performance by the counterparty. We do not use derivative instruments for trading or speculative purposes and have no derivative financial instruments to reduce our exposure to fuel price fluctuations.

Our objective in managing exposure to interest rate risk is to limit the impact on earnings and cash flow. The extent to which we use such instruments is dependent on our access to these contracts in the financial markets and our success using other methods.

Our outstanding derivative financial instrument is recognized as an other long-term liability in the Consolidated Balance Sheets at fair value. The interest rate swap is accounted for as a cash flow hedging instrument. At inception, we formally designated and documented the financial instrument as a hedge of a specific underlying exposure, the risk management objective, and the manner in which effectiveness of the hedge will be assessed. We formally assess, both at inception and at each reporting period thereafter, whether the derivative financial instrument is effective in offsetting changes in cash flows of the related underlying exposure. All changes in fair value of outstanding derivatives in cash flow hedges, except any ineffective portion, are recorded in other comprehensive income until earnings are impacted by the hedged transaction. Classification of the gain or loss in the Consolidated Statements of Income upon release from comprehensive income is the same as that of the underlying exposure. Any ineffective portion of the change in fair value of the instruments is recognized immediately in earnings.

We will discontinue the use of hedge accounting prospectively when (i) the derivative instrument is no longer effective in offsetting changes in fair value or cash flows of the underlying hedged item; (ii) the derivative instrument expires, is sold, terminated or exercised; or (iii) designating the derivative instrument as a hedge is no longer appropriate.

Should we discontinue hedge accounting because it is no longer probable that an anticipated transaction will occur in the originally expected period, or within an additional two-month period thereafter, changes to fair value accumulated in other comprehensive income would be recognized immediately in earnings.

~~FASB ASC 815-10,~~ ~~Derivatives and Hedging~~, requires companies to recognize the derivative instrument as an asset or a liability at fair value in the statement of financial position. Fair value of the derivative instrument is required to be measured under the FASB’s Fair Value Measurements and Disclosures guidance, which establishes a hierarchy that distinguishes between market

participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). Level 1 inputs use quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. The fair value of our interest rate swap is based on Level 2 inputs.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “MD&A”) summarizes the financial statements from management’s perspective with respect to our financial condition, results of operations, liquidity and other factors that may affect actual results. The MD&A is organized in the following sections:

Overview

COVID-19

Results of Operations

Liquidity and Capital Resources

Contractual Obligations and Commercial Commitments

Regulations

Critical Accounting ~~Policies and~~ Estimates

~~Accounting Standards~~

The MD&A should be read in conjunction with our ~~2016~~2019 Form 10-K.

Overview:

We have two reportable segments, Truckload Transportation Services (“~~Truckload”~~TTS”) and Werner Logistics, and we operate in the truckload and logistics sectors of the transportation industry. In the truckload sector, we focus on transporting consumer nondurable products that generally ship more consistently throughout the year. In the logistics sector, besides managing transportation requirements for individual customers, we provide additional sources of truck capacity, alternative modes of transportation, a global delivery network and systems analysis to optimize transportation needs. Our success depends on our ability to efficiently and effectively manage our resources in the delivery of truckload transportation and logistics services to our customers. Resource requirements vary with customer demand, which may be subject to seasonal or general economic conditions. Our ability to adapt to changes in customer transportation requirements is essential to efficiently deploy resources and make capital investments in tractors and trailers (with respect to our ~~Truckload~~TTS segment) or obtain qualified third-party capacity at a reasonable price (with respect to our Werner Logistics segment). Although our business volume is not highly concentrated, we may also be affected by our customers’ financial failures or loss of customer business.

Revenues for our ~~Truckload~~TTS segment operating units ~~(One-Way Truckload, Dedicated~~(Dedicated and ~~Temperature Controlled)~~One-Way Truckload) are typically generated on a per-mile basis and also include revenues such as stop charges, loading and unloading charges, equipment detention charges and equipment repositioning charges. To mitigate our risk to fuel price increases, we recover from our customers additional fuel ~~surcharges~~surcharge revenues that generally recoup a majority of the increased fuel costs; however, we cannot assure that current recovery levels will continue in future periods. Because fuel surcharge revenues fluctuate in response to changes in fuel costs, we identify them separately and exclude them from the statistical calculations to provide a more meaningful comparison between periods. The key statistics used to evaluate trucking revenues, net of fuel surcharge, are (i) average revenues per tractor per week, (ii) average percentage of empty miles (miles without trailer cargo), (iii) average trip length (in loaded miles) and (iv) average number of tractors in service. General economic conditions, seasonal trucking industry freight patterns and industry capacity are important factors that impact these statistics. Our ~~Truckload~~TTS segment also generates a small amount of revenues categorized as non-trucking revenues, which consist primarily of the intra-Mexico portion of cross-border shipments delivered to or from Mexico where the ~~Truckload~~TTS segment utilizes a third-party capacity provider. We exclude such revenues from the statistical calculations.

Our most significant resource requirements are company drivers, independent contractors, tractors and trailers. Independent contractors supply their own tractors and drivers and are responsible for their operating expenses. Our financial results are affected by company driver and independent contractor availability and the markets for new and used revenue equipment. We are self-insured for a significant portion of bodily injury, property damage and cargo claims; workers’ compensation claims; and associate health claims (supplemented by premium-based insurance coverage above certain dollar levels). For that reason, our financial results may also be affected by driver safety, medical costs, weather, legal and regulatory environments and insurance coverage costs to protect against catastrophic losses.

The operating ratio is a common industry measure used to evaluate our profitability and that of our ~~Truckload~~TTS segment operating fleets. The operating ratio consists of operating expenses expressed as a percentage of operating revenues. The most significant variable expenses that impact the ~~Truckload~~TTS segment are driver salaries and benefits, fuel, fuel taxes (included in taxes and licenses expense), payments to independent contractors (included in rent and purchased transportation expense), supplies and maintenance and insurance and claims. As discussed further in the comparison of operating results for ~~third~~first quarter ~~2017~~2020 to ~~third~~first quarter ~~2016,~~2019, several industry-wide issues have caused, and could continue to cause, costs to increase in future periods. These issues include shortages of drivers or independent contractors, changing fuel prices, ~~higher new truck and trailer purchase prices and~~ compliance with new or proposed ~~regulations.~~regulations and a weakening used equipment market. Our main fixed costs include depreciation expense for tractors and trailers and equipment licensing fees (included in taxes and licenses expense). The ~~Truckload~~TTS segment requires substantial cash expenditures for tractor

and trailer purchases. We fund

these purchases with net cash from operations and financing available under our existing credit facilities, as management deems necessary.

We provide non-trucking services primarily through the ~~five~~four operating units within our Werner Logistics segment ~~(Brokerage, Freight Management,~~(Truckload Logistics, Intermodal, ~~Werner Global Logistics international~~WGL and Final Mile). Unlike our ~~Truckload~~TTS segment, the Werner Logistics segment is less asset-intensive and is instead dependent upon qualified associates, information systems and qualified third-party capacity providers. The largest expense item related to the Werner Logistics segment is the cost of purchased transportation we pay to third-party capacity providers. This expense item is recorded as rent and purchased transportation expense. Other operating expenses consist primarily of salaries, wages and benefits. We evaluate the Werner Logistics segment’s financial performance by reviewing the gross margin percentage (revenues less rent and purchased transportation expenses expressed as a percentage of revenues) and the operating income percentage. The gross margin percentage can be impacted by the rates charged to customers and the costs of securing third-party capacity. We have a mix of contracted long-term rates and variable rates for the cost of third-party capacity, and we cannot assure that our operating results will not be adversely impacted in the future if our ability to obtain qualified third-party capacity providers changes or the rates of such providers increase.

COVID-19:

The COVID-19 pandemic, declared March 11, 2020, has profoundly impacted the U.S. economy. During the pandemic, the transportation industry has been designated by the U.S. government as an essential industry for keeping the U.S. supply chain moving. We are working hard to stay healthy while safely delivering our customers’ freight on time. Our leadership team meets daily to address issues related to customers, freight, drivers, safety, staffing, human resources, and costs, and provides regular updates to all our associates. Throughout our offices and terminal network, we are closely following the safety guidelines set forth by the Centers for Disease Control and Prevention (CDC) and World Health Organization (WHO), including hygiene and distancing. We have already made significant investments in personal protective products to keep our associates safe, and over half of our office associates are working from home. We introduced Werner-specific associate relief plans to provide rapid and needed assistance to those Werner associates affected by the virus.

Over the past several years, we have repositioned Werner to increase our ability to execute through different macroeconomic environments. We believe our freight base, which is heavily weighted toward customers delivering essential products that are continually being restocked in today’s economy, will enable us to more effectively manage through the difficult economic environment created by the pandemic. Our results for first quarter 2020 reflect freight demand that was slightly below the same period a year ago, with above normal demand the last two to three weeks of March as consumers purchased essential products for their homes. 62% of first quarter 2020 revenues from our top 100 customers (85% of revenues in first quarter 2020) came from the discount retail, home improvement retail, food and beverage, and consumer packaged goods verticals.

Our second quarter and 2020 results will likely be further impacted by the disruptive effect of COVID-19, although the degree of disruption is difficult to predict. Freight demand in our One-Way Truckload unit in April 2020 was lower than April 2019, with some expected gradual freight softening, and Dedicated volumes have been mostly steady. We are, however, preparing for various scenarios that could result in an extremely challenging second quarter. We do not plan to grow our truck fleet until market conditions improve, and our fleet count may decline more in second quarter 2020 depending on the freight market and the pace and timing of recovery. We are addressing discretionary controllable costs wherever possible, including voluntary pay reductions for all members of the executive team and implementing hiring freezes for nearly all non-driver open positions. We performed a customer industry and financial risk assessment on our 100 largest customers shortly after the pandemic declaration. While our financial risk has clearly increased since the pandemic began, we believe we have a relatively lower level of financial risk with the predominance of financially stronger companies in our customer base as well as a lower overall industry risk due to our focus on industries delivering essential products.

At the end of first quarter 2020, we believe we are well positioned with a strong balance sheet and sufficient liquidity. Our debt is low at $250 million, or net debt ratio of 0.4 times EBITDA, and we paid off $50 million of debt in first quarter. We had available liquidity of $352 million, considering cash on hand and available credit facilities of $280.4 million, and also have sufficient cushion with our two debt covenants. For our $75 million credit facility that will expire on July 13, 2020, we currently intend to pay the outstanding balance in full, on or before the maturity date, using long-term financing under our other existing credit facilities. We currently do not intend to repurchase shares of stock until there is more clarity on the duration and effects of COVID-19. We do, however, currently plan to continue paying our quarterly dividend, which we have paid for 34 consecutive years. This capital outlay currently results in slightly more than $6 million per quarter. 2020 net capital expenditures currently are expected to be in the range of $260 million to $300 million. This includes an estimated $46 million decrease in new truck purchases offset by an estimated lower number of used truck sales at lower expected prices amounting to $42 million. We continue to expect free cash flow (net cash provided by operating activities less net cash used for capital expenditures) to exceed $100 million in 2020.

We don’t currently expect the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), enacted in March 2020, to have a material impact on our consolidated financial statements. Under the CARES Act, we currently intend to defer payment of certain employer payroll taxes for the remainder of 2020, with 50% due December 31, 2021 and 50% due December 31, 2022. We also expect to utilize a provision allowing accelerated income tax depreciation for certain assets, which will not impact our effective tax rate. There have been a number of regulatory actions and waivers related to the COVID-19 pandemic, in an effort to keep the supply chain moving. We do not expect these collective changes to have a material impact on our consolidated financial statements.

Results of Operations:

The following table sets forth the Consolidated Statements of Income in dollars and as a percentage of total operating revenues and the percentage increase or decrease in the dollar amounts of those items compared to the prior year.


	Three Months Ended (3ME) September 30,									Nine Months Ended (9ME) September 30,									Percentage Change in Dollar Amounts				Three Months Ended (3ME) March 31,							Percentage Change in Dollar Amounts
	2017				2016					2017				2016					3ME		9ME		2020			2019				3ME
(Amounts in thousands)	$			%	$			%		$			%	$			%		%		%		$		%	$			%	%
Operating revenues	$	528,643		100.0	$	508,676		100.0		$	1,549,372		100.0	$	1,490,159		100.0		3.9	%	4.0	%	$	592,703	100.0	$	596,117		100.0	(0.6	)

Operating expenses:
Salaries, wages and benefits	170,238			32.2	162,862			32.0		500,620			32.3	479,298			32.2		4.5	%	4.4	%	205,997		34.8	202,799			34.0	1.6
Fuel	50,266			9.5	40,638			8.0		140,551			9.1	112,034			7.5		23.7	%	25.5	%	48,771		8.2	56,138			9.4	(13.1	)
Supplies and maintenance	41,986			7.9	41,027			8.1		120,276			7.8	130,559			8.8		2.3	%	(7.9	)%	45,721		7.7	45,685			7.7	0.1
Taxes and licenses	21,671			4.1	21,540			4.2		64,095			4.1	64,353			4.3		0.6	%	(0.4	)%	22,850		3.9	22,901			3.8	(0.2	)
Insurance and claims	20,669			3.9	19,106			3.8		60,336			3.9	59,384			4.0		8.2	%	1.6	%	36,064		6.1	22,709			3.8	58.8
Depreciation	53,578			10.1	51,781			10.2		162,619			10.5	152,849			10.3		3.5	%	6.4	%	68,837		11.6	60,759			10.2	13.3
Rent and purchased transportation	126,087			23.9	133,876			26.3		377,146			24.3	379,155			25.4		(5.8	)%	(0.5	)%	126,442		21.3	132,836			22.3	(4.8	)
Communications and utilities	4,199			0.8	4,206			0.8		12,158			0.8	12,110			0.8		(0.2	)%	0.4	%	3,808		0.7	4,011			0.7	(5.1	)
Other	4,075			0.8	4,566			0.9		12,812			0.8	9,303			0.6		(10.8	)%	37.7	%	3,147		0.5	260			—	1,110.4
Total operating expenses	492,769			93.2	479,602			94.3		1,450,613			93.6	1,399,045			93.9		2.7	%	3.7	%	561,637		94.8	548,098			91.9	2.5

Operating income	35,874			6.8	29,074			5.7		98,759			6.4	91,114			6.1		23.4	%	8.4	%	31,066		5.2	48,019			8.1	(35.3	)
Total other expense (income)	(186		)	—	(260		)	(0.1	)	(371		)	—	(1,167		)	(0.1	)	28.5	%	68.2	%	1,010		0.1	(161		)	—	727.3
Income before income taxes	36,060			6.8	29,334			5.8		99,130			6.4	92,281			6.2		22.9	%	7.4	%	30,056		5.1	48,180			8.1	(37.6	)
Income taxes	13,543			2.5	10,414			2.1		37,375			2.4	34,963			2.4		30.0	%	6.9	%	6,998		1.2	12,094			2.0	(42.1	)
Net income	$	22,517		4.3	$	18,920		3.7		$	61,755		4.0	$	57,318		3.8		19.0	%	7.7	%	$	23,058	3.9	$	36,086		6.1	(36.1	)

The following tables set forth the operating revenues, operating expenses and operating income for the ~~Truckload~~TTS segment, as well as certain statistical data regarding our ~~Truckload~~TTS segment operations for the periods indicated.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2020			2019
Truckload Transportation Services (amounts in thousands)	$		%	$		%	$		%	$		%
Truckload Transportation Services segment (amounts in thousands)													$		%	$		%
Trucking revenues, net of fuel surcharge	$	351,114		$	336,673		$	1,029,036		$	1,008,738		$	409,098		$	397,691
Trucking fuel surcharge revenues	50,164			41,994			147,641			111,018			51,041			58,177
Non-trucking and other operating revenues	6,288			5,645			19,394			16,722			4,724			7,023
Operating revenues	407,566		100.0	384,312		100.0	1,196,071		100.0	1,136,478		100.0	464,863		100.0	462,891		100.0
Operating expenses	373,557		91.7	364,466		94.8	1,102,560		92.2	1,061,507		93.4	435,774		93.7	419,938		90.7
Operating income	$	34,009	8.3	$	19,846	5.2	$	93,511	7.8	$	74,971	6.6	$	29,089	6.3	$	42,953	9.3

Three Months Ended
September 30, Nine Months Ended
September 30,
Truckload Transportation Services 2017 2016 % Change 2017 2016 % Change
Operating ratio, net of fuel surcharge revenues ⁽¹⁾
90.5 % 94.2 % 91.1 % 92.7 %
Average revenues per tractor per week ⁽²⁾
$ 3,693
$ 3,589
2.9 % $ 3,634
$ 3,547
2.4 %
Average trip length in miles (loaded) 469
468
0.2 % 469
466
0.6 %
Average percentage of empty miles ⁽³⁾
12.53 % 12.55 % (0.2 )% 12.40 % 13.08 % (5.2 )%
Average tractors in service 7,314
7,216
1.4 % 7,261
7,291
(0.4 )%
Total trailers (at quarter end) 22,435
22,655
22,435
22,655

Total tractors (at quarter end):
     Company 6,700
6,355
6,700
6,355

     Independent contractor 675
820
675
820

          Total tractors 7,375
7,175
7,375
7,175



	Three Months Ended March 31,
Truckload Transportation Services segment	2020			2019			% Change
Average tractors in service	7,862			7,887			(0.3	)%
Average revenues per tractor per week⁽¹⁾	$	4,003		$	3,879		3.2	%
Total tractors (at quarter end)
Company	7,350			7,355			(0.1	)%
Independent contractor	485			590			(17.8	)%
Total tractors	7,835			7,945			(1.4	)%
Total trailers (at quarter end)	21,910			23,235			(5.7	)%

One-Way Truckload
Trucking revenues, net of fuel surcharge (in 000’s)	$	177,849		$	180,134		(1.3	)%
Average tractors in service	3,271			3,357			(2.6	)%
Total tractors (at quarter end)	3,150			3,385			(6.9	)%
Average percentage of empty miles	11.83		%	11.60		%	2.0	%
Average revenues per tractor per week⁽¹⁾	$	4,182		$	4,127		1.3	%
Average % change in revenues per total mile⁽¹⁾	(3.7		)%	6.5		%
Average % change in total miles per tractor per week	5.1		%	(3.5		)%
Average completed trip length in miles (loaded)	863			854			1.1	%

Dedicated
Trucking revenues, net of fuel surcharge (in 000’s)	$	231,249		$	217,557		6.3	%
Average tractors in service	4,591			4,530			1.3	%
Total tractors (at quarter end)	4,685			4,560			2.7	%
Average revenues per tractor per week⁽¹⁾	$	3,874		$	3,694		4.9	%


⁽¹⁾	Calculated as if fuel surcharge revenues are excluded from total revenues and instead reported as a reduction of operating expenses, which provides a more consistent basis for comparing results of operations from period to period.


⁽²⁾	Net of fuel surcharge revenues.


⁽³⁾	~~“Empty” refers to miles without trailer cargo.~~

The following tables set forth the Werner Logistics segment’s revenues, rent and purchased transportation expense, gross margin, other operating expenses (primarily salaries, wages and benefits expense) and operating income, as well as certain statistical data regarding the Werner Logistics segment.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2020			2019
Werner Logistics (amounts in thousands)	$		%	$		%	$		%	$		%
Werner Logistics segment (amounts in thousands)													$		%	$		%
Operating revenues	$	104,568	100.0	$	109,459	100.0	$	305,225	100.0	$	310,001	100.0	$	112,164	100.0	$	117,370	100.0
Rent and purchased transportation expense	89,507		85.6	91,695		83.8	259,277		84.9	255,954		82.6	95,932		85.5	97,020		82.7
Gross margin	15,061		14.4	17,764		16.2	45,948		15.1	54,047		17.4	16,232		14.5	20,350		17.3
Other operating expenses	13,743		13.1	12,870		11.7	39,296		12.9	37,545		12.1	15,147		13.5	15,639		13.3
Operating income	$	1,318	1.3	$	4,894	4.5	$	6,652	2.2	$	16,502	5.3	$	1,085	1.0	$	4,711	4.0


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
Werner Logistics	2017	2016	% Change		2017	2016	% Change
Werner Logistics segment									2020	2019	% Change
Average tractors in service	48	75	(36.0	)%	53	71	(25.4	)%	32	38	(15.8	)%
Total tractors (at quarter end)									30	40	(25.0	)%
Total trailers (at quarter end)	1,655	1,590	4.1	%	1,655	1,590	4.1	%	1,625	1,745	(6.9	)%
Total tractors (at quarter end)	47	86	(45.3	)%	47	86	(45.3	)%

Three Months Ended ~~September 30, 2017~~March 31, 2020 Compared to Three Months Ended ~~September 30, 2016~~March 31, 2019

Operating Revenues

Operating revenues ~~increased 3.9%~~decreased 0.6% for the three months ended ~~September 30, 2017,~~March 31, 2020, compared to the same period of the prior year. When comparing ~~third~~first quarter ~~2017~~2020 to ~~third~~first quarter ~~2016, Truckload~~2019, TTS segment revenues increased ~~$23.3~~$2.0 million, or ~~6.1%~~0.4%, and Werner Logistics revenues decreased ~~$4.9~~$5.2 million, or ~~4.5%~~4.4%.

During first quarter 2020, freight demand in our One-Way Truckload fleet in January and February was seasonally normal and slightly below the same period a year ago. Following the pandemic declaration on March 11, we experienced strengthening demand for the last two to three weeks of March. This led to demand for the full month of March 2020 being comparable to March 2019. In our Dedicated fleet, freight demand remained steady in first quarter 2020 with above normal demand in March for store replenishment, primarily due to customer inventory restocking following consumers buying essential products for their households after the pandemic declaration.

April 2020 freight demand was lower than April 2019, with some expected gradual weakening as a result of many parts of the U.S. economy being shut down or significantly curtailed. Our freight base is designed to more effectively manage through what we anticipate will be an extremely difficult economic environment in second quarter 2020, as a significant portion of our revenues come from delivering essential goods and products. 62% of revenues from our top 100 customers (85% of revenues in first quarter 2020) came from the discount retail, home improvement retail, food and beverage or consumer packaged goods industry groups.

Trucking revenues, net of fuel surcharge, increased ~~4.3%~~2.9% in ~~third~~first quarter ~~2017~~2020 compared to ~~third~~first quarter ~~2016~~2019 due to a ~~2.9%~~3.2% increase in average revenues per tractor per week, ~~and a 1.4%~~net of fuel surcharge, which was due primarily to an increase in average ~~tractors~~miles per tractor and to a lesser extent an increase in ~~service. Our~~ average revenues per total mile, ~~net~~partially offset by a 0.3% decrease in the average number of ~~fuel surcharge, increased~~tractors in service. The increase in average revenues per total mile was due primarily to relative strength in Dedicated pricing, mostly offset by ~~3.4%~~a 3.7% decrease in ~~third quarter 2017 compared to third quarter 2016 and~~One-Way Truckload pricing. We currently expect average ~~miles~~revenues per ~~truck decreased by 0.5%.~~

~~Third quarter 2017 freight demand in our~~total mile for the One-Way Truckload fleet ~~improved throughout~~for the ~~quarter. In July and August 2017, freight trended better than normal and meaningfully better than~~first half of 2020 to decrease in a range of 5% to 7% when compared to the ~~challenging~~first half of 2019, resulting from what we believe will be a very difficult freight market ~~of third quarter 2016. As we moved into September, the freight market strengthened further due~~ in ~~part to the significant disruption caused by two major hurricanes in south Texas~~May and Florida. These catastrophic weather events resulted in short-term costs in September due to out-of-route miles, higher fuel costs, equipment issues, and driver domicile issues; additionally, the multiple days of school closings at our Florida-based driving schools negatively impacted our driver hiring. At the same time, these events improved spot market pricing and further widened the positive gap between demand and capacity, which better positions the freight and contractual rate markets going forward. Freight volumes in October 2017 were seasonally better than normal.June 2020.

Freight metrics have improved, and we have increasing confidence that contractual rates will strengthen over the next few quarters, particularly noting the improving freight market conditions and the expected tightening of supply when the electronic hours of service mandate for the trucking industry becomes effective on December 18, 2017.

The average number of tractors in service in the ~~Truckload~~TTS segment ~~increased 1.4%~~decreased 0.3% to ~~7,314~~7,862 in ~~third~~first quarter ~~2017~~2020 from ~~7,216~~7,887 in ~~third~~first quarter ~~2016.~~2019. We ended ~~third~~first quarter ~~2017~~2020 with ~~7,375~~7,835 trucks in the ~~Truckload~~TTS segment, a year-over-year ~~increase~~decrease of ~~200~~110 trucks compared to the end of ~~third~~first quarter ~~2016,~~2019, and a sequential ~~increase~~decrease of 60165 trucks compared to the end of fourth quarter 2019. We currently expect our truck count at the end of 2020 to be in a range of 5% lower to flat when compared to the fleet size at year-end 2019. Our fleet count may decline more in second quarter ~~2017.~~depending on the freight market and the pace and timing of recovery. We cannot predict whether future driver shortages, if any, will adversely affect our ability to maintain our fleet size. If such a driver shortage were to occur, it could result in a fleet size reduction, and our results of operations could be adversely affected.

Trucking fuel surcharge revenues ~~increased 19.5%~~decreased 12.3% to ~~$50.2~~$51.0 million in ~~third~~first quarter ~~2017~~2020 from ~~$42.0~~$58.2 million in ~~third~~first quarter ~~2016~~2019 due to ~~higher~~lower average fuel prices in the ~~2017~~2020 quarter. These revenues represent collections from customers for the increase in fuel and fuel-related expenses, including the fuel component of our independent contractor cost (recorded as rent and purchased transportation expense) and fuel taxes (recorded in taxes and licenses expense), when diesel fuel prices rise. Conversely, when fuel prices decrease, fuel surcharge revenues decrease. To lessen the effect of fluctuating fuel prices on our margins, we collect fuel surcharge revenues from our customers for the cost of diesel fuel and taxes in excess of specified base fuel price levels according to terms in our customer contracts. Fuel surcharge rates generally adjust weekly based on an independent U.S. Department of Energy fuel price survey which is released every Monday. Our fuel surcharge programs are designed to (i) recoup higher fuel costs from customers when fuel prices rise and (ii) provide customers with the benefit of lower fuel costs when fuel prices decline. These programs generally enable us to recover a majority, but not all, of the fuel price increases. The remaining portion is generally not recoverable because it results from empty and out-of-route miles (which are not billable to customers) and truck idle time. Fuel prices that change rapidly in short time periods also impact our recovery because the surcharge rate in most programs only changes once per week.

Werner Logistics revenues are generated by its ~~five~~four operating units and exclude revenues for full truckload shipments transferred to the ~~Truckload~~TTS segment, which are recorded as trucking revenues by the ~~Truckload~~TTS segment. Werner Logistics also recorded revenue and brokered freight expense of ~~$0.1 million~~$11 thousand in ~~third~~first quarter ~~2017~~2020 and ~~$0.2 million~~$205 thousand in ~~third~~first quarter ~~2016~~2019 for Intermodal drayage movements performed by the ~~Truckload~~TTS segment (also recorded as trucking revenue by the ~~Truckload~~TTS segment), and these transactions between reporting segments are eliminated in consolidation. In ~~third~~first quarter ~~2017,~~2020, Werner Logistics revenues decreased ~~$4.9~~$5.2 million, or ~~4.5%~~4.4%, primarily due to lower Truckload Logistics revenues as a result of fewer transactional freight opportunities from a slowing freight economy and ~~operating income dollars~~the competitive logistics market. However, due to an 8% increase in contractual shipments, our Truckload Logistics total load count increased 1% while revenue per load declined 10%. Intermodal revenues decreased ~~$3.6 million or 73.1%, compared to third quarter 2016.~~6%. The Werner Logistics gross margin percentage in ~~third~~first quarter ~~2017~~2020 of ~~14.4%~~14.5% decreased from ~~16.2%~~17.3% in ~~third~~first quarter ~~2016.~~2019 due primarily to a softer freight market, and contractual brokerage had a higher cost of capacity in March 2020 due to higher store replenishment activity. The Werner Logistics operating income percentage in ~~third~~first quarter ~~2017~~2020 of ~~1.3% declined~~1.0% decreased from ~~third~~4.0% in first quarter ~~2016~~2019 as the percentage decline in gross profit exceeded the percentage decline in other operating expenses. Other operating expenses in first quarter 2020 included $0.5 million of ~~4.5%. Tighter carrier capacity in third quarter 2017 compared to third quarter 2016 resulted in higher purchased transportation costs causing the lower gross margin and operating income percentages.~~

~~In third quarter 2017, Werner Logistics achieved solid revenue growth year over year in our truck brokerage solution, while our intermodal and international solutions had lower revenues~~bad debt expense primarily due to ~~more challenging market conditions. As previously disclosed, a large Werner Logistics Freight Management~~ customer ~~(5.5% of Werner Logistics revenues in third quarter 2016) that was acquired~~bankruptcies.

in 2015 transitioned to their parent company’s transportation platform mid-quarter during first quarter 2017. We continue to see strong customer acceptance of the value of the Werner Logistics portfolio of service offerings, particularly as the market strengthens and shippers tend to consolidate their logistics business with the stability of larger asset-backed logistics providers.

Operating Expenses

Our operating ratio (operating expenses expressed as a percentage of operating revenues) was ~~93.2%~~94.8% for the three months ended ~~September 30, 2017,~~March 31, 2020, compared to ~~94.3%~~91.9% for the three months ended ~~September 30, 2016.~~March 31, 2019. Expense items that impacted the overall operating ratio are described on the following pages. The tables on pages ~~16 and 17~~20 through 22 show the Consolidated Statements of Income in dollars and as a percentage of total operating revenues and the percentage increase or decrease in the dollar amounts of those items compared to the same quarter of the prior year, as well as the operating ratios, operating margins, and certain statistical information for our two reportable segments, ~~Truckload~~TTS and Werner Logistics.

Salaries, wages and benefits increased ~~$7.4~~$3.2 million or ~~4.5%~~1.6% in ~~third~~first quarter ~~2017~~2020 compared to ~~third~~first quarter ~~2016~~2019 and increased ~~0.2%~~0.8% as a percentage of operating revenues to ~~32.2%~~34.8%. The higher dollar amount of salaries, wages and benefits expense in the ~~2017 third~~2020 first quarter was due primarily to ~~increased~~higher driver pay rates and approximately 6.4 million more company truck miles, both of which also resulted in higher payroll taxes and higher driver and student pay rates. These increases were partially offset by lower workers’ compensation expense in third quarter 2017. When evaluated on a per-mile basis, driver salaries, wages and benefits also increased, which we primarily attribute to higher driver pay in third quarter 2017 compared to third quarter 2016.other payroll-related fringe benefits. Non-driver salaries, wages and benefits in the non-trucking Werner Logistics segment ~~increased 8.4%~~decreased 9.3%.

We renewed our workers’ compensation insurance coverage ~~for the policy year beginning~~on April 1, ~~2017. Our coverage levels are the same as the prior policy year. We continue to maintain a~~2020 and took on additional risk exposure by increasing our self-insurance retention offrom $1.0 million to $2.0 million per ~~claim. Our~~claim as of April 1, 2020. As a result of the higher self-insured retention, our workers’ compensation insurance premiums for the policy year beginning April ~~2017 were similar to those~~2020 are $0.8 million lower than the premiums for the previous policy year.

The driver recruiting market ~~became more challenging in third quarter 2017.~~is extremely competitive. Several ongoing market factors ~~persist~~persisted including a declining number of, and increased competition for, driver training school graduates, ~~an historically low national unemployment rate,~~ aging truck driver demographics and increased truck safety ~~regulations.~~regulations including the regulation changes for electronic logging devices. We ~~proactively took many~~continue to take significant actions ~~in the last two years~~ to strengthen our driver recruiting and retention to make Werner ~~the~~a preferred choice for the best drivers, including raising driver pay, ~~lowering the age of our~~maintaining a new truck and trailer fleet, ~~installing~~purchasing best-in-class safety ~~and training~~ features onfor all new trucks, investing in our driver training ~~schools~~school network and collaborating with customers to improve or eliminate ~~freight with~~ unproductive ~~operating characteristics that prevent~~freight. These efforts continue to have positive results on our ~~drivers from maximizing productivity. Our~~ driver ~~turnover rate once again improved, achieving the lowest third quarter rate in 19 years.~~retention. We are unable to predict whether we will experience future driver ~~shortages.~~shortages or continue to maintain our current driver retention rates. If such a driver shortage were to occur and additional driver pay rate increases became necessary to attract and retain drivers, our results of operations would be negatively impacted to the extent that we could not obtain corresponding freight rate increases.

Fuel ~~increased $9.6~~decreased $7.4 million or ~~23.7%~~13.1% in ~~third~~first quarter ~~2017~~2020 compared to ~~third~~first quarter ~~2016~~2019 and ~~increased 1.5%~~decreased 1.2% as a percentage of operating revenues due to ~~higher~~lower average diesel fuel prices, ~~and increased~~despite approximately 6.4 million more company truck ~~miles.~~miles in first quarter 2020. Average diesel fuel prices were 2634 cents per gallon ~~higher~~lower in ~~third~~first quarter ~~2017~~2020 than in ~~third~~first quarter ~~2016~~2019 and were 1541 cents per gallon ~~higher~~lower than in ~~second~~fourth quarter ~~2017. The increase was partially offset by slightly improved miles per gallon (“mpg”).~~2019.

We continue to employ measures to improve our fuel mpg such as (i) limiting truck engine idle time, (ii) optimizing the speed, weight and specifications of our equipment and (iii) implementing mpg-enhancing equipment changes to our fleet including new trucks, ~~with U.S. Environmental Protection Agency (the “EPA”) 2010 compliant engines,~~ more aerodynamic truck features, idle reduction systems, trailer tire inflation systems, trailer skirts and automated manual transmissions to reduce our fuel gallons purchased. However, fuel savings from mpg improvement is partially offset by higher depreciation expense and the additional cost of diesel exhaust ~~fluid (required in tractors with engines that meet the 2010 EPA emission standards).~~fluid. Although our fuel management programs require significant capital investment and research and development, we intend to continue these and other environmentally conscious initiatives, including our active participation as an EPA SmartWay Transport Partner. The SmartWay Transport Partnership is a national voluntary program developed by the EPA and freight industry representatives to reduce greenhouse gases and air pollution and promote cleaner, more efficient ground freight transportation.

For ~~October 2017,~~April 2020, the average diesel fuel price per gallon was approximately ~~28 cents higher~~$1.22 lower than the average diesel fuel price per gallon in ~~October 2016~~April 2019 and approximately ~~32 cents higher~~$1.14 lower than in ~~fourth~~second quarter ~~2016.~~2019.

Shortages of fuel, increases in fuel prices and petroleum product rationing can have a materially adverse effect on our operations and profitability. We are unable to predict whether fuel price levels will increase or decrease in the future or the extent to which fuel surcharges will be collected from customers. As of ~~September 30, 2017,~~March 31, 2020, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.

Supplies and maintenance remained flat in first quarter 2020 compared to first quarter 2019. The increased ~~$1.0~~expense resulting from higher company truck miles in 2020 was offset by lower driver recruiting and other driver-related costs, as well as lower non-driver travel expenses.

Insurance and claims increased $13.4 million or ~~2.3%~~58.8% in ~~third~~first quarter ~~2017~~2020 compared to ~~third~~first quarter ~~2016~~2019 and ~~decreased 0.2%~~increased 2.3% as a percentage of operating revenues due primarily to higher ~~company truck miles driven~~expense for new large dollar claims. In January 2020, one of our trucks was involved in ~~third~~a serious accident. We self-insure for the first $10.0 million of liability coverage for this policy period and have appropriate excess liability insurance coverage with insurance carriers above this amount. As a result, we accrued $10.0 million of insurance and claims expense in first quarter ~~2017 compared to third quarter 2016, partially offset by our younger trailer fleet and the resulting lower equipment maintenance expense.~~2020 for this accident. We also incurred ~~higher driver recruiting~~insurance claims expense of $1.2 million in both first quarter 2020 and ~~other driver-related costs~~first quarter 2019 for accrued interest related to a previously-disclosed adverse jury verdict rendered May 17, 2018, which we are appealing (see Note 5 in the ~~2017 quarter.~~

~~Insurance and claims increased $1.6~~Notes to Consolidated Financial Statements (Unaudited) set forth in Part 1 of this report). Interest is accrued at $0.4 million ~~or 8.2% in third quarter 2017 compared to third quarter 2016 and increased 0.1%~~per month, until such time as ~~a percentage~~the outcome of ~~operating revenues. The increase in third quarter 2017 expense compared to third quarter 2016 was primarily the result of unfavorable development on prior period claims.~~our appeal is finalized. The majority of our insurance and claims expense results from our claim experience and claim development under our self-insurance program; the remainder results from insurance premiums for claims in excess of our self-insured limits.

We renewed our liability insurance policies on August 1, ~~2017~~2019 with the same deductibles and ~~took on additional risk exposure by increasing our self-insured retention and deductible levels. Effective on that date, we are~~aggregates as the August 1, 2018 renewal. We continue to be responsible for the first $3.0 million per claim with an annual $6.0 million aggregate for claims between $3.0 million and $5.0 million. We also have an additional $5.0 million deductible per claim for each claim between $5.0 million and $10.0 million. As a result, we are responsible for the first $10.0 million per claim, until we meet the $6.0 million aggregate for claims between $3.0 million and $5.0 million. For the policy year that ended July 31, 2016, we were responsible for the first $2.0 million per claim with an annual $8.0 million aggregate for claims between $2.0 million and $5.0 million and an annual aggregate of $5.0 million for claims between $5.0 million and $10.0 million. We maintain liability insurance coverage with insurance carriers substantially in excess of the $10.0 million per claim. ~~As a result of the higher self-insured retention and deductible amounts under the new policies, our~~Our liability insurance premiums for the policy year that began August 1, ~~2017~~2019 are ~~about $3.7~~11% higher, or $0.7 million ~~lower~~higher, than premiums for the previous policy year.

Depreciation expense increased ~~$1.8~~$8.1 million or ~~3.5%~~13.3% in ~~third~~first quarter ~~2017~~2020 compared to ~~third~~first quarter ~~2016~~2019 and ~~decreased 0.1%~~increased 1.4% as a percentage of operating revenues. ~~This~~During first quarter 2020, we changed the estimated life of certain trucks currently expected to be sold in 2020 to more rapidly depreciate these truck to their estimated residual values due to the weak used truck market. The effect of this change in accounting estimate increased first quarter depreciation expense ~~increase is due primarily~~by $5.0 million. These trucks will continue to depreciate at the same higher rate per truck until the trucks are sold. Information technology and communications infrastructure upgrades also added to the higher ~~cost~~depreciation expense in first quarter 2020.

The average age of ~~new trucks purchased compared to the cost~~our truck fleet remains low by industry standards and was 2.0 years as of ~~used trucks that were sold over the past 12 months~~March 31, 2020, and ~~the purchase of new trailers over the past 12 months to replace older used trailers which were fully depreciated.~~

~~In 2015 and 2016, we invested nearly $1 billion of capital expenditures (before sales of equipment) primarily to reduce~~ the average age of our ~~trucks and trailers. Our investment~~trailers was 4.1 years. We are continuing to invest in ~~newer~~new trucks and trailers ~~improves~~and our terminals in 2020 to improve our driver experience, ~~raises~~increase operational efficiency and ~~helps us to better~~more effectively manage our maintenance, safety and fuel costs. ~~We intend to maintain our newer fleet age~~During the remainder of ~~trucks and trailers. The~~2020, we expect the average age of our ~~company~~ truck and trailer fleet ~~was at 1.9 years as~~to increase slightly from current levels depending on freight recovery from the COVID-19 pandemic and the timing of ~~September 30, 2017.~~when equipment manufacturers re-open their truck and trailer manufacturing plants.

Rent and purchased transportation expense decreased ~~$7.8~~$6.4 million or ~~5.8%~~4.8% in ~~third~~first quarter ~~2017~~2020 compared to ~~third~~first quarter ~~2016~~2019 and decreased ~~2.4%~~1.0% as a percentage of operating revenues. Rent and purchased transportation expense consists mostly of payments to third-party capacity providers in the Werner Logistics segment and other non-trucking operations and payments to independent contractors in the ~~Truckload~~TTS segment. The payments to third-party capacity providers generally vary depending on changes in the volume of services generated by the Werner Logistics segment. Werner Logistics rent and purchased transportation expense decreased ~~$2.2~~$1.1 million as a result of lower logistics revenues, but as a percentage of Werner Logistics revenues increased to ~~85.6%~~85.5% in ~~third~~first quarter ~~2017~~2020 from ~~83.8%~~82.7% in ~~third~~first quarter ~~2016. Tighter industry-wide carrier capacity in third quarter 2017 compared~~2019, due primarily to ~~third quarter 2016 resulted in higher purchased transportation costs causing the lower gross margin percentage.~~a softer and more competitive Truckload Logistics freight market.

Rent and purchased transportation expense for the ~~Truckload~~TTS segment decreased ~~$5.8~~$5.6 million in ~~third~~first quarter ~~2017~~2020 compared to ~~third~~first quarter 2016. This decrease is due primarily to lower payments to independent contractors due to fewer independent contractor trucks and miles during third quarter 2017 compared to third quarter 2016, partially offset by higher average fuel reimbursement per mile in the 2017 quarter.2019. Independent contractor miles decreased approximately 1.9 million miles in first quarter 2020 and as a percentage of total miles were ~~11.8%~~8.9% in ~~third~~first quarter ~~2017~~2020 compared to ~~14.8%~~10.0% in ~~third~~first quarter ~~2016.~~2019. The per-mile settlement rate for independent contractors also decreased in first quarter 2020 compared to first quarter 2019, due in part to lower diesel fuel prices. Because independent contractors supply their own tractors and drivers and are responsible for their operating expenses, the decrease in independent contractor miles as a percentage of total miles shifted costs from the rent and purchased transportation category to other expense categories, including (i) salaries, wages and benefits, (ii) fuel, (iii) depreciation, (iv) supplies and maintenance and (v) taxes and licenses.

Challenging operating conditions continue to make independent contractor recruitment and retention difficult. Such conditions include inflationary cost increases that are the responsibility of independent contractors and a shortage of financing available to independent contractors for equipment purchases. Historically we have been able to add company tractors and recruit additional company drivers to offset any decrease in the number of independent contractors. If a shortage of independent contractors and company drivers occurs, further increases in per-mile settlement rates (for independent contractors) and driver pay rates (for company drivers) may become necessary to attract and retain these drivers. ~~This~~These rate increases could negatively affect our results of operations to the extent that we would not be able to obtain corresponding freight rate increases.

Other operating expenses ~~decreased $0.5~~increased $2.9 million ~~or 10.8%~~ in ~~third~~first quarter ~~2017~~2020 compared to ~~third~~first quarter ~~2016~~2019 and ~~decreased 0.1%~~increased 0.5% as a percentage of operating revenues. Gains on sales of assets (primarily used trucks and trailers) are reflected as a reduction of other operating expenses and are reported net of sales-related expenses (which include costs to prepare the equipment for sale). Gains on sales of assets were ~~$2.2~~$2.5 million in ~~third~~first quarter ~~2017~~2020 compared to ~~$3.1~~$5.9 million in ~~third~~first quarter ~~2016, which included a $6.5 million real estate gain and $3.4 million of losses on equipment sales. In third quarter 2017, we sold fewer trucks and fewer trailers than in third quarter 2016.~~2019. We realized significantly lower average gains per truck and trailer in ~~third~~first quarter ~~2017~~2020 compared to ~~average losses in third~~first quarter ~~2016~~2019 and realized lower average gains per trailer in third quarter 2017 compared to third quarter 2016. The used truck pricing market remained difficult in third quarter 2017 due to a higher than normal supply of usedsold 44% fewer trucks and 3% fewer trailers. Pricing in the market for our used trucks and ~~low buyer~~trailers continued to weaken in first quarter 2020 due to declining demand. Other operating expenses, primarily provision for doubtful accounts related to the driver training schools and professional and consulting fees, declined by $1.4 million in third quarter 2017 compared to third quarter 2016.

Other Expense (Income)

Other expense (income) increased ~~$0.1~~$1.2 million ~~and increased 0.1% as a percentage of operating revenues~~ in ~~third~~first quarter ~~2017~~2020 compared to ~~third~~first quarter ~~2016.~~2019. Interest ~~income was lower~~expense increased $0.7 million in first quarter 2020 compared to first quarter 2019 due to higher average outstanding debt in the ~~2017 quarter due primarily to lower average outstanding notes receivable, and interest expense was lower as well.~~2020 quarter.

Income Taxes

Our effective income tax rate (income taxes expressed as a percentage of income before income taxes) was ~~37.6%~~23.3% in ~~third~~first quarter 2017 and 35.5% in third quarter 2016. The higher income tax rate in 2017 is attributed primarily to a lower amount of favorable tax adjustments for the remeasurement of uncertain tax positions in third quarter 20172020 compared to ~~third~~25.1% in first quarter 2016 and the effect of applying a state tax rate increase to our deferred tax liabilities, partially offset by recognizing excess tax benefits related to share-based awards as a component of income tax expense.

~~Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016~~

~~Operating Revenues~~

Operating revenues increased 4.0% for the nine months ended September 30, 2017, compared to the same period of the prior year. In the Truckload segment, trucking revenues, net of fuel surcharge, increased 2.0% in the 2017 year-to-date period compared to the 2016 year-to-date period due primarily to a 2.4% increase in average revenues per tractor per week, partially offset by a 0.4% decrease in the average number of tractors in service. Average revenues per total mile, net of fuel surcharge, increased 2.3% in the first nine months of 2017 compared to the same period in 2016, and average monthly miles per tractor increased by 0.2%. Truckload segment fuel surcharge revenues for the nine months ended September 30, 2017 increased $36.6 million or 33.0% when compared to the nine months ended September 30, 2016 due to higher average fuel prices in the 2017 period. Werner Logistics revenues decreased to $305.2 million in the first nine months of 2017 compared to $310.0 million in the same 2016 period.

~~Operating Expenses~~

Our operating ratio (operating expenses expressed as a percentage of operating revenues) was 93.6% for the nine months ended September 30, 2017, compared to 93.9% for the nine months ended September 30, 2016. Expense items that impacted the overall operating ratio are described on the following pages. The tables on pages 16 and 17 show the Consolidated Statements of Income in dollars and as a percentage of total operating revenues and the percentage increase or decrease in the dollar amounts of those items compared to the same period of the prior year, as well as the operating ratios, operating margins, and certain statistical information for our two reportable segments, Truckload and Werner Logistics.

Salaries, wages and benefits increased $21.3 million or 4.4% in the first nine months of 2017 compared to the first nine months of 2016 and increased as a percentage of operating revenues to 32.3%. The higher dollar amount of salaries, wages and benefits expense was due primarily to higher driver and student pay rates, increased company truck miles and higher workers’ compensation expense in the 2017 period. When evaluated on a per-mile basis, driver salaries increased as well. Non-driver salaries, wages and benefits in the non-trucking Werner Logistics segment increased 9.8%.

Fuel increased $28.5 million or 25.5% in the first nine months of 2017 compared to the same period in 2016 and increased 1.6% as a percentage of operating revenues due primarily to higher average diesel fuel prices in 2017, partially offset by improved mpg. Average diesel fuel prices were 30 cents per gallon higher in the first nine months of 2017 than in the same 2016 period.

Supplies and maintenance decreased $10.3 million or 7.9% in the first nine months of 2017 compared to the same period in 2016 and decreased 1.0% as a percentage of operating revenues. Repairs and maintenance for our tractor and trailer fleets decreased in the year-to-date 2017 period despite higher company driver miles driven due to a newer fleet of tractors and trailers. These decreases were partially offset by higher driver recruiting and other driver-related costs in the 2017 period.

Insurance and claims expense increased $1.0 million or 1.6% in the first nine months of 2017 compared to the same period in 2016 but decreased 0.1% as a percentage of operating revenues. The higher expense in the 2017 year-to-date period was due primarily to higher liability insurance premiums related to the policy year that ended July 31, 2017.

Depreciation expense increased $9.8 million or 6.4% in the first nine months of 2017 compared to the same 2016 period and increased 0.2% as a percentage of operating revenues due primarily to a change during fourth quarter 2016 in the estimated life of certain trucks to more rapidly depreciate the trucks to their residual values due to the weak used truck market, which resulted in additional depreciation expense of $3.4 million in 2017, and the higher cost of new trucks purchased versus used trucks that were sold. In addition, the purchase of new trailers over the past 12 months to replace older used trailers which were fully depreciated also contributed to the increase in depreciation expense.

Rent and purchased transportation expense decreased $2.0 million or 0.5% in the first nine months of 2017 compared to the same 2016 period and decreased 1.1% as a percentage of operating revenues. Rent and purchased transportation for the Truckload segment decreased $5.3 million in the first nine months of 2017 compared to the same 2016 period. This decrease is due primarily to fewer independent contractor miles driven in the first nine months of 2017 compared to the same period in 2016. Independent contractor miles as a percentage of total miles were 12.4% and 14.4% in the first nine months of 2017 and 2016, respectively. Werner Logistics rent and purchased transportation expense increased $3.3 million and as a percentage of Werner Logistics revenues increased to 84.9% in the 2017 period from 82.6% in the 2016 period. Tighter industry-wide carrier capacity in the 2017 period compared to the 2016 period resulted in higher purchased transportation costs causing the lower gross margin percentage.

Other operating expenses increased $3.5 million in the first nine months of 2017 compared to the same period in 2016 and increased 0.2% as a percentage of operating revenues. Gains on sales of assets (primarily used trucks and trailers) decreased to $6.0 million in the nine months ended September 30, 2017 from $13.3 million in the nine months ended September 30, 2016, which included gains of $10.5 million from sales of real estate. In the 2017 year-to-date period, we sold fewer trucks and trailers, realized average gains per truck compared to average losses and realized lower average gains per trailer sold when compared to same period of 2016. Provision for doubtful accounts related to our driver schools and professional and consulting fees were lower in the 2017 period.

~~Other Expense (Income)~~

Other expense (income) increased $0.8 million in the first nine months of 2017 compared to the same 2016 period and increased 0.1% as a percentage of operating revenues, due primarily to lower interest income. Interest income decreased due to lower average outstanding notes receivable in the first nine months of 2017 compared to the first nine months of 2016.

~~Income Taxes~~

~~Our effective income tax rate (income taxes expressed as a percentage of income before income taxes) decreased to 37.7% for the first nine months of 2017 from 37.9% for the first nine months of 2016.~~2019. The lower income tax rate isin first quarter 2020 was attributed primarily ~~to recognizing excess tax benefits related to share-based awards as~~ a ~~component of~~favorable discrete income tax ~~expense, partially offset by a lower amount of favorable tax adjustments for the remeasurement of uncertain tax positions~~item in ~~the~~ first ~~nine months of 2017 compared to the same period of 2016.~~quarter 2020.

Liquidity and Capital Resources:

During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, we generated cash flow from operations of ~~$216.9~~$133.4 million, ~~an 8%~~a 3.9% or ~~$15.8~~$5.4 million ~~increase~~decrease in cash flows compared to the same ~~nine-month~~three-month period a year ago. The ~~increase~~decrease in net cash provided by operating activities resulted primarily from ~~the effect of depreciation on~~lower net income ~~lower gain on disposal of operating equipment,~~ and ~~general~~decreased cash flows from working capital, ~~items,~~ partially offset by ~~a decrease from deferred income taxes.~~higher non-cash depreciation. We were able to ~~repay debt,~~ make net capital expenditures, ~~and~~repay debt, pay dividends and repurchase company stock with the net cash provided by operating activities and existing cash balances.

Net cash used in investing activities decreased to ~~$110.5~~$16.5 million for the ~~nine-month~~three-month period ended ~~September 30, 2017~~March 31, 2020 from ~~$280.0~~$79.9 million for the ~~nine-month~~three-month period ended ~~September 30, 2016.~~March 31, 2019. Net property additions (primarily revenue equipment) were ~~$121.1~~$18.8 million for the ~~nine-month~~three-month period ended ~~September 30, 2017,~~March 31, 2020, compared to ~~$294.0~~$83.4 million during the same period of ~~2016. This decrease occurred as we completed a significant reinvestment~~2019, due primarily to delays in receiving new trucks and trailers from our ~~fleet.~~manufacturers. As of ~~September 30, 2017,~~March 31, 2020, we were committed to property and equipment purchases of approximately ~~$95.2~~$187.9 million. We currently estimate net capital expenditures (primarily revenue equipment) in ~~2017~~2020 to be in the range of ~~$175~~$260 million to ~~$225~~$300 million, compared to net capital expenditures in ~~2016~~2019 of ~~$429.6~~$283.9 million. We intend to fund these net capital expenditures through cash flow from operations and financing available under our existing credit facilities, if necessary.

Net financing activities used ~~$113.3~~$69.0 million during the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, and ~~provided $61.2~~used $28.1 million during the same period in ~~2016. During~~2019. We repaid $50.0 million of long-term debt during the ~~nine~~three months ended ~~September 30, 2017, we repaid $105.0 million of debt; in the same 2016 period, we had borrowings of $135.0 million and repayments of $60.0 million. Our~~March 31, 2020, bringing our outstanding debt at ~~September 30, 2017 was $75.0~~March 31, 2020 to $250.0 million. We paid dividends of ~~$13.7~~$6.2 million in the ~~nine-month~~three-month period ended ~~September 30, 2017~~March 31, 2020 and ~~$13.0~~$6.3 million in the three-month period ended ~~September 30, 2016. We~~March 31, 2019. Beginning with the dividend paid in July 2018, we increased our quarterly dividend rate by ~~$0.01~~$0.02 per share, or ~~17%~~29%, ~~beginning with~~to the ~~dividend paid in July 2017. We did not~~current rate of $0.09 per share. Financing activities for the three months ended March 31, 2020, also included common stock repurchases of 282,992 shares at a cost of $8.8 million. The Company is temporarily suspending the repurchase ~~any~~of shares of ~~common~~ stock ~~during~~under its stock repurchase plan until there is more clarity on the ~~nine months ended September 30, 2017 or 2016. From time to time, the~~duration and effects of COVID-19. The Company has repurchased, and may continue to repurchase, shares of the Company’s common stock. The timing and amount of such purchases depend upon economic and stock market conditions and other factors. As of ~~September 30, 2017,~~March 31, 2020, the Company had purchased ~~3,287,291~~982,992 shares pursuant to our current Board of Directors repurchase authorization and had ~~4,712,709~~4,017,008 shares remaining available for repurchase.

Management believes our financial position at ~~September 30, 2017~~March 31, 2020 is strong. As of ~~September 30, 2017,~~March 31, 2020, we had ~~$10.7~~$72.2 million of cash and cash equivalents and over $1$1.1 billion of stockholders’ equity. Cash is invested primarily in government portfolio money market funds. As of ~~September 30, 2017,~~March 31, 2020, we had a total of ~~$325.0~~$575.0 million of ~~credit pursuant to~~borrowing capacity under three credit facilities (see Note 24 in the Notes to Consolidated Financial Statements (Unaudited) under Item 1 of Part I of this Form 10-Q), of which we had borrowed $250.0 million. For our $75.0 ~~million.~~million credit facility that will expire on July 13, 2020, we currently intend to pay the outstanding balance in full, on or before the maturity date, using long-term financing under our other existing credit facilities. The remaining ~~$250.0~~$325.0 million of credit available under these facilities at ~~September 30, 2017~~March 31, 2020 is reduced by the ~~$28.7~~$44.6 million in stand-by letters of credit under which we are ~~obligated.~~obligated, leaving $280.4 million available for future borrowing. These stand-by letters of credit are primarily required as security for insurance policies. ~~Based on~~We believe our ~~strong financial position, management does not foresee any significant barriers to obtaining~~liquid assets, cash generated from operating activities, and borrowing capacity under our three credit facilities will provide sufficient ~~financing, if necessary.~~funds for our operating and capital needs for the foreseeable future.

Contractual Obligations and Commercial Commitments:

~~The following tables set forth~~Item 7 of Part II of our 2019 Form 10-K includes our disclosure of contractual obligations and commercial commitments as of ~~September 30, 2017.~~

~~Payments Due by Period~~

(Amounts in millions) Total
Less than
1 year
1-3 years 3-5 years
More than
5 years

Period
Unknown
Contractual Obligations
Unrecognized tax benefits $ 4.1
$ —
$ —
$ —
$ —
$ 4.1
Long-term debt including current maturities 75.0
—
75.0
—
—
—
Interest payments on debt 3.7
1.9
1.8
—
—
—
Property and equipment purchase commitments 95.2
95.2
—
—
—
—
Total contractual cash obligations $ 178.0
$ 97.1
$ 76.8
$ —
$ —
$ 4.1
Other Commercial Commitments
Unused lines of credit $ 221.3
$ —
$ 221.3
$ —
$ —
$ —
Stand-by letters of credit 28.7
28.7
—
—
—
—
Total commercial commitments $ 250.0
$ 28.7
$ 221.3
$ —
$ —
$ —
Total obligations $ 428.0
$ 125.8
$ 298.1
$ —
$ —
$ 4.1

~~As of September 30, 2017, we had unsecured committed credit facilities with three banks as well as a term commitment with one~~December 31, 2019. There were no material changes in the nature of these banks. We had with Wells Fargo Bank, N.A., a $100 million credit facility which will expire on July 12, 2020, and a $75 million term commitment with principal due and payable on September 15, 2019. We had an unsecured line of credit of $75 million with U.S. Bank, N.A., which will expire on July 13,items during the three months ended March 31, 2020. We also had a $75 million credit facility with BMO Harris Bank, N.A., which will expire on March 5, 2020. Borrowings under these credit facilities and term note bear variable interest based on the London Interbank Offered Rate (“LIBOR”). As of September 30, 2017, we had $75 million outstanding under the term commitment at a variable rate of 1.83%, which is effectively fixed at 2.5% with an interest rate swap agreement. Interest payments on debt are based on the debt balance and interest rates at September 30, 2017. The borrowing capacity under these credit facilities is further reduced by the amount of stand-by letters of credit under which we are obligated. The stand-by letters of credit are primarily required for insurance policies. The unused lines of credit are available to us in the event we need financing for the replacement of our fleet or for other significant capital expenditures. Management believes our financial position is strong, and we therefore expect that we could obtain additional financing, if necessary. Property and equipment purchase commitments relate to committed equipment expenditures, primarily for revenue equipment. As of September 30, 2017, we had recorded a $4.1 million liability for unrecognized tax benefits. We expect none of it to be settled within the next twelve months and are unable to reasonably determine when the $4.1 million categorized as “period unknown” will be settled.

Regulations:

Item 1 of Part I of our ~~2016~~2019 Form 10-K includes a discussion of pending proposed regulations that may have an effect on our operations if they become adopted and effective as proposed. ~~Except as described below, there~~There have been no material changes in the status of these proposed regulations previously disclosed in the ~~2016~~2019 Form 10-K.

The Federal Motor Carrier Safety Administration (“FMCSA”) proposed to change the method for assigning a motor carrier’s Safety Fitness Determination (“SFD”) in January 2016, which would replace the three-tier federal rating system in place since 1982 with a single determination of “unfit.” FMCSA announced on March 23, 2017 that it has withdrawn the SFD proposed rule altogether, pending completion of a study of the agency’s Compliance, Safety, Accountability program.

Interstate carriers are subject to the FMCSA Hours of Service (“HOS”) regulations. FMCSA adopted a final rule in December 2011 that included provisions affecting restart periods, rest breaks, on-duty time, and penalties for violations, and we began dispatching drivers under the revised HOS rules effective July 1, 2013. The Consolidated Appropriations Act of 2016 was passed by Congress with HOS language to reduce negative effects of restricted hours and require the FMCSA study to demonstrate results with statistically significant improvements in safety and driver health, among other things, before the agency could reinstate restart rule restrictions that became effective in July 2013. In March 2017, FMCSA released the HOS Restart study report, which indicated that the restrictions do not improve safety; as a result, the pre-July 2013 restart rule continues to be in effect indefinitely.

In an effort to increase highway safety and improve compliance, Werner supports FMCSA’s electronic logging devices (“ELDs”) mandate. The final ELD rule was issued in December 2015 and becomes effective on December 18, 2017, when carriers must adopt and use compliant ELDs. In March 2016, a legal complaint was filed by the Owner-Operator Independent Drivers Association (“OOIDA”) to overturn the ELD mandate. OOIDA asked the U.S. 7th Circuit Court of Appeals to strike down the rule, arguing the rule is an unconstitutional violation of truckers’ rights and will do little to enhance safety. On October 31, 2016, OOIDA’s lawsuit was denied. OOIDA appealed the decision to the U.S. Supreme Court on April 11, 2017. On June 12, 2017, the U.S. Supreme Court denied OOIDA’s request to take on the issue, leaving in place the lower court’s ruling to uphold the mandate and its December 18, 2017 effective date.

FMCSA issued its final rule for Entry-Level Driver Training (“ELDT”) in December 2016. On December 27, 2016, four groups petitioned FMCSA to reconsider the final rule. The petition was denied by FMCSA on January 19, 2017. This final rule was slated to take effect February 6, 2017, with a compliance date of February 7, 2020; however, agencies were directed by the President in January 2017 to postpone for 60 days the effective date of rules published in the Federal Register but not yet effective. On May 23, 2017, the rule was delayed for a third time; as a result, the final rule became effective June 5, 2017. The compliance date is still set for February 7, 2020.

Critical Accounting ~~Policies and~~ Estimates:

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ~~(“U.S. GAAP”)~~ requires us 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. We evaluate these estimates on an ongoing basis as events and circumstances change, utilizing historical experience, consultation with experts and other methods considered reasonable in the particular circumstances. Actual results could differ from those estimates and may significantly impact our results of operations from period to period. It is also possible that materially different amounts would be reported if we used different estimates or assumptions.

Information regarding our Critical Accounting ~~Policies and~~ Estimates can be found in our ~~2016~~2019 Form 10-K. ~~The most critical accounting policies and estimates that require us to make significant judgments and estimates and affect our financial statements include the following:~~

~~Depreciation and impairment of tractors and trailers.~~

Estimates of accrued liabilities for insurance and claims for ~~liability and physical~~bodily injury, property damage ~~losses~~ and workers’ ~~compensation.~~compensation is a critical accounting estimate that requires us to make significant judgments and estimates and affects our financial statements.

~~Accounting for income taxes.~~

There have been no material changes to ~~these~~this critical accounting ~~policies and estimates~~estimate from ~~those~~that discussed in our ~~2016~~2019 Form 10-K.

~~Accounting Standards:~~

In the descriptions under “New Accounting Pronouncements Adopted” and “Accounting Standards Updates Not Yet Effective” that follow, references in quotations identify guidance and Accounting Standards Updates (“ASU”) relating to the topics and subtopics (and their descriptive titles, as appropriate) of the Accounting Standards Codification^™ ~~of the Financial Accounting Standards Board (“FASB”).~~

~~New Accounting Pronouncements Adopted~~

~~We did not adopt any new accounting standards during third quarter 2017.~~

~~Accounting Standards Updates Not Yet Effective~~

On May 28, 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The FASB has also issued additional guidance related to revenue recognition matters in subsequent ASUs, including a one-year deferral of the effective date of the new revenue recognition standard. As a result of the deferral, the new standard will become effective for us beginning January 1, 2018. The standard permits the use of either the full retrospective or modified retrospective (cumulative effect) transition method. We have established an implementation team which is evaluating the effect that adopting the standard will have on our consolidated financial statements and related disclosures and developing the necessary processes, reporting and controls to comply with the new requirements. We currently intend to adopt the standard using the modified retrospective transition approach. While we have not yet determined the quantitative impact on our consolidated financial statements, we currently expect the new standard to affect the timing of revenue recognition. Today we recognize revenue and related direct costs when the shipment is delivered. The new standard will require us to recognize revenue over time.

In February 2016, the FASB issued ASU No. 2016-02, “Leases,” to increase transparency and comparability by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The provisions of this update are effective for fiscal years beginning after December 15, 2018. We are evaluating the effect that ASU No. 2016-02 will have on our consolidated financial position, results of operations and cash flows.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The provisions of this update are effective for fiscal years beginning after December 15, 2017. We are evaluating the effect that ASU No. 2016-15 will have on our consolidated cash flows.

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” which requires an entity to include in its cash and cash-equivalent balances in the statement of cash flows those amounts that are deemed to be restricted cash and restricted cash equivalents. The provisions of this update are effective for fiscal years beginning after December 15, 2017. We are evaluating the effect ASU No. 2016-18 will have on our consolidated cash flows and related disclosures.

In May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting,” which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The provisions of this update are effective for fiscal years beginning after December 15, 2017. We are evaluating the effect that ASU No. 2017-09 will have on our financial position, results of operations and cash flows.

In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” with the objective of improving the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The provisions of this update are effective for fiscal years beginning after December 15, 2018. We are evaluating the effect that ASU No. 2017-12 will have on our financial position, results of operations and cash flows.

Other ASUs not identified above and which are not effective until after September 30, 2017 are not expected to have a material effect on our consolidated financial position, results of operations or cash flows.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risk from changes in commodity prices, foreign currency exchange rates and interest rates.

Commodity Price Risk

The price and availability of diesel fuel are subject to fluctuations attributed to changes in the level of global oil production, refining capacity, seasonality, weather and other market factors. Historically, we have recovered a majority, but not all, of fuel price increases from customers in the form of fuel surcharges. We implemented customer fuel surcharge programs with most of our customers to offset much of the higher fuel cost per gallon. However, we do not recover all of the fuel cost increase through these surcharge programs. We cannot predict the extent to which fuel prices will increase or decrease in the future or the extent to which fuel surcharges could be collected. As of September 30, 2017, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.

Foreign Currency Exchange Rate Risk

We conduct business in several foreign countries, including Mexico, Canada, ~~China~~ and ~~Australia.~~China. To date, most foreign revenues are denominated in U.S. Dollars, and we receive payment for foreign freight services primarily in U.S. Dollars to reduce direct foreign currency risk. Assets and liabilities maintained by a foreign subsidiary company in the local currency are subject to foreign exchange gains or losses. Foreign currency translation gains and losses primarily relate to changes in the value of revenue equipment owned by a subsidiary in Mexico, whose functional currency is the Peso. Foreign currency translation losses were $9.9 million for first quarter 2020 and gains were $0.6 million for ~~third~~first quarter ~~2017 and $1.0 million for third quarter 2016.~~2019. These were recorded in accumulated other comprehensive loss within stockholders’ equity in the Consolidated Balance Sheets.

Interest Rate Risk

We manage interest rate exposure through a mix of variable rate debt and interest rate swap agreements. We had ~~$75~~$150 million of debt outstanding at ~~September 30, 2017,~~March 31, 2020, for which the interest rate is effectively fixed at ~~2.5%~~2.34% through ~~September 2019~~May 2024 with antwo interest rate swap ~~agreement~~agreements to reduce our exposure to interest rate increases. We had $100 million of variable rate debt outstanding at March 31, 2020. Interest rates on the variable rate debt and our unused credit facilities are based on the LIBOR. Assuming this level of borrowing, a hypothetical one-percentage point increase in the LIBOR ~~(see Contractual Obligations and Commercial Commitments). Increases in~~ interest ~~rates could impact~~rate would increase our annual interest expense ~~on future borrowings.~~by approximately $1.0 million.

Due to uncertainty surrounding the suitability and sustainability of LIBOR, central banks and global regulators have called for financial market participants to prepare for the discontinuation of LIBOR by the end of 2021. LIBOR is a widely-referenced benchmark rate, and our unsecured credit facilities are referenced to LIBOR. We are communicating with our banks regarding the eventual transition to a new benchmark rate.

Item 4. Controls and Procedures.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). Our disclosure controls and procedures are designed to provide reasonable assurance of achieving the desired control objectives. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at a reasonable assurance level in enabling us to record, process, summarize and report information required to be included in our periodic filings with the SEC within the required time period and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, concluded that no changes in our internal control over financial reporting occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We have confidence in our internal controls and procedures. Nevertheless, our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that the internal controls or disclosure procedures and controls will prevent all errors or intentional fraud. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of such internal controls are met. Further, the design of an internal control system must reflect that resource constraints exist, and the benefits of controls must be evaluated relative to their costs. Because of the inherent limitations in all internal control systems, no evaluation of controls can provide absolute assurance that all control issues, misstatements and instances of fraud, if any, have been prevented or detected.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

Information regarding the May 17, 2018 adverse jury verdict and subsequent final judgment on July 30, 2018 in Harris County District Court in Houston, Texas, is incorporated by reference from Note 5 in our Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report.

Item 1A. Risk Factors

Except as noted below, there have been no material changes to our risk factors as previously disclosed in Item 1A of Part I of our 2019 Form 10-K.

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

The COVID-19 pandemic has resulted in a slowdown of economic activity and a disruption in supply chains. Our business is sensitive to changes in overall economic conditions that impact customer shipping volumes, industry freight demand and industry truck capacity. Such conditions may also impact the financial condition of our customers, resulting in a greater risk of bad debt losses, and that of our suppliers, which may affect the availability or pricing of needed goods and services. We currently expect our second quarter and full year 2020 results to be further impacted by the disruptive effects of COVID-19, including but not limited to adverse effects on freight volumes and pricing. The degree of disruption is difficult to predict because of many factors, including the uncertainty surrounding the magnitude and duration of the pandemic, governmental actions that have been and may continue to be imposed, as well as the rate of economic recovery after the pandemic subsides. The unpredictable nature and uncertainty of the current COVID-19 pandemic could also magnify other risk factors that we disclosed in our 2019 Form 10-K and makes it impractical to identify all potential risks.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On ~~October 15, 2007, we announced that on October 11, 2007~~May 14, 2019, our Board of Directors approved ~~an increase in the number of shares of our common~~and announced a new stock ~~that~~repurchase program under which the Company is authorized to ~~repurchase. Under this authorization, the Company is permitted~~repurchase up to ~~repurchase an additional 8,000,000 shares.~~5,000,000 shares of its common stock. As of ~~September 30, 2017,~~March 31, 2020, the Company had purchased ~~3,287,291~~982,992 shares pursuant to this authorization and had ~~4,712,709~~4,017,008 shares remaining available for repurchase. The Company has temporarily suspended the repurchase of stock under this program until there is more clarity on the duration and effects of COVID-19. The Company may purchase shares from time to time depending on market, economic and other factors. The authorization will continue unless withdrawn by the Board of Directors.

NoThe following table summarizes our stock repurchases during first quarter 2020. The Company did not purchase any shares ~~of common~~during first quarter 2020 other than pursuant to this authorization. All stock repurchases were ~~repurchased during the third quarter 2017~~made by ~~either~~ the Company or on its behalf and not by any “affiliated purchaser,” as defined by Rule 10b-18 of the Exchange Act.

Issuer Purchases of Equity Securities



Period	Total Number of Shares (or Units) Purchased	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
January 1-31, 2020	—	$	—	—	4,300,000
February 1-29, 2020	—	$	—	—	4,300,000
March 1-31, 2020	282,992	$	31.09	282,992	4,017,008
Total	282,992	$	31.09	282,992	4,017,008

Item 6. Exhibits.



Exhibit No.	Exhibit	Incorporated by Reference to:
3(i)	Restated Articles of Incorporation of Werner Enterprises, Inc.	Exhibit 3(i) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007

3(ii)	Revised and Restated By-Laws of Werner Enterprises, Inc.	Exhibit 3.1 to the Company’s Current Report on Form 8-K dated ~~May 10, 2016~~August 14, 2018

1110.1	Non-Employee Director Compensation	Filed herewith

10.2	Named Executive Officer Compensation	Item 5.02 of the Company’s Current Report on Form 8-K dated February 13, 2020. Item 5.02 of the Company’s Current Report on Form 8-K dated April 15, 2020

11	Statement Re: Computation of Per Share Earnings	See Note 56 (Earnings Per Share) in the Notes to Consolidated Financial Statements (Unaudited) under Item 1 of Part I of this Quarterly Report on Form 10-Q for the quarterly period ended ~~September 30, 2017~~March 31, 2020

31.1	Certification of the Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 (Section 302 of the Sarbanes-Oxley Act of 2002)	Filed herewith

31.2	Certification of the Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 (Section 302 of the Sarbanes-Oxley Act of 2002)	Filed herewith

32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)	Furnished herewith

32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)	Furnished herewith

~~101.INS~~101	~~XBRL Instance Document~~	~~Filed herewith~~
The following unaudited financial information from Werner Enterprises’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, formatted in iXBRL (Inline Extensible Business Reporting Language) includes: (i) Consolidated Statements of Income for the three months ended March 31, 2020 and March 31, 2019, (ii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020 and March 31, 2019, (iii) Consolidated Condensed Balance Sheets as of March 31, 2020 and December 31, 2019, (iv) Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and March 31, 2019, (v) Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2020 and March 31, 2019, and (vi) the Notes to Consolidated Financial Statements (Unaudited) as of March 31, 2020.
~~101.SCH~~	~~XBRL Taxonomy Extension Schema Document~~	~~Filed herewith~~

~~101.CAL~~	~~XBRL Taxonomy Extension Calculation Linkbase Document~~	~~Filed herewith~~

~~101.LAB~~	~~XBRL Taxonomy Extension Label Linkbase Document~~	~~Filed herewith~~

~~101.PRE~~104	The cover page from this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, formatted in Inline XBRL ~~Taxonomy Extension Presentation Linkbase Document~~	~~Filed herewith~~
(included as Exhibit 101).
~~101.DEF~~	~~XBRL Taxonomy Extension Definition Linkbase Document~~	~~Filed herewith~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	WERNER ENTERPRISES, INC.

Date: ~~November 2, 2017~~May 7, 2020	By:	/s/ John J. Steele
		John J. Steele
		Executive Vice President, Treasurer and Chief Financial Officer

Date: ~~November 2, 2017~~May 7, 2020	By:	/s/ James L. Johnson
		James L. Johnson
		Executive Vice President, Chief Accounting Officer and Corporate Secretary

2930



	Number of Options (in thousands)		Weighted Average Exercise Price ($)		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding at beginning of period	171		$	18.19
Granted	—		—
Exercised	(132	)	17.72
Forfeited	—		—
Expired	—		—
Outstanding at end of period	39		19.80		2.53	$	651
Exercisable at end of period	34		19.45		2.30	$	584



(Amounts in millions)	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years		Period Unknown
Contractual Obligations
Unrecognized tax benefits	$	4.1	$	—	$	—	$	—	$	—	$	4.1
Long-term debt including current maturities	75.0		—		75.0		—		—		—
Interest payments on debt	3.7		1.9		1.8		—		—		—
Property and equipment purchase commitments	95.2		95.2		—		—		—		—
Total contractual cash obligations	$	178.0	$	97.1	$	76.8	$	—	$	—	$	4.1
Other Commercial Commitments
Unused lines of credit	$	221.3	$	—	$	221.3	$	—	$	—	$	—
Stand-by letters of credit	28.7		28.7		—		—		—		—
Total commercial commitments	$	250.0	$	28.7	$	221.3	$	—	$	—	$	—
Total obligations	$	428.0	$	125.8	$	298.1	$	—	$	—	$	4.1