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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
[Markone]
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172020
OR
¨☐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
47-0648386
Nebraska
47-0648386
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
14507 FRONTIER ROAD
POST OFFICE BOX 45308
OMAHA, NEBRASKA
Frontier Road		68145-0308
Post Office Box 45308
Omaha,Nebraska68145-0308
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 Par ValueWERNThe 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 filerAccelerated Filerý☒Accelerated filer
o
☐
Non-accelerated filer
o  (Do not check if a smaller reporting company)
☐		Smaller reporting company
o
☐
Emerging growth company
o
☐
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 30, 2020, 69,097,926 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.


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WERNER ENTERPRISES, INC.
INDEX
 
PAGE
Item 1.
3
September 30, 20172020 and 20162019
4
5
6
7
8
810
Item 2.
1519
Item 3.
2629
Item 4.
2629
Item 1.
31
Item 1A.
31
Item 2.
2731
Item 6.
2832

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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, 20162019 (“20162019 Form 10-K”)., in Item 1A (Risk Factors) of Part II of our subsequently filed quarterly reports on Form 10-Q, 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 ended September 30, 2017,2020 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 20162019 Form 10-K.

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WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
 
Three Months Ended
September 30,		 Nine Months Ended
September 30,
Three Months Ended
September 30,		Nine Months Ended
September 30,
(In thousands, except per share amounts)2017 2016 2017 2016(In thousands, except per share amounts)2020201920202019
(Unaudited) (Unaudited)
Operating revenues$528,643
 $508,676
 $1,549,372
 $1,490,159
Operating revenues$590,214 $618,264 $1,751,876 $1,841,914 
Operating expenses:       Operating expenses:
Salaries, wages and benefits170,238
 162,862
 500,620
 479,298
Salaries, wages and benefits197,151 209,586 598,129 618,386 
Fuel50,266
 40,638
 140,551
 112,034
Fuel37,933 59,518 117,381 176,720 
Supplies and maintenance41,986
 41,027
 120,276
 130,559
Supplies and maintenance44,015 46,907 133,079 136,963 
Taxes and licenses21,671
 21,540
 64,095
 64,353
Taxes and licenses24,032 24,244 70,835 70,788 
Insurance and claims20,669
 19,106
 60,336
 59,384
Insurance and claims23,307 21,930 85,160 65,631 
Depreciation53,578
 51,781
 162,619
 152,849
Depreciation62,980 62,620 199,487 184,816 
Rent and purchased transportation126,087
 133,876
 377,146
 379,155
Rent and purchased transportation131,843 134,797 378,989 413,809 
Communications and utilities4,199
 4,206
 12,158
 12,110
Communications and utilities3,797 3,892 11,141 11,806 
Other4,075
 4,566
 12,812
 9,303
Other3,053 1,413 11,688 3,177 
Total operating expenses492,769
 479,602
 1,450,613
 1,399,045
Total operating expenses528,111 564,907 1,605,889 1,682,096 
Operating income35,874
 29,074
 98,759
 91,114
Operating income62,103 53,357 145,987 159,818 
Other expense (income):       Other expense (income):
Interest expense492
 749
 1,892
 1,839
Interest expense887 2,408 3,639 4,695 
Interest income(766) (1,055) (2,556) (3,154)Interest income(323)(756)(1,326)(2,648)
Other88
 46
 293
 148
Other55 47 123 (11)
Total other income(186) (260) (371) (1,167)
Total other expense (income)Total other expense (income)619 1,699 2,436 2,036 
Income before income taxes36,060
 29,334
 99,130
 92,281
Income before income taxes61,484 51,658 143,551 157,782 
Income taxes13,543
 10,414
 37,375
 34,963
Income taxes15,152 12,614 35,029 39,334 
Net income$22,517
 $18,920
 $61,755
 $57,318
Net income$46,332 $39,044 $108,522 $118,448 
Earnings per share:       Earnings per share:
Basic$0.31
 $0.26
 $0.85
 $0.80
Basic$0.67 $0.56 $1.57 $1.70 
Diluted$0.31
 $0.26
 $0.85
 $0.79
Diluted$0.67 $0.56 $1.56 $1.69 
Dividends declared per share$0.070
 $0.060
 $0.200
 $0.180
Weighted-average common shares outstanding:       Weighted-average common shares outstanding:
Basic72,298
 72,058
 72,239
 72,043
Basic69,097 69,198 69,148 69,684 
Diluted72,601
 72,406
 72,517
 72,364
Diluted69,449 69,600 69,500 70,053 
See Notes to Consolidated Financial Statements (Unaudited).

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WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended
September 30,		 Nine Months Ended
September 30,
Three Months Ended
September 30,		Nine Months Ended
September 30,
(In thousands)2017 2016 2017 2016(In thousands)2020201920202019
(Unaudited)

 (Unaudited)
Net income$22,517
 $18,920
 $61,755
 $57,318
Net income$46,332 $39,044 $108,522 $118,448 
Other comprehensive income (loss):       Other comprehensive income (loss):
Foreign currency translation adjustments(627) (1,023) 3,205
 (3,009)Foreign currency translation adjustments782 (1,065)(8,182)79 
Change in fair value of interest rate swap100
 388
 334
 (517)
Change in fair value of interest rate swaps, net of taxChange in fair value of interest rate swaps, net of tax401 (1,440)(5,819)(1,651)
Other comprehensive income (loss)(527) (635) 3,539
 (3,526)Other comprehensive income (loss)1,183 (2,505)(14,001)(1,572)
Comprehensive income$21,990
 $18,285
 $65,294
 $53,792
Comprehensive income$47,515 $36,539 $94,521 $116,876 
See Notes to Consolidated Financial Statements (Unaudited).

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WERNER ENTERPRISES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
 
(In thousands, except share amounts)September 30,
2017		 December 31,
2016		(In thousands, except share amounts)September 30,
2020		December 31,
2019
(Unaudited)   (Unaudited) 
ASSETS   ASSETS
Current assets:   Current assets:
Cash and cash equivalents$10,733
 $16,962
Cash and cash equivalents$40,476 $26,418 
Accounts receivable, trade, less allowance of $8,410 and $9,183, respectively279,716
 261,372
Accounts receivable, trade, less allowance of $8,854 and $7,921, respectively
Accounts receivable, trade, less allowance of $8,854 and $7,921, respectively
337,897 322,846 
Other receivables27,028
 15,168
Other receivables28,937 52,221 
Inventories and supplies11,624
 12,768
Inventories and supplies9,354 9,243 
Prepaid taxes, licenses and permits6,935
 15,374
Prepaid taxes, licenses and permits7,328 16,757 
Income taxes receivable6,538
 21,497
Other current assets38,898
 29,987
Other current assets40,129 38,849 
Total current assets381,472
 373,128
Total current assets464,121 466,334 
Property and equipment2,078,229
 2,109,991
Property and equipment2,384,537 2,343,536 
Less – accumulated depreciation758,331
 747,353
Less – accumulated depreciation857,106 817,260 
Property and equipment, net1,319,898
 1,362,638
Property and equipment, net1,527,431 1,526,276 
Other non-current assets61,571
 57,237
Other non-current assets148,584 151,254 
Total assets$1,762,941
 $1,793,003
Total assets$2,140,136 $2,143,864 
LIABILITIES AND STOCKHOLDERS’ EQUITY   LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:   Current liabilities:
Checks issued in excess of cash balances$3,538
 $—
Accounts payable72,343
 66,618
Accounts payable$104,041 $94,634 
Current portion of long-term debt—
 20,000
Current portion of long-term debt0 75,000 
Insurance and claims accruals84,436
 83,404
Insurance and claims accruals81,024 69,810 
Accrued payroll31,029
 26,189
Accrued payroll42,885 38,347 
Other current liabilities22,938
 18,650
Other current liabilities28,258 31,049 
Total current liabilities214,284
 214,861
Total current liabilities256,208 308,840 
Long-term debt, net of current portion75,000
 160,000
Long-term debt, net of current portion175,000 225,000 
Other long-term liabilities14,321
 16,711
Other long-term liabilities48,362 21,129 
Insurance and claims accruals, net of current portion107,230
 113,875
Insurance and claims accruals, net of current portion234,797 228,218 
Deferred income taxes301,199
 292,769
Deferred income taxes245,632 249,669 
Commitments and contingencies
 
Commitments and contingencies
Stockholders’ equity:   Stockholders’ equity:
Common stock, $0.01 par value, 200,000,000 shares authorized; 80,533,536 shares   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, respectively805
 805
issued; 69,097,926 and 69,244,525 shares outstanding, respectively
issued; 69,097,926 and 69,244,525 shares outstanding, respectively
805 805 
Paid-in capital103,296
 101,035
Paid-in capital114,074 112,649 
Retained earnings1,131,805
 1,084,796
Retained earnings1,384,474 1,294,608 
Accumulated other comprehensive loss(13,378) (16,917)Accumulated other comprehensive loss(28,729)(14,728)
Treasury stock, at cost; 8,199,060 and 8,366,567 shares, respectively(171,621) (174,932)
Treasury stock, at cost; 11,435,610 and 11,289,011 shares, respectively
Treasury stock, at cost; 11,435,610 and 11,289,011 shares, respectively
(290,487)(282,326)
Total stockholders’ equity1,050,907
 994,787
Total stockholders’ equity1,180,137 1,111,008 
Total liabilities and stockholders’ equity$1,762,941
 $1,793,003
Total liabilities and stockholders’ equity$2,140,136 $2,143,864 
See Notes to Consolidated Financial Statements (Unaudited).

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WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,		 Nine Months Ended
September 30,
(In thousands)2017 2016(In thousands)20202019
(Unaudited) (Unaudited)
Cash flows from operating activities:   Cash flows from operating activities:
Net income$61,755
 $57,318
Net income$108,522 $118,448 
Adjustments to reconcile net income to net cash provided by operating activities:   Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation162,619
 152,849
Depreciation199,487 184,816 
Deferred income taxes6,492
 23,773
Deferred income taxes(2,358)8,413 
Gain on disposal of property and equipment(6,031) (13,250)Gain on disposal of property and equipment(7,293)(14,530)
Non-cash equity compensation3,215
 2,325
Non-cash equity compensation6,003 6,346 
Insurance and claims accruals, net of current portion(6,645) (11,070)Insurance and claims accruals, net of current portion6,579 15,840 
Other(8,755) (8,500)Other21,771 (4,527)
Changes in certain working capital items:   Changes in certain working capital items:
Accounts receivable, net(18,344) (1,489)Accounts receivable, net(15,051)14,552 
Other current assets15,184
 (11,647)Other current assets(1,335)5,667 
Accounts payable7,107
 1,898
Accounts payable6,477 (532)
Other current liabilities351
 8,968
Other current liabilities23,594 (2,308)
Net cash provided by operating activities216,948
 201,175
Net cash provided by operating activities346,396 332,185 
Cash flows from investing activities:   Cash flows from investing activities:
Additions to property and equipment(205,874) (388,386)Additions to property and equipment(294,448)(375,202)
Proceeds from sales of property and equipment84,769
 94,372
Proceeds from sales of property and equipment107,185 103,543 
Issuance of notes receivable(5,000)
—
Decrease in notes receivable15,637
 14,007
Decrease in notes receivable6,277 9,247 
Net cash used in investing activities(110,468) (280,007)Net cash used in investing activities(180,986)(262,412)
Cash flows from financing activities:   Cash flows from financing activities:
Repayments of short-term debt(45,000) (20,000)Repayments of short-term debt(75,000)0 
Proceeds from issuance of short-term debt—
 20,000
Repayments of long-term debt(60,000) (40,000)Repayments of long-term debt(50,000)(50,000)
Proceeds from issuance of long-term debt—
 115,000
Proceeds from issuance of long-term debt0 275,000 
Change in net checks issued in excess of cash balances3,538
 2,665
Change in net checks issued in excess of cash balances0 8,902 
Dividends on common stock(13,721) (12,966)Dividends on common stock(18,669)(279,962)
Repurchases of common stockRepurchases of common stock(8,798)(42,301)
Tax withholding related to net share settlements of restricted stock awards(445) (623)Tax withholding related to net share settlements of restricted stock awards(3,941)(1,191)
Stock options exercised2,339
 298
Stock options exercised0 171 
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 activitiesNet cash used in financing activities(156,408)(89,381)
Effect of exchange rate fluctuations on cash580
 (505)Effect of exchange rate fluctuations on cash(1,968)32 
Net decrease in cash and cash equivalents(6,229) (18,097)
Cash and cash equivalents, beginning of period16,962
 31,833
Cash and cash equivalents, end of period$10,733
 $13,736
Net increase (decrease) in cash, cash equivalents and restricted cashNet increase (decrease) in cash, cash equivalents and restricted cash7,034 (19,576)
Cash, cash equivalents and restricted cash, beginning of periodCash, cash equivalents and restricted cash, beginning of period33,442 33,930 
Cash, cash equivalents and restricted cash, end of periodCash, cash equivalents and restricted cash, end of period$40,476 $14,354 
Supplemental disclosures of cash flow information:   Supplemental disclosures of cash flow information:
Interest paid$2,004
 $1,838
Interest paid$3,882 $4,361 
Income taxes paid15,819
 4,257
Income taxes paid36,880 41,038 
Supplemental schedule of non-cash investing activities:   
Supplemental schedule of non-cash investing and financing activities:Supplemental schedule of non-cash investing and financing activities:
Notes receivable issued upon sale of property and equipment$4,058
 $22,952
Notes receivable issued upon sale of property and equipment$2,283 $5,542 
Change in fair value of interest rate swap334
 (517)
Change in fair value of interest rate swapsChange in fair value of interest rate swaps(5,819)(1,651)
Property and equipment acquired included in accounts payable492
 821
Property and equipment acquired included in accounts payable24,068 8,847 
Property and equipment disposed included in other receivables1,300
 259
Property and equipment disposed included in other receivables5,183 1,486 
Dividends accrued but not yet paid at end of period Dividends accrued but not yet paid at end of period6,219 6,229 
See Notes to Consolidated Financial Statements (Unaudited).

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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 income0 0 23,058 (15,490)0 7,568 
Purchases of 282,992 shares of common stock0 0 0 0 (8,798)(8,798)
Dividends on common stock ($0.09 per share)0 0 (6,218)0 0 (6,218)
Equity compensation activity, 125,203 shares0 (4,360)0 0 430 (3,930)
Non-cash equity compensation expense0 2,406 0 0 0 2,406 
BALANCE, March 31, 2020805 110,695 1,311,448 (30,218)(290,694)1,102,036 
Comprehensive income0 0 39,132 306 0 39,438 
Dividends on common stock ($0.09 per share)0 0 (6,219)0 0 (6,219)
Equity compensation activity, 10,297 shares0 (199)0 0 194 (5)
Non-cash equity compensation expense0 1,138 0 0 0 1,138 
BALANCE, June 30, 2020805 111,634 1,344,361 (29,912)(290,500)1,136,388 
Comprehensive income0 0 46,332 1,183 0 47,515 
Dividends on common stock ($0.09 per share)0 0 (6,219)0 0 (6,219)
Equity compensation activity, 893 shares0 (19)0 0 13 (6)
Non-cash equity compensation expense0 2,459 0 0 0 2,459 
BALANCE, September 30, 2020$805 $114,074 $1,384,474 $(28,729)$(290,487)$1,180,137 
See Notes to Consolidated Financial Statements (Unaudited).
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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, 2018$805 $107,455 $1,413,746 $(16,073)$(241,180)$1,264,753 
Comprehensive income0 0 36,086 513 0 36,599 
Purchases of 600,000 shares of common stock0 0 0 0 (20,545)(20,545)
Dividends on common stock ($0.09 per share)0 0 (6,290)0 0 (6,290)
Equity compensation activity, 46,129 shares0 (1,578)0 0 399 (1,179)
Non-cash equity compensation expense0 2,051 0 0 0 2,051 
BALANCE, March 31, 2019805 107,928 1,443,542 (15,560)(261,326)1,275,389 
Comprehensive income0 0 43,318 420 0 43,738 
Purchases of 700,000 shares of common stock0 0 0 0 (21,756)(21,756)
Dividends on common stock ($3.84 per share)0 0 (267,331)0 0 (267,331)
Equity compensation activity, 6,901 shares0 (140)0 0 130 (10)
Non-cash equity compensation expense0 2,314 0 0 0 2,314 
BALANCE, June 30, 2019805 110,102 1,219,529 (15,140)(282,952)1,032,344 
Comprehensive income0 0 39,044 (2,505)0 36,539 
Dividends on common stock ($0.09 per share)0 0 (6,229)0 0 (6,229)
Equity compensation activity, 9,712 shares0 (19)0 0 188 169 
Non-cash equity compensation expense0 1,981 0 0 0 1,981 
BALANCE, September 30, 2019$805 $112,064 $1,252,344 $(17,645)$(282,764)$1,064,804 
See Notes to Consolidated Financial Statements (Unaudited).
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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 the2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Inventory,Credit Losses on Financial Statements,” which requires inventory to be recorded at the lowermeasurement 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. 2015-112016-13 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, “Compensation2018-15, “Intangibles - Stock Compensation: Improvements to Employee Share-Based PaymentGoodwill 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 newprovisions of this update requires excess tax benefitsare 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 deficienciescash 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 recordeddiscontinued 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.
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(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
September 30,		Nine Months Ended
September 30,
 2020201920202019
Truckload Transportation Services$458,256 $480,351 $1,368,172 $1,423,201 
Werner Logistics117,351 121,331 339,678 369,584 
Inter-segment eliminations(30)(1)(55)(240)
   Transportation services575,577 601,681 1,707,795 1,792,545 
Other revenues14,637 16,583 44,081 49,369 
Total revenues$590,214 $618,264 $1,751,876 $1,841,914 

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
September 30,		Nine Months Ended
September 30,
 2020201920202019
United States$534,978 $551,008 $1,581,474 $1,631,861 
Mexico36,708 49,031 111,174 153,803 
Other18,528 18,225 59,228 56,250 
Total revenues$590,214 $618,264 $1,751,876 $1,841,914 

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 September 30, 2020 and December 31, 2019, the accounts receivable, net, balance was $337.9 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 September 30, 2020 and December 31, 2019, the balance of contract assets was $7.8 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 $1.0 million as of September 30, 2020 and $1.3 million as of December 31, 2019. The amount of revenues recognized in the nine months ended September 30, 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 nine months ended September 30, 2020 and September 30, 2019, revenues recognized from performance obligations related to prior periods (for example, due to changes in transaction price) were not material.

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(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 statementscondensed balance sheets. These assets and liabilities are recognized based on the present value of incomefuture 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 taxsingle lease component. Lease expense when share-based awards vest or are settled. The update also eliminatesfor 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 activitieslease 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 benefitsfollowing 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 September 30, 2020.
(In thousands)September 30, 2020
Maturity of Lease Liabilities
2020 (remaining)$904 
20213,546 
20222,622 
20231,635 
20241,404 
Thereafter1,442 
Total undiscounted operating lease payments$11,553 
Less: Imputed interest(766)
Present value of operating lease liabilities$10,787 
Balance Sheet Classification
Right-of-use assets (recorded in other non-current assets)$10,417 
Current lease liabilities (recorded in other current liabilities)3,327 
Long-term lease liabilities (recorded in other long-term liabilities)7,460 
Total operating lease liabilities$10,787 
Other Information
Weighted-average remaining lease term for operating leases4.00 years
Weighted-average discount rate for operating leases3.38 %

Cash Flows
An initial right-of-use asset of $8.7 million was recognized as a non-cash asset addition with the adoption of the new lease accounting standard on January 1, 2019. During the nine months ended September 30, 2020 and September 30, 2019, additional right-of-use assets of $2.4 million and $3.6 million, respectively, were recognized as non-cash asset additions that resulted from new operating lease liabilities. Cash paid for amounts included in the present value of operating lease liabilities was $3.0 million and $2.7 million during the nine months ended September 30, 2020 and September 30, 2019, respectively, and is included in operating cash flows.

Operating Lease Expense
Operating lease expense was $2.7 millionand $6.8 million for the three and nine months ended September 30, 2020, respectively, and $2.0 million and $6.2 million for the three and nine months ended September 30, 2019, respectively. This expense included $0.9 million and $2.8 million for the three and nine months ended September 30, 2020, respectively, and $0.9
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million and $2.7 million for the three and nine months ended September 30, 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 prospectivestraight-line basis over the term of the lease. Revenues were $3.0 millionand prior period amounts have not been adjusted.$9.4 million for the three and nine months ended September 30, 2020, respectively, and $3.6 million and $10.4 million for the three and nine months ended September 30, 2019, respectively. The Company also elected to use actual forfeitures to determinefollowing table presents information about the amountmaturities 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 September 30, 2020.

(In thousands)September 30, 2020
2020 (remaining)$2,746 
20216,809 
202256 
20230 
20240 
Thereafter0 
Total$9,611 

(2)
(4) Credit Facilities

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


As of September 30, 2017,2020 and December 31, 2016,2019, our outstanding debt totaled $75.0$175.0 million and $180.0$300.0 million, respectively. We had$25.0 million outstanding under the credit facilities at a variable interest rate of 0.83% as of September 30, 2020. We had (i) an additional $75.0 million outstanding under the Wells Fargo Bank, N.A. credit facility at a variable rate of 0.83% as of September 30, 2020, which is effectively fixed at 2.32% with an interest rate swap agreement through May 14, 2024 and (ii) an additional $75.0 million outstanding under the term commitmentBMO Harris Bank N.A. credit facility at a variable rate of 1.83%0.86% as of September 30, 2017,2020, which is effectively fixed at 2.5%2.36% with an interest rate swap agreement.agreement through May 14, 2024. The $325.0$500.0 million of borrowing capacity under our credit facilities at September 30, 2017,2020, is further reduced by $28.7by $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 maximumminimum ratio of total debtearnings before interest, income taxes, depreciation and amortization to total capitalizationinterest 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, 2017,2020, we were in compliance with these covenants.


At September 30, 2017,2020, the aggregate future maturities of long-term debt by year are as follows (in thousands):
2020$0 
20210 
20220 
20230 
2024175,000 
Total$175,000 
2017$—
2018—
201975,000
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
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Table 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,Contents

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, 2017,2020, we have committed to property and equipment purchases of approximately $95.2 $133.6 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 $22.4 million as of September 30, 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 September 30, 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 arehave been involved in class action litigation in the U.S. District Court for the District of Nebraska, in which the plaintiffs allege that we owe drivers for unpaid wages under the Fair Labor Standards Act (FLSA)(“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 various post-trial motions, the court awarded $0.5 million to the plaintiffs for attorney fees and costs. As of September 30, 2017,2020, 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 Plaintiffs’ appeal and granted Werner’s appeal, vacating the judgment in favor of the plaintiffs. The appellate court sent the case back to the trial court for proceedings consistent with the appellate court’s opinion. On June 22, 2020, the trial court denied Plaintiffs’ request for a new trial and entered judgment in favor of the Company, dismissing the case with prejudice. On July 21, 2020, Plaintiffs’ counsel filed a notice of appeal of that dismissal.


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.

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(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 periodperiods presented.

The computation of basic and diluted earnings per share is shown below (in thousands, except per share amounts).
Three Months Ended
September 30,		 Nine Months Ended
September 30,		 Three Months Ended
September 30,		Nine Months Ended
September 30,
2017 2016 2017 2016 2020201920202019
Net income$22,517
 $18,920
 $61,755
 $57,318
Net income$46,332 $39,044 $108,522 $118,448 
Weighted average common shares outstanding72,298
 72,058
 72,239
 72,043
Weighted average common shares outstanding69,097 69,198 69,148 69,684 
Dilutive effect of stock-based awards303
 348
 278
 321
Dilutive effect of stock-based awards352 402 352 369 
Shares used in computing diluted earnings per share72,601
 72,406
 72,517
 72,364
Shares used in computing diluted earnings per share69,449 69,600 69,500 70,053 
Basic earnings per share$0.31
 $0.26
 $0.85
 $0.80
Basic earnings per share$0.67 $0.56 $1.57 $1.70 
Diluted earnings per share$0.31
 $0.26
 $0.85
 $0.79
Diluted earnings per share$0.67 $0.56 $1.56 $1.69 
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.


6)(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, 2017,2020, there were 7,346,3156,686,021 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, 2017,2020, the total unrecognized compensation cost related to non-vested equity compensation awards was approximately $6.1$11.0 million and is expected to be recognized over a weighted average period of 2.2 years.1.8 years. The following table summarizes the equity compensation expense and related income tax benefit recognized in the Consolidated Statements of Income (in thousands):

 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2020201920202019
Restricted awards:
Pre-tax compensation expense$1,375 $1,310 $3,863 $3,786 
Tax benefit351 335 985 966 
Restricted stock expense, net of tax$1,024 $975 $2,878 $2,820 
Performance awards:
Pre-tax compensation expense$1,086 $680 $2,149 $2,577 
Tax benefit277 173 548 657 
Performance award expense, net of tax$809 $507 $1,601 $1,920 

15
 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 benefit1
 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 benefit367
 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 benefit120
 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 reductionTable 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.Contents

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 forawards were outstanding as of September 30, 2020. There were no stock option awards granted or exercised in the nine monthsnine-month period 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 period171
 $18.19
 
 
Granted—
 —
 
 
Exercised(132) 17.72
 
 
Forfeited—
 —
 
 
Expired—
 —
 
 
Outstanding at end of period39
 19.80
 2.53 $651
Exercisable at end of period34
 19.45
 2.30 $584

We did not grant any2020. NaN stock options duringwere granted in the nine-month periodsperiod ended September 30, 20172019, and September 30, 2016. The fair value of stock option grants is estimated using a Black-Scholes valuation model. Thethe total intrinsic value of stock options exercised was $1.6 million and $95 thousand forin the nine-month periodsperiod ended September 30, 2017 and September 30, 2016, respectively.2019 was $136 thousand.


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 months ended September 30, 2017:2020:

Number of
Restricted
Awards (in
thousands)		Weighted
Average Grant
Date Fair
Value ($)
Nonvested at beginning of period369 $32.83 
Granted151 38.43 
Vested(87)32.86 
Forfeited(44)35.52 
Nonvested at end of period389 34.70 
 
Number of
Restricted
Awards (in
thousands)
 
Weighted
Average Grant
Date Fair
Value ($)
Nonvested at beginning of period293
 $25.98
Granted81
 26.90
Vested(16) 24.34
Forfeited(10) 26.87
Nonvested at end of period348
 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 periodperiods ended September 30, 2017 was $0.5 million2020 and for the nine-month period ended September 30, 20162019 was $0.3 million. When restricted awards vest, we withhold$3.4 million and $1.8 million, respectively. We withheld shares based on the closing stock price on the vesting date to settle the employees’ statutory obligation for the applicable income and other employment taxes. The shares withheld to satisfy the tax withholding obligations arewere 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 6036 months fromafter the grant date of the award. The performance awards do not confer any voting or dividend rights to recipients until such shares vest and do not have any post-vesting sales restrictions.
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The following table summarizes performance award activity for the nine months ended September 30, 2017:2020:

Number of
Performance
Awards (in
thousands)		Weighted
Average Grant
Date Fair
Value ($)
Nonvested at beginning of period327 $28.75 
Granted100 37.65 
Vested(151)23.61 
Forfeited(47)34.44 
Nonvested at end of period229 34.68 

 
Number of
Performance
Awards (in
thousands)
 
Weighted
Average Grant
Date Fair
Value ($)
Nonvested at beginning of period124
 $27.33
Granted69
 26.89
Vested(35) 27.07
Forfeited—
 —
Nonvested at end of period158
 27.20


The 20172020 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, 20172020 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 20172020 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 20162017 fiscal year results upon whichperformance objectives were achieved at a level above the 2016 performance awards were based fell belowtarget level; the threshold level; thus, noadditional shares of common stock were earned andabove the shares not earnedtarget 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 periods ended September 30, 20172020 and September 30, 20162019 was $1.0$5.8 million and $1.6$1.2 million, respectively. We withholdwithheld 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 arewere recorded as treasury stock.


(7)(8) Segment Information

We have two2 reportable segments – Truckload Transportation Services (“Truckload”TTS”) and Werner Logistics.


The TruckloadTTS segment consists of threetwo 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 TruckloadTTS 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 fivefour operating units that provide non-trucking services to our customers. These fivefour 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”) offerscustomers 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.

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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
September 30,		Nine Months Ended
September 30,
 2020201920202019
Revenues
Truckload Transportation Services$458,256 $480,351 $1,368,172 $1,423,201 
Werner Logistics117,351 121,331 339,678 369,584 
Other14,156 15,896 42,539 47,464 
Corporate481 687 1,542 1,905 
  Subtotal590,244 618,265 1,751,931 1,842,154 
Inter-segment eliminations(30)(1)(55)(240)
Total$590,214 $618,264 $1,751,876 $1,841,914 
Operating Income
Truckload Transportation Services$63,080 $48,870 $143,394 $143,488 
Werner Logistics(852)3,028 3,372 12,921 
Other566 1,709 2,932 5,181 
Corporate(691)(250)(3,711)(1,772)
Total$62,103 $53,357 $145,987 $159,818 

18
 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 Logistics104,568
 109,459
 305,225
 310,001
Other16,020
 14,804
 47,257
 43,148
Corporate593
 313
 1,539
 1,300
  Subtotal528,747
 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 Logistics1,318
 4,894
 6,652
 16,502
Other1,001
 (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 courseTable 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.Contents

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 20162019 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 TruckloadTTS 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 TruckloadTTS 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 surchargessurcharge 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 TruckloadTTS 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 TruckloadTTS 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 TruckloadTTS 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 TruckloadTTS 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 quarter 20172020 to third 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, tightening of the commercial trucking liability insurance market and a weak used equipment market. Our main fixed costs include depreciation expense for tractors and trailers and equipment licensing fees (included in taxes and licenses
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expense). The TruckloadTTS 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 fivefour operating units within our Werner Logistics segment (Brokerage, Freight Management,(Truckload Logistics, Intermodal, Werner Global Logistics internationalWGL and Final Mile). Unlike our TruckloadTTS 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 frequently 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 made significant investments in personal protective products to keep our associates safe, and over half of our office associates continue 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, is enabling us to more effectively manage through the difficult economic environment created by the pandemic. Revenues from our top 100 customers were 86% of our total revenues in the first nine months of 2020, and 65% of those revenues were from the discount retail, home improvement retail, food and beverage and consumer packaged goods verticals.

Our results in third quarter 2020 reflect strong freight market conditions in a rapidly recovering economy and tight driver market. Freight demand in our One-Way Truckload fleet was strong and gained momentum in third quarter, and Dedicated freight demand remained strong during the quarter. We believe we proactively managed and adapted our fleet and cost structure without compromising service.
While there remain significant uncertainties related to COVID-19 and its effect on the economy, we believe that demand for our services will remain strong for the fourth quarter and continuing into 2021. 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 third quarter 2020, we believe we are well positioned with a strong balance sheet and sufficient liquidity. Our debt is low at $175 million, or a net debt ratio of 0.3 times earnings before interest, income taxes, depreciation and amortization for the last twelve months. We had available liquidity of $320 million, considering cash on hand and available credit of $280.4 million under our two facilities that expire in May 2024. We also have sufficient cushion with our two debt covenants. We currently plan to continue paying our quarterly dividend, which we have paid quarterly for 34 consecutive years. This cash outlay currently results in slightly more than $6 million per quarter. Net capital expenditures in 2020 currently are expected to be in the range of $275 million to $300 million. We continue to expect free cash flow (net cash provided by operating activities less net cash used for capital expenditures) to exceed $150 million in 2020.

We do not 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 are deferring 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
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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 currently 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
20202019202020193ME9ME
(Amounts in thousands)$%$%$%$%%%
Operating revenues$590,214 100.0 $618,264 100.0 $1,751,876 100.0 $1,841,914 100.0 (4.5)(4.9)
Operating expenses:
Salaries, wages and benefits197,151 33.4 209,586 33.9 598,129 34.1 618,386 33.6 (5.9)(3.3)
Fuel37,933 6.4 59,518 9.6 117,381 6.7 176,720 9.6 (36.3)(33.6)
Supplies and maintenance44,015 7.5 46,907 7.6 133,079 7.6 136,963 7.4 (6.2)(2.8)
Taxes and licenses24,032 4.1 24,244 3.9 70,835 4.1 70,788 3.8 (0.9)0.1 
Insurance and claims23,307 4.0 21,930 3.6 85,160 4.9 65,631 3.6 6.3 29.8 
Depreciation62,980 10.7 62,620 10.1 199,487 11.4 184,816 10.0 0.6 7.9 
Rent and purchased transportation131,843 22.3 134,797 21.8 378,989 21.6 413,809 22.5 (2.2)(8.4)
Communications and utilities3,797 0.6 3,892 0.7 11,141 0.6 11,806 0.6 (2.4)(5.6)
Other3,053 0.5 1,413 0.2 11,688 0.7 3,177 0.2 116.1 267.9 
Total operating expenses528,111 89.5 564,907 91.4 1,605,889 91.7 1,682,096 91.3 (6.5)(4.5)
Operating income62,103 10.5 53,357 8.6 145,987 8.3 159,818 8.7 16.4 (8.7)
Total other expense (income)619 0.1 1,699 0.3 2,436 0.1 2,036 0.1 (63.6)19.6 
Income before income taxes61,484 10.4 51,658 8.3 143,551 8.2 157,782 8.6 19.0 (9.0)
Income taxes15,152 2.5 12,614 2.0 35,029 2.0 39,334 2.2 20.1 (10.9)
Net income$46,332 7.9 $39,044 6.3 $108,522 6.2 $118,448 6.4 18.7 (8.4)

21
 Three Months Ended (3ME)
September 30,		 Nine Months Ended (9ME)
September 30,		 
Percentage Change
in Dollar Amounts
 2017 2016 2017 2016 3ME9ME
(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 %
               
Operating expenses:              
Salaries, wages and benefits170,238
32.2
 162,862
32.0
 500,620
32.3
 479,298
32.2
 4.5 %4.4 %
Fuel50,266
9.5
 40,638
8.0
 140,551
9.1
 112,034
7.5
 23.7 %25.5 %
Supplies and maintenance41,986
7.9
 41,027
8.1
 120,276
7.8
 130,559
8.8
 2.3 %(7.9)%
Taxes and licenses21,671
4.1
 21,540
4.2
 64,095
4.1
 64,353
4.3
 0.6 %(0.4)%
Insurance and claims20,669
3.9
 19,106
3.8
 60,336
3.9
 59,384
4.0
 8.2 %1.6 %
Depreciation53,578
10.1
 51,781
10.2
 162,619
10.5
 152,849
10.3
 3.5 %6.4 %
Rent and purchased transportation126,087
23.9
 133,876
26.3
 377,146
24.3
 379,155
25.4
 (5.8)%(0.5)%
Communications and utilities4,199
0.8
 4,206
0.8
 12,158
0.8
 12,110
0.8
 (0.2)%0.4 %
Other4,075
0.8
 4,566
0.9
 12,812
0.8
 9,303
0.6
 (10.8)%37.7 %
Total operating expenses492,769
93.2
 479,602
94.3
 1,450,613
93.6
 1,399,045
93.9
 2.7 %3.7 %
              
Operating income35,874
6.8
 29,074
5.7
 98,759
6.4
 91,114
6.1
 23.4 %8.4 %
Total other expense (income)(186)—
 (260)(0.1) (371)—
 (1,167)(0.1) 28.5 %68.2 %
Income before income taxes36,060
6.8
 29,334
5.8
 99,130
6.4
 92,281
6.2
 22.9 %7.4 %
Income taxes13,543
2.5
 10,414
2.1
 37,375
2.4
 34,963
2.4
 30.0 %6.9 %
Net income$22,517
4.3
 $18,920
3.7
 $61,755
4.0
 $57,318
3.8
 19.0 %7.7 %
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The following tables set forth the operating revenues, operating expenses and operating income for the TruckloadTTS segment, as well as certain statistical data regarding our TruckloadTTS segment operations for the periods indicated.
 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2020201920202019
Truckload Transportation Services segment (amounts in thousands)$%$%$%$%
Trucking revenues, net of fuel surcharge$417,335 $417,954 $1,233,267 $1,227,105 
Trucking fuel surcharge revenues36,799 57,171 122,048 177,881 
Non-trucking and other operating revenues4,122 5,226 12,857 18,215 
Operating revenues458,256 100.0 480,351 100.0 1,368,172 100.0 1,423,201 100.0 
Operating expenses395,176 86.2 431,481 89.8 1,224,778 89.5 1,279,713 89.9 
Operating income$63,080 13.8 $48,870 10.2 $143,394 10.5 $143,488 10.1 
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
Truckload Transportation Services (amounts in thousands)$ % $ % $ % $ %
Trucking revenues, net of fuel surcharge$351,114
   $336,673
   $1,029,036
   $1,008,738
  
Trucking fuel surcharge revenues50,164
   41,994
   147,641
   111,018
  
Non-trucking and other operating revenues6,288
   5,645
   19,394
   16,722
  
Operating revenues407,566
 100.0 384,312
 100.0 1,196,071
 100.0 1,136,478
 100.0
Operating expenses373,557
 91.7 364,466
 94.8 1,102,560
 92.2 1,061,507
 93.4
Operating income$34,009
 8.3 $19,846
 5.2 $93,511
 7.8 $74,971
 6.6


Three Months Ended
September 30,		Nine Months Ended
September 30,
Truckload Transportation Services segment20202019% Change20202019% Change
Average tractors in service7,615 8,010 (4.9)%7,746 7,945 (2.5)%
Average revenues per tractor per week (1)
$4,216 $4,014 5.0 %$4,082 $3,960 3.1 %
Total tractors (at quarter end)
  Company7,245 7,480 (3.1)%7,245 7,480 (3.1)%
  Independent contractor465 575 (19.1)%465 575 (19.1)%
  Total tractors7,710 8,055 (4.3)%7,710 8,055 (4.3)%
Total trailers (at quarter end)22,350 22,895 (2.4)%22,350 22,895 (2.4)%
One-Way Truckload
Trucking revenues, net of fuel surcharge (in 000’s)$173,021 $185,791 (6.9)%$518,854 $550,204 (5.7)%
Average tractors in service3,048 3,418 (10.8)%3,156 3,385 (6.8)%
Total tractors (at quarter end)2,995 3,435 (12.8)%2,995 3,435 (12.8)%
Average percentage of empty miles11.70 %12.24 %(4.4)%12.18 %12.02 %1.3 %
Average revenues per tractor per week (1)
$4,366 $4,181 4.4 %$4,215 $4,168 1.1 %
Average % change in revenues per total mile (1)
2.9 %(5.6)%(0.9)%(0.8)%
Average % change in total miles per tractor per week1.4 %(2.0)%2.0 %(2.9)%
Average completed trip length in miles (loaded)866 843 2.7 %847 844 0.4 %
Dedicated
Trucking revenues, net of fuel surcharge (in 000’s)$244,314 $232,163 5.2 %$714,413 $676,901 5.5 %
Average tractors in service4,567 4,592 (0.5)%4,590 4,560 0.7 %
Total tractors (at quarter end)4,715 4,620 2.1 %4,715 4,620 2.1 %
Average revenues per tractor per week (1)
$4,115 $3,888 5.8 %$3,990 $3,805 4.9 %

(1)Net of fuel surcharge revenues.
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 Three Months Ended
September 30,		   Nine Months Ended
September 30,		  
Truckload Transportation Services2017 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 service7,314
 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):           
     Company6,700
 6,355
   6,700
 6,355
  
     Independent contractor675
 820
   675
 820
  
          Total tractors7,375
 7,175
   7,375
 7,175
  
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(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,
  2020201920202019
Werner Logistics segment (amounts in thousands)$%$%$%$%
Operating revenues$117,351 100.0 $121,331 100.0 $339,678 100.0 $369,584 100.0 
Rent and purchased transportation expense104,626 89.2 102,886 84.8 293,400 86.4 309,742 83.8 
Gross margin12,725 10.8 18,445 15.2 46,278 13.6 59,842 16.2 
Other operating expenses13,577 11.5 15,417 12.7 42,906 12.6 46,921 12.7 
Operating income$(852)(0.7)$3,028 2.5 $3,372 1.0 $12,921 3.5 
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Werner Logistics (amounts in thousands)$ % $ % $ % $ %
Operating revenues$104,568
 100.0 $109,459
 100.0 $305,225
 100.0 $310,001
 100.0
Rent and purchased transportation expense89,507
 85.6 91,695
 83.8 259,277
 84.9 255,954
 82.6
Gross margin15,061
 14.4 17,764
 16.2 45,948
 15.1 54,047
 17.4
Other operating expenses13,743
 13.1 12,870
 11.7 39,296
 12.9 37,545
 12.1
Operating income$1,318
 1.3 $4,894
 4.5 $6,652
 2.2 $16,502
 5.3

 Three Months Ended
September 30,		Nine Months Ended
September 30,
Werner Logistics segment20202019% Change20202019% Change
Average tractors in service31 33 (6.1)%31 36 (13.9)%
Total tractors (at quarter end)32 31 3.2 %32 31 3.2 %
Total trailers (at quarter end)1,325 1,580 (16.1)%1,325 1,580 (16.1)%
 Three Months Ended
September 30,		   Nine Months Ended
September 30,		  
Werner Logistics2017 2016 % Change 2017 2016 % Change
Average tractors in service48
 75
 (36.0)% 53
 71
 (25.4)%
Total trailers (at quarter end)1,655
 1,590
 4.1 % 1,655
 1,590
 4.1 %
Total tractors (at quarter end)47
 86
 (45.3)% 47
 86
 (45.3)%


Three Months Ended September 30, 20172020 Compared to Three Months Ended September 30, 20162019
Operating Revenues
Operating revenues increased 3.9%decreased 4.5% for the three months ended September 30, 2017,2020, compared to the same period of the prior year. When comparing third quarter 20172020 to third quarter 2016, Truckload2019, TTS segment revenues increased $23.3decreased $22.1 million, or 6.1%4.6%, and Werner Logistics revenues decreased $4.9$4.0 million, or 4.5%3.3%.


During third quarter 2020, freight demand in our One-Way Truckload fleet was strong and improved throughout the quarter. This trend has continued during fourth quarter to-date. In our Dedicated fleet, freight demand remained strong in third quarter 2020. Approximately three-quarters of our Dedicated revenues are with essential products customers, and their freight volumes were much better than normal during third quarter 2020. We added 180 Dedicated trucks during third quarter 2020.

Trucking revenues, net of fuel surcharge, increased 4.3%remained flat in third quarter 20172020 compared to third quarter 20162019 due to a 2.9%4.9% decrease in the average number of tractors in service, which was offset by a 5.0% increase in average revenues per tractor per week, and a 1.4%net of fuel surcharge. The increase in average tractorsrevenues per tractor was due primarily to improved pricing in service. Ourboth Dedicated and One-Way Truckload. We currently expect average revenues per total mile net of fuel surcharge, increased by 3.4% in third quarter 2017 compared to third quarter 2016 and average miles per truck decreased by 0.5%.

Third quarter 2017 freight demand in ourfor the One-Way Truckload fleet improved throughout the quarter. In July and August 2017, freight trended better than normal and meaningfully better than the challenging 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 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.

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.fourth quarter 2020 to be in a range of 3% to 5% higher when compared to fourth quarter 2019.


The average number of tractors in service in the TruckloadTTS segment increased 1.4%decreased 4.9% to 7,3147,615 in third quarter 20172020 from 7,2168,010 in third quarter 2016.2019. We ended third quarter 20172020 with 7,3757,710 trucks in the TruckloadTTS segment, a year-over-year increasedecrease of 200345 trucks compared to the end of third quarter 2016,2019, and a sequential increase of 60 trucks compared to the end of second quarter 2017.2020. We added 180 Dedicated trucks during third quarter 2020, which we had anticipated following delayed implementations of Dedicated fleet start-ups. While we currently expect modest truck growth in fourth quarter 2020, we expect our truck count at the end of 2020 to be at the bottom end of the range of (3)% to (1)% lower when compared to the fleet size at year-end 2019. 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 35.6% to $50.2$36.8 million in third quarter 20172020 from $42.0$57.2 million in third quarter 20162019 due to higherlower average fuel prices in the 2017third 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
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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 fivefour operating units and exclude revenues for full truckload shipments transferred to the TruckloadTTS segment, which are recorded as trucking revenues by the TruckloadTTS segment. Werner Logistics also recorded revenue and brokered freight expense of $0.1 million$30 thousand in third quarter 20172020 and $0.2 million$1 thousand in third quarter 20162019 for Intermodal drayage movements performed by the TruckloadTTS segment (also recorded as trucking revenue by the TruckloadTTS segment), and these transactions between reporting segments are eliminated in consolidation. In third quarter 2017,2020, Werner Logistics revenues decreased $4.9$4.0 million, or 4.5%3.3%, and operating income dollars decreased $3.6 million or 73.1%, comparedprimarily due to lower Truckload Logistics revenues (60% of total Logistics revenues). Truckload Logistics volume declined 15% in third quarter 2016.2020, and revenue per load was unchanged. Intermodal revenues (28% of Logistics revenues) increased 31% in third quarter 2020, due to volume growth of 37% and 5% lower revenue per load from lower rates and fuel surcharges. The Werner Logistics gross margin percentage in third quarter 20172020 of 14.4%10.8% decreased from 16.2%15.2% in third quarter 2016.2019 due to the unprecedented large and rapid rise in spot truckload rates which significantly increased the cost of capacity for contractual brokerage shipments in third quarter 2020. The Werner Logistics operating income percentagemargin in third quarter 2017 of 1.3%2020 declined to (0.7)% from 2.5% as the 31.0% decline in gross profit exceeded the 11.9% decline in other operating expenses. During third quarter 20162020, we addressed customer pricing for many 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 marginour contractual brokerage accounts, and operating income percentages.

In third quarter 2017,we currently expect that Werner Logistics achieved solid revenue growth year over yearwill be profitable in our truck brokerage solution, while our intermodal and international solutions had lower revenues due to more challenging market conditions. As previously disclosed, a large Werner Logistics Freight Management customer (5.5% of Werner Logistics revenues in thirdfourth quarter 2016) that was acquired2020.

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%89.5% for the three months ended September 30, 2017, compared to 94.3%2020 and 91.4% for the three months ended September 30, 2016.2019. Expense items that impacted the overall operating ratio are described on the following pages. The tables on pages 16 and 1721 through 23 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, TruckloadTTS and Werner Logistics.


Salaries, wages and benefits increased $7.4decreased $12.4 million or 4.5%5.9% in third quarter 20172020 compared to third quarter 20162019 and increased 0.2%decreased 0.5% as a percentage of operating revenues to 32.2%33.4%. The higherlower dollar amount of salaries, wages and benefits expense in the 20172020 third quarter was due primarily to increased company truck mileslower fringe benefits and higher driver and student pay rates. These increaseshaving fewer placement drivers, both of which were partially offsetimpacted by lowerCOVID-19. Our workers’ compensation expense in third quarter 2017. When evaluated on a per-mile basis, driver salaries, wagescosts improved, and benefits also increased,we incurred lower group health insurance costs which we primarily attribute to higher driver pay in third quarter 2017 compared to third quarter 2016.believe is a temporary effect of COVID-19. Non-driver salaries, wages and benefits in the non-trucking Werner Logistics segment increased 8.4%decreased 14.6%.


We renewed our workers’ compensation insurance coverage for the policy year beginningon April 1, 2017. Our coverage levels are the same as the prior policy year. We continue to maintain a2020 and took on additional risk exposure by increasing our self-insurance retention offrom $1.0 million to $2.0 million per claim. Ourclaim 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 those2020 are $0.8 million lower than the premiums for the previous policy year.


The tight driver recruiting market became more challengingfurther intensified in third quarter 2017.2020, as the improving freight market caused increased competition for the finite number of experienced drivers that meet our hiring standards. Several ongoing market factors persistpersisted including a declining number of, and increased competition for, driver training school graduates, an historically low national unemployment rate,particularly considering COVID-19 constraints, aging truck driver demographics and increased truck safety regulations. We proactively took manycontinue to take significant actions in the last two years to strengthen our driver recruiting and retention to make Werner thea preferred choice for the best drivers, including raising driver pay, lowering the age of ourmaintaining a new truck and trailer fleet, installingpurchasing best-in-class safety and training features onfor all new trucks, investing in our driver training schoolsschool network and collaborating with customers to improve or eliminate freight with unproductive operating characteristics that preventfreight. 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 $9.6decreased $21.6 million or 23.7%36.3% in third quarter 20172020 compared to third quarter 20162019 and increased 1.5%decreased 3.2% as a percentage of operating revenues due to higherlower average diesel fuel prices and increasedapproximately 5.0 million fewer company truck miles.miles in third quarter 2020. Average diesel fuel prices were 26were 69 cents per gallon higherlower in third quarter 20172020 than in third quarter 20162019 and were 1525 cents per gallon higher than in second quarter 2017. The increase was partially offset by slightly improved miles per gallon (“mpg”).2020.


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
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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 2017,2020, the average diesel fuel price per gallon was approximately 2878 cents higherlower than the average diesel fuel price per gallon in October 20162019 and approximately 3278 cents higherlower than in fourth 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 predictpredict 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, 2017,2020, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.



Supplies and maintenance increased $1.0decreased $2.9 million or 2.3%6.2% in third quarter 20172020 compared to third quarter 20162019 and decreased 0.2%0.1% as a percentage of operating revenues. The lower dollar amount of supplies and maintenance expense was due primarily to lower travel and entertainment costs resulting from COVID-19 restrictions.

Insurance and claims increased $1.4 million or 6.3% in third quarter 2020 compared to third quarter 2019 and increased 0.4% as a percentage of operating revenues due primarily to higher company truck miles drivenliability insurance premiums of $1.4 million and unfavorable reserve development on small dollar claims in the 2020 third quarter, partially offset by lower expense for large dollar claims. We also incurred insurance and claims expense of $1.2 million in third quarter 2017 compared to third quarter 2016, partially offset by our younger trailer fleet2020 and the resulting lower equipment maintenance expense. We also incurred higher driver recruiting and other driver-related costs in the 2017 quarter.

Insurance and claims increased $1.6$0.8 million or 8.2% in third quarter 2017 compared2019 for accrued interest related to third quarter 2016 and increased 0.1%a previously-disclosed adverse jury verdict rendered May 17, 2018, which we are appealing (see Note 5 in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report). Interest is accrued at $0.4 million per month, until such time as a percentagethe 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, 20172020 and tookare now responsible for the first $10.0 million per claim on additional risk exposure by increasing our self-insured retention and deductible levels. Effective onall claims with no annual aggregates.For the policy year that date,began August 1, 2019, we arewere 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 havemillion and 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, ourOur liability insurance premiums for the policy year that began August 1, 20172020 are about $3.7 $7.8million lowerhigher than premiums for the previous policy year.


Depreciation expense increased $1.8$0.4 million or 3.5%0.6% in third quarter 20172020 compared to third quarter 20162019 and decreased 0.1%increased 0.6% as a percentage of operating revenues. ThisDuring first quarter 2020, we changed the estimated life of certain trucks currently expected to be sold in 2020 to more rapidly depreciate these trucks to their estimated residual values due to the weak used truck market. The effect of this change in accounting estimate increased third quarter 2020 depreciation expense increase is due primarilyby $0.9 million. The remaining 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 costdepreciation expense in third quarter 2020.

The average age of new trucks purchased compared to the costour truck fleet remains low by industry standards and was 2.0 years as of used trucks that were sold over the past 12 monthsSeptember 30, 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 investmenttrailers was 4.0 years. We are continuing to invest in newernew trucks and trailers improvesand our terminals in 2020 to improve our driver experience, raisesincrease operational efficiency and helps us to bettermore effectively manage our maintenance, safety and fuel costs. We intend to maintain our newer fleet ageDuring the remainder of trucks and trailers. The2020, we expect the average age of our company truck and trailer fleet wasto remain at 1.9 years as of September 30, 2017.or near current levels.


Rent and purchased transportation expense decreased $7.8$3.0 million or 5.8%2.2% in third quarter 20172020 compared to third quarter 20162019 and decreased 2.4%increased 0.5% 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 TruckloadTTS 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 $2.2increased $1.7 million butdespite lower logistics revenues, and as a percentage of Werner Logistics revenues increased to 85.6%89.2% in third quarter 20172020 from 83.8%84.8% in third quarter 2016. Tighter industry-wide carrier2019, due primarily to the unprecedented large and rapid rise in spot truckload rates which significantly increased the cost of capacity for contractual brokerage shipments in third quarter 2017 compared to third quarter 2016 resulted in higher purchased transportation costs causing the lower gross margin percentage.2020.


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Rent and purchased transportation expense for the TruckloadTTS segment decreased $5.8$4.5 million in third quarter 20172020 compared to third quarter 2016. This decrease is due primarily to lower payments to independent contractors due to fewer independent2019. Independent contractor trucks and miles duringdecreased approximately 4.5 million miles in third quarter 2017 compared to third quarter 2016, partially offset by higher average fuel reimbursement per mile in the 2017 quarter. Independent contractor miles2020 and as a percentage of total miles were 11.8%8.2% in third quarter 20172020 compared to 14.8%9.9% in third quarter 2016.2019. The per-mile settlement rate for independent contractors also decreased in third quarter 2020 compared to third quarter 2019, due 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. ThisThese 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 $0.5increased $1.6 million or 10.8% in third quarter 20172020 compared to third quarter 20162019 and decreased 0.1%increased 0.3% 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$3.9 million in third quarter 20172020 compared to $3.1$4.1 million in third quarter 2016, which included a $6.5 million real estate gain2019. We realized significantly lower average gains per truck and $3.4 million of losses on equipment sales. In third quarter 2017, weslightly higher average gains per trailer and sold fewersubstantially more trucks and fewer trailers than in third quarter 2016. We realized average gains per truck in third quarter 2017 compared to average losses in third quarter 2016 and realized lower average gains per trailer in third quarter 20172020 compared to third quarter 2016. The2019. Pricing in the market for our used truck pricing market remained difficulttrucks began to improve in third quarter 2017 due to a higher than normal supply of used trucks in the market and low buyer demand. Other operating expenses, primarily provision2020. Higher expense for doubtful accounts relatedprofessional services also contributed to the driver training schools and professional and consulting fees, declined by $1.4 millionincrease in third quarter 2017 compared to third quarter 2016.other operating expense.


Other Expense (Income)
Other expense (income) increased $0.1decreased $1.1 million and increased 0.1% as a percentage of operating revenues in third quarter 20172020 compared to third quarter 2016. Interest income was2019. We had lower in the 2017 quarterinterest expense due primarily to lower average outstanding notes receivable,debt in third quarter 2020, and interest expense was lower as well.income also decreased in third quarter 2020 compared to third quarter 2019.


Income Taxes
Our effective income tax rate (income taxes expressed as a percentage of income before income taxes) was 37.6%24.6% in third quarter 2017 and 35.5%2020 compared to 24.4% in third quarter 2016.2019. The higher income tax rate in 2017 isthird quarter 2020 was attributed primarily to a lower amount of favorable discrete income tax adjustments for the remeasurement of uncertain tax positionsitems in third quarter 2017 compared to third 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.2020.


Nine Months Ended September 30, 20172020 Compared to Nine Months Ended September 30, 20162019
Operating Revenues
Operating revenues increased 4.0%decreased 4.9% for the nine months ended September 30, 2017,2020, compared to the same period of the prior year. In the TruckloadTTS 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$6.2 million, or 0.5%, due primarily to a 2.4%3.1% increase in average revenues per tractor per week, partially offset by a 0.4%2.5% decrease in the average number of tractors in service. Average revenues per total mile, net of fuel surcharge, increased 2.3%2.4% in the first nine months of 20172020 compared to the same period in 2016,2019, and average monthly miles per tractor increased by 0.2%0.7%. TruckloadTTS segment fuel surcharge revenues for the nine months ended September 30, 2017 increased $36.62020 decreased $55.8 million or 33.0%31.4% when compared to the nine months ended September 30, 20162019 due to higherlower average fuel prices in the 20172020 period. Werner Logistics revenues decreased $29.9 million, or 8.1%, primarily due to $305.2 million in the first nine months of 2017 compared to $310.0 million in the same 2016 period.lower Truckload Logistics revenues.

Operating Expenses
Our operating ratio (operating expenses expressed as a percentage of operating revenues) was 93.6%91.7% for the nine months ended September 30, 2017,2020, compared to 93.9%91.3% for the nine months ended September 30, 2016.2019. Expense items that impacted the overall operating ratio are described on the following pages. The tables on pages 16 and 1721 through 23 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, TruckloadTTS and Werner Logistics.

Salaries, wages and benefits increased $21.3decreased $20.3 million or 4.4%3.3% in the first nine months of 20172020 compared to the first nine months of 20162019 and increased 0.5% as a percentage of operating revenues to 32.3%34.1%. The higherlower dollar amount of salaries, wages and benefits expense was due primarily to lower fringe benefits and having fewer placement drivers, both of which were impacted
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by COVID-19. We incurred lower group health insurance expense which we believe is a temporary effect of COVID-19, and our workers’ compensation costs improved. These decreases were partially offset by 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.first nine months of 2020. Non-driver salaries, wages and benefits in the non-trucking Werner Logistics segment increased 9.8%decreased 12.4%.

Fuel increased $28.5decreased $59.3 million or 25.5%33.6% in the first nine months of 20172020 compared to the same period in 20162019 and decreased 2.9% as a percentage of operating revenues due to lower average diesel fuel prices in 2020. Average diesel fuel prices were 70 cents per gallon lower in the first nine months of 2020 than in the same 2019 period.

Supplies and maintenance decreased $3.9 million or 2.8% in the first nine months of 2020 compared to the same period in 2019 and increased 1.6%0.2% as a percentage of operating revenues. The lower dollar amount of supplies and maintenance expense was due primarily to lower travel and entertainment costs resulting from COVID-19 restrictions, as well as lower driver and placement driver recruiting and other driver-related expenses. These decreases were partially offset by the increased costs related to COVID-19 safety items and increased tractor maintenance costs.

Insurance and claims increased $19.5 million or 29.8% in the first nine months of 2020 compared to the same period in 2019 and increased 1.3% as a percentage of operating revenues due primarily to higher average diesel fuel pricesexpense for new large dollar claims and unfavorable reserve development on large dollar claims. In January 2020, one of our trucks was involved in 2017, partially offset by improved mpg. Average diesel fuel prices were 30 cents per gallon higher ina serious accident. We self-insure for the first nine months$10.0 million of 2017 thanliability 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 the same 2016 period.first quarter 2020 for this accident.
Supplies and maintenance decreased $10.3
Depreciation expense increased $14.7 million or 7.9% in the first nine months of 20172020 compared to the same2019 period in 2016 and decreased 1.0%increased 1.4% 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 theDuring 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 in2020, we changed the estimated life of certain trucks currently expected to be sold in 2020 to more rapidly depreciate thethese trucks to their estimated residual values due to the weak used truck market, which resultedmarket. The effect of this change in additionalaccounting estimate increased depreciation expense of $3.4by $9.6 million in 2017,the first nine months of 2020. 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 costdepreciation expense in the first nine months 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.2020.

Rent and purchased transportation expense decreased $2.0$34.8 million or 0.5%8.4% in the first nine months of 20172020 compared to the same 20162019 period and decreased 1.1%0.9% as a percentage of operating revenues. Rent and purchased transportation for the TruckloadTTS segment decreased $5.3$18.7 million in the first nine months of 20172020 compared to the same 2016 period. This decrease is2019 period due primarily to lower diesel fuel prices and having 10.3 million 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.ended September 30, 2020. Werner Logistics rent and purchased transportation expense increased $3.3decreased $16.3 million andas a result of lower logistics revenues, but as a percentage of Werner Logistics revenues increased to 84.9%86.4% in the 20172020 period from 82.6%83.8% in the 20162019 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$8.5 million in the first nine months of 20172020 compared to the same period in 20162019 and increased 0.2%0.5% as a percentage of operating revenues. Gains on sales of assets (primarily used trucks and trailers) decreasedwere $7.3 million in the first nine months ended September 30, 2020 compared to $6.0$14.5 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.2019. In the 20172020 year-to-date period, we sold fewer15% more trucks and 13% fewer trailers and realized significantly lower 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.trailer.

Other Expense (Income)
Other expense (income) increased $0.8$0.4 million in the first nine months of 20172020 compared to the same 2016 period and increased 0.1% as a percentage of operating revenues, due primarily to lower interest income.2019 period. Interest income decreased due to lower average outstanding notes receivable in the first nine months of 20172020 compared to the first nine months of 2016.2019 due to lower variable interest rates in the 2020 period. The decreased interest income was partially offset by lower interest expense due to lower average outstanding debt in the 2020 period.

Income Taxes
Our effective income tax rate (income taxes expressed as a percentage of income before income taxes) decreased to 37.7%was 24.4% for the first nine months of 2017 from 37.9%2020 compared to 24.9% for the first nine months of 2016.2019. The lower income tax rate isin the year-to-date 2020 period was attributed primarily to recognizing excess tax benefits related to share-based awards as a component of income tax expense, partially offset by a lowerhigher amount of favorable discrete income tax adjustments for the remeasurement of uncertain tax positionsitems in the first nine months of 2017 compared to the same period of 2016.2020 period.


Liquidity and Capital Resources:
During the nine months ended September 30, 2017,2020, we generated cash flow from operations of $216.9$346.4 million, an 8%a 4.3% or $15.8$14.2 million increase in cash flows compared to the same nine-month period a year ago. The increase in net cash provided by operating activities resulted primarily from deferring payment of certain 2020 employer payroll taxes under the effectCARES Act
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Table of depreciation on net income, lower gain on disposal of operating equipment, Contents
and general working capital items,from higher non-cash depreciation, partially offset by a decrease from deferred income taxes.lower net income. We were able to repay debt, make net capital expenditures, andrepay 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$181.0 million for the nine-month period ended September 30, 20172020 from $280.0$262.4 million for the nine-month period ended September 30, 2016.2019. Net property additions (primarily revenue equipment) were $121.1$187.3 million for the nine-month period ended September 30, 2017,2020, compared to $294.0$271.7 million during the same period of 2016. This2019. The decrease occurred as we completed a significant reinvestmentwas due in our fleet. Aspart to new truck delivery delays resulting from temporary closures of September 30, 2017, we were committed to property and equipment purchases of approximately $95.2 million.manufacturing plants. We currently estimate net capital expenditures (primarily revenue equipment) in 20172020 to be in the range of $175$275 million to $225$300 million, compared to net capital expenditures in 20162019 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. As of September 30, 2020, we were committed to property and equipment purchases of approximately $133.6 million.



Net financing activities used $113.3$156.4 million during the nine months ended September 30, 2017,2020, and provided $61.2used $89.4 million during the same period in 2016. During2019. We repaid $125.0 million of debt during the nine 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. Our2020, bringing our outstanding debt at September 30, 2017 was $75.02020 to $175.0 million. We paid dividends of $13.7$18.7 million in the nine-month period ended September 30, 20172020 and $13.0$280.0 million in the nine-month period ended September 30, 2016. We increased our quarterly2019. In May 2019, we declared a special dividend rate by $0.01of $3.75 per share, or 17%, beginning with the dividend$261.1 million, which was paid in July 2017. We did not repurchase any shares of common stock duringon June 7, 2019. Financing activities for the nine months ended September 30, 2017 or 2016. From time to time,2020, also included common stock repurchases of 282,992 shares at a cost of $8.8 million. In the nine-month period ended September 30, 2019, we repurchased 1,300,000 shares at a cost of $42.3 million. 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, 2017,2020, the Company had purchased 3,287,291982,992 shares pursuant to our current Board of Directors repurchase authorization and had 4,712,7094,017,008 shares remaining available for repurchase.


Management believes our financial position at September 30, 20172020 is strong. As of September 30, 2017,2020, we had $10.7$40.5 million of cash and cash equivalents and over $1nearly $1.2 billion of stockholders’ equity. Cash is invested primarily in government portfolio money market funds. As of September 30, 2017,2020, we had a total of $325.0$175.0 million of credit pursuant to threedebt outstanding. We had total borrowing capacity of $500.0 million under our two credit facilities that expire in May 2024 (see Note 24 in the Notes to Consolidated Financial Statements (Unaudited) under Item 1I of Part I of this Form 10-Q), of which we had borrowed $75.0 million. The remaining $250.0$280.4 million is available for future borrowing as of September 30, 2020, after considering the $175.0 million of credit available under these facilities at September 30, 2017 is reduced by the $28.7outstanding debt and $44.6 million in stand-by letters of credit under which we are obligated. These stand-by letters of credit are primarily required as security for insurance policies. Based onWe believe our strong financial position, management does not foresee any significant barriers to obtainingliquid assets, cash generated from operating activities, and borrowing capacity under our 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 forthItem 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 maturities75.0
 —
 75.0
 —
 —
 —
Interest payments on debt3.7
 1.9
 1.8
 —
 —
 —
Property and equipment purchase commitments95.2
 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 credit28.7
 28.7
 —
 —
 —
 —
Total commercial commitments$250.0
 $28.7
 $221.3
 $—
 $—
 $—
Total obligations$428.0
 $125.8
 $298.1
 $—
 $—
 $4.1

AsDecember 31, 2019. Except for the expiration of September 30, 2017, 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 $100our $75.0 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, 2020. We also had a $75 million credit facility with BMO Harris Bank, N.A., which will expire on March 5, 2020. Borrowings under2020, there were no material changes in the nature of these credit facilities and term note bear variable interest based onitems during the London Interbank Offered Rate (“LIBOR”). As ofnine months ended 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.2020.




Regulations:

Item 1 of Part I of our 20162019 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 have been no material changes in the status of thesethe proposed regulations previously disclosed in the 20162019 Form 10-K.


TheOn June 1, 2020, the Federal Motor Carrier Safety Administration (“FMCSA”) proposedpublished revisions 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 arequirements. The HOS final rule in December 2011 that included provisions affecting restart periods, rest breaks, on-duty time,increases driver flexibility and penalties for violations,introduces modifications to the existing rule set, including changes to the 30-minute break requirement, split sleeper berth, adverse driving conditions, 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.short-haul exception. The final ELD rule compliance date 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 bySeptember 29, 2020.

All three countries ratified the Owner-Operator Independent Drivers AssociationUnited States-Mexico-Canada Agreement (“OOIDA”USMCA”) to overturnreplace 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 TrainingNorth American Free Trade Agreement (“ELDT”NAFTA”) 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 ruleUSMCA 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,July 1, 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
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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 20162019 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 physicalbodily 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 thesethis critical accounting policies and estimatesestimate from thosethat discussed in our 20162019 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 lossesgains were $0.6$0.8 million for third quarter 20172020 and $1.0 millionlosses were $1.1 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, 2017,2020, for which the interest rate is effectively fixed at 2.5%2.34% through September 2019May 2024 with antwo interest rate swap agreementagreements to reduce our exposure to interest rate increases. We had $25 million of variable rate debt outstanding at September 30, 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 impactrate would increase our annual interest expense on future borrowings.by approximately $250,000.

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.

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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.

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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 fourth quarter and full year 2020 results could 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, 2007May 14, 2019, our Board of Directors approved an increase in the number of shares of our commonand announced a new stock thatrepurchase program under which the Company is authorized to repurchase. Under this authorization, the Company is permittedrepurchase up to repurchase an additional 8,000,000 shares.5,000,000 shares of its common stock. As of September 30, 2017,2020, the Company had purchased 3,287,291982,992 shares pursuant to this authorization and had 4,712,709 shares4,017,008 shares remaining available for repurchase. 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.


No shares of common stock were repurchased during the third quarter 20172020 by either the Company or any “affiliated purchaser,” as defined by Rule 10b-18 of the Exchange Act.

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Item 6. Exhibits.
 
Exhibit No.ExhibitIncorporated by Reference to:
3(i)
Exhibit 3(i) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007
3(ii)
Exhibit 3.1 to the Company’s Current Report on Form 8-K dated May 10, 2016August 14, 2018
10.1

10.2
11
31.1
31.2
32.1
32.2
101.INS101XBRL Instance DocumentThe following unaudited financial information from Werner Enterprises’ Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, formatted in iXBRL (Inline Extensible Business Reporting Language) includes: (i) Consolidated Statements of Income for the three and nine months ended September 30, 2020 and September 30, 2019, (ii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and September 30, 2019, (iii) Consolidated Condensed Balance Sheets as of September 30, 2020 and December 31, 2019, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and September 30, 2019, (v) Consolidated Statements of Stockholders’ Equity for the three months ended September 30, 2020, June 30, 2020, March 31, 2020, September 30, 2019, June 30, 2019, and March 31, 2019, and (vi) the Notes to Consolidated Financial Statements (Unaudited) as of September 30, 2020.Filed herewith
101.SCH104The cover page from this Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, formatted in Inline XBRL Taxonomy Extension Schema Document(included as Exhibit 101).Filed herewith
101.CALXBRL Taxonomy Extension Calculation Linkbase DocumentFiled herewith
101.LABXBRL Taxonomy Extension Label Linkbase DocumentFiled herewith
101.PREXBRL Taxonomy Extension Presentation Linkbase DocumentFiled herewith
101.DEFXBRL Taxonomy Extension Definition Linkbase DocumentFiled herewith
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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, 20175, 2020
By:/s/ John J. Steele
John J. Steele
Executive Vice President, Treasurer and

Chief Financial Officer
Date: November 2, 20175, 2020
By:/s/ James L. Johnson
James L. Johnson
Executive Vice President, Chief Accounting

Officer and Corporate Secretary

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