UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|
| | | | |
[Mark | one] |
ý☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20172021
|
| | | | |
¨☐ | 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)
| | 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 | , | Nebraska | | 68145-0308 |
(Address of principal executive offices) | | (Zip Code) |
(402) (402) 895-6640
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, $0.01 Par Value | | WERN | | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý☒ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
| | | | | | | | | | | | | | | | | | | |
Large accelerated filerAccelerated Filer | | ý☒ | | Accelerated filer | | o ☐ |
Non-accelerated filer | | o (Do not check if a smaller reporting company) ☐ | | Smaller reporting company | | o ☐ |
| | | | Emerging growth company | | o
| | | | ☐ |
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 August 2, 2021, 67,931,873shares of the registrant’s common stock, par value $0.01 per share, were outstanding.
WERNER ENTERPRISES, INC.
INDEX
|
| | | | | | | |
| | PAGE |
| |
Item 1. | | |
| | |
| | |
| | |
| | |
| | |
| | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
| |
Item 2. | | |
Item 6. | | |
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, 20162020 (“20162020 Form 10-K”). 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-monthsix-month periods ended SeptemberJune 30, 2017,2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2021. In the opinion of management, the information set forth in the accompanying consolidated condensed balance sheets is fairly stated in all material respects in relation to the consolidated balance sheets from which it has been derived.
These interim consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and accompanying notes contained in our 20162020 Form 10-K.
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(In thousands, except per share amounts) | 2017 | | 2016 | | 2017 | | 2016 | (In thousands, except per share amounts) | 2021 | | 2020 | | 2021 | | 2020 |
| (Unaudited) | | (Unaudited) | | (Unaudited) |
Operating revenues | $ | 528,643 |
| | $ | 508,676 |
| | $ | 1,549,372 |
| | $ | 1,490,159 |
| Operating revenues | $ | 649,814 | | | $ | 568,959 | | | $ | 1,266,260 | | | $ | 1,161,662 | |
Operating expenses: | | | | | | | | Operating expenses: | | | | | | | |
Salaries, wages and benefits | 170,238 |
| | 162,862 |
| | 500,620 |
| | 479,298 |
| Salaries, wages and benefits | 210,095 | | | 194,981 | | | 414,948 | | | 400,978 | |
Fuel | 50,266 |
| | 40,638 |
| | 140,551 |
| | 112,034 |
| Fuel | 58,503 | | | 30,677 | | | 109,341 | | | 79,448 | |
Supplies and maintenance | 41,986 |
| | 41,027 |
| | 120,276 |
| | 130,559 |
| Supplies and maintenance | 49,414 | | | 43,343 | | | 95,561 | | | 89,064 | |
Taxes and licenses | 21,671 |
| | 21,540 |
| | 64,095 |
| | 64,353 |
| Taxes and licenses | 23,744 | | | 23,953 | | | 46,977 | | | 46,803 | |
Insurance and claims | 20,669 |
| | 19,106 |
| | 60,336 |
| | 59,384 |
| Insurance and claims | 20,739 | | | 25,789 | | | 42,795 | | | 61,853 | |
Depreciation | 53,578 |
| | 51,781 |
| | 162,619 |
| | 152,849 |
| Depreciation | 63,865 | | | 67,670 | | | 127,816 | | | 136,507 | |
Rent and purchased transportation | 126,087 |
| | 133,876 |
| | 377,146 |
| | 379,155 |
| Rent and purchased transportation | 150,920 | | | 120,704 | | | 297,413 | | | 247,146 | |
Communications and utilities | 4,199 |
| | 4,206 |
| | 12,158 |
| | 12,110 |
| Communications and utilities | 3,333 | | | 3,536 | | | 6,355 | | | 7,344 | |
Other | 4,075 |
| | 4,566 |
| | 12,812 |
| | 9,303 |
| Other | (7,662) | | | 5,488 | | | (14,280) | | | 8,635 | |
Total operating expenses | 492,769 |
| | 479,602 |
| | 1,450,613 |
| | 1,399,045 |
| Total operating expenses | 572,951 | | | 516,141 | | | 1,126,926 | | | 1,077,778 | |
Operating income | 35,874 |
| | 29,074 |
| | 98,759 |
| | 91,114 |
| Operating income | 76,863 | | | 52,818 | | | 139,334 | | | 83,884 | |
Other expense (income): | | | | | | | | Other expense (income): | | | | | | | |
Interest expense | 492 |
| | 749 |
| | 1,892 |
| | 1,839 |
| Interest expense | 701 | | | 1,161 | | | 1,539 | | | 2,752 | |
Interest income | (766 | ) | | (1,055 | ) | | (2,556 | ) | | (3,154 | ) | Interest income | (334) | | | (377) | | | (631) | | | (1,003) | |
Gain on equity investment | | Gain on equity investment | (20,191) | | | 0 | | | (20,191) | | | 0 | |
Other | 88 |
| | 46 |
| | 293 |
| | 148 |
| Other | 54 | | | 23 | | | 96 | | | 68 | |
Total other income | (186 | ) | | (260 | ) | | (371 | ) | | (1,167 | ) | |
Total other expense (income) | | Total other expense (income) | (19,770) | | | 807 | | | (19,187) | | | 1,817 | |
Income before income taxes | 36,060 |
| | 29,334 |
| | 99,130 |
| | 92,281 |
| Income before income taxes | 96,633 | | | 52,011 | | | 158,521 | | | 82,067 | |
Income taxes | 13,543 |
| | 10,414 |
| | 37,375 |
| | 34,963 |
| Income taxes | 24,601 | | | 12,879 | | | 39,997 | | | 19,877 | |
Net income | $ | 22,517 |
| | $ | 18,920 |
| | $ | 61,755 |
| | $ | 57,318 |
| Net income | $ | 72,032 | | | $ | 39,132 | | | $ | 118,524 | | | $ | 62,190 | |
Earnings per share: | | | | | | | | Earnings per share: | | | | | | | |
Basic | $ | 0.31 |
| | $ | 0.26 |
| | $ | 0.85 |
| | $ | 0.80 |
| Basic | $ | 1.06 | | | $ | 0.57 | | | $ | 1.74 | | | $ | 0.90 | |
Diluted | $ | 0.31 |
| | $ | 0.26 |
| | $ | 0.85 |
| | $ | 0.79 |
| Diluted | $ | 1.06 | | | $ | 0.56 | | | $ | 1.74 | | | $ | 0.89 | |
Dividends declared per share | $ | 0.070 |
| | $ | 0.060 |
| | $ | 0.200 |
| | $ | 0.180 |
| |
| Weighted-average common shares outstanding: | | | | | | | | Weighted-average common shares outstanding: | | | | | | | |
Basic | 72,298 |
| | 72,058 |
| | 72,239 |
| | 72,043 |
| Basic | 67,926 | | | 69,093 | | | 67,929 | | | 69,173 | |
Diluted | 72,601 |
| | 72,406 |
| | 72,517 |
| | 72,364 |
| Diluted | 68,216 | | | 69,435 | | | 68,237 | | | 69,531 | |
See Notes to Consolidated Financial Statements (Unaudited).
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(In thousands) | 2017 | | 2016 | | 2017 | | 2016 | (In thousands) | 2021 | | 2020 | | 2021 | | 2020 |
| (Unaudited)
| | (Unaudited) | | (Unaudited) |
Net income | $ | 22,517 |
| | $ | 18,920 |
| | $ | 61,755 |
| | $ | 57,318 |
| Net income | $ | 72,032 | | | $ | 39,132 | | | $ | 118,524 | | | $ | 62,190 | |
Other comprehensive income (loss): | | | | | | | | Other comprehensive income (loss): | | | | | | | |
Foreign currency translation adjustments | (627 | ) | | (1,023 | ) | | 3,205 |
| | (3,009 | ) | Foreign currency translation adjustments | 1,865 | | | 929 | | | 297 | | | (8,964) | |
Change in fair value of interest rate swap | 100 |
| | 388 |
| | 334 |
| | (517 | ) | |
Change in fair value of interest rate swaps, net of tax | | Change in fair value of interest rate swaps, net of tax | 360 | | | (623) | | | 1,663 | | | (6,220) | |
Other comprehensive income (loss) | (527 | ) | | (635 | ) | | 3,539 |
| | (3,526 | ) | Other comprehensive income (loss) | 2,225 | | | 306 | | | 1,960 | | | (15,184) | |
Comprehensive income | $ | 21,990 |
| | $ | 18,285 |
| | $ | 65,294 |
| | $ | 53,792 |
| Comprehensive income | $ | 74,257 | | | $ | 39,438 | | | $ | 120,484 | | | $ | 47,006 | |
See Notes to Consolidated Financial Statements (Unaudited).
WERNER ENTERPRISES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
| | (In thousands, except share amounts) | September 30, 2017 | | December 31, 2016 | (In thousands, except share amounts) | June 30, 2021 | | December 31, 2020 |
| (Unaudited) | | | | (Unaudited) | | |
ASSETS | | | | ASSETS | |
Current assets: | | | | Current assets: | |
Cash and cash equivalents | $ | 10,733 |
| | $ | 16,962 |
| Cash and cash equivalents | $ | 192,128 | | | $ | 29,334 | |
Accounts receivable, trade, less allowance of $8,410 and $9,183, respectively | 279,716 |
| | 261,372 |
| |
Accounts receivable, trade, less allowance of $8,988 and $8,686, respectively | | Accounts receivable, trade, less allowance of $8,988 and $8,686, respectively | 391,082 | | | 341,104 | |
Other receivables | 27,028 |
| | 15,168 |
| Other receivables | 25,120 | | | 23,491 | |
Inventories and supplies | 11,624 |
| | 12,768 |
| Inventories and supplies | 11,899 | | | 12,062 | |
Prepaid taxes, licenses and permits | 6,935 |
| | 15,374 |
| Prepaid taxes, licenses and permits | 7,970 | | | 17,231 | |
Income taxes receivable | 6,538 |
| | 21,497 |
| |
Other current assets | 38,898 |
| | 29,987 |
| Other current assets | 38,312 | | | 33,694 | |
Total current assets | 381,472 |
| | 373,128 |
| Total current assets | 666,511 | | | 456,916 | |
Property and equipment | 2,078,229 |
| | 2,109,991 |
| Property and equipment | 2,428,268 | | | 2,405,335 | |
Less – accumulated depreciation | 758,331 |
| | 747,353 |
| Less – accumulated depreciation | 893,453 | | | 862,077 | |
Property and equipment, net | 1,319,898 |
| | 1,362,638 |
| Property and equipment, net | 1,534,815 | | | 1,543,258 | |
Other non-current assets | 61,571 |
| | 57,237 |
| Other non-current assets | 181,541 | | | 156,502 | |
Total assets | $ | 1,762,941 |
| | $ | 1,793,003 |
| Total assets | $ | 2,382,867 | | | $ | 2,156,676 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | | Current liabilities: | |
Checks issued in excess of cash balances | $ | 3,538 |
| | $ | — |
| |
Accounts payable | 72,343 |
| | 66,618 |
| Accounts payable | $ | 94,367 | | | $ | 83,263 | |
Current portion of long-term debt | — |
| | 20,000 |
| Current portion of long-term debt | 5,000 | | | 25,000 | |
Insurance and claims accruals | 84,436 |
| | 83,404 |
| Insurance and claims accruals | 65,321 | | | 76,917 | |
Accrued payroll | 31,029 |
| | 26,189 |
| Accrued payroll | 48,420 | | | 35,594 | |
| Accrued expenses | | Accrued expenses | 25,972 | | | 25,032 | |
Other current liabilities | 22,938 |
| | 18,650 |
| Other current liabilities | 20,107 | | | 28,208 | |
Total current liabilities | 214,284 |
| | 214,861 |
| Total current liabilities | 259,187 | | | 274,014 | |
Long-term debt, net of current portion | 75,000 |
| | 160,000 |
| Long-term debt, net of current portion | 295,000 | | | 175,000 | |
Other long-term liabilities | 14,321 |
| | 16,711 |
| Other long-term liabilities | 42,568 | | | 43,114 | |
Insurance and claims accruals, net of current portion | 107,230 |
| | 113,875 |
| Insurance and claims accruals, net of current portion | 236,270 | | | 231,638 | |
| Deferred income taxes | 301,199 |
| | 292,769 |
| Deferred income taxes | 253,259 | | | 237,870 | |
Commitments and contingencies |
| |
| Commitments and contingencies | 0 | | 0 |
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, respectively | 805 |
| | 805 |
| |
issued; 67,931,873 and 67,931,726 shares outstanding, respectively | | issued; 67,931,873 and 67,931,726 shares outstanding, respectively | 805 | | | 805 | |
Paid-in capital | 103,296 |
| | 101,035 |
| Paid-in capital | 117,069 | | | 116,039 | |
Retained earnings | 1,131,805 |
| | 1,084,796 |
| Retained earnings | 1,542,497 | | | 1,438,916 | |
Accumulated other comprehensive loss | (13,378 | ) | | (16,917 | ) | Accumulated other comprehensive loss | (20,873) | | | (22,833) | |
Treasury stock, at cost; 8,199,060 and 8,366,567 shares, respectively | (171,621 | ) | | (174,932 | ) | |
Treasury stock, at cost; 12,601,663 and 12,601,810 shares, respectively | | Treasury stock, at cost; 12,601,663 and 12,601,810 shares, respectively | (342,915) | | | (337,887) | |
Total stockholders’ equity | 1,050,907 |
| | 994,787 |
| Total stockholders’ equity | 1,296,583 | | | 1,195,040 | |
Total liabilities and stockholders’ equity | $ | 1,762,941 |
| | $ | 1,793,003 |
| Total liabilities and stockholders’ equity | $ | 2,382,867 | | | $ | 2,156,676 | |
See Notes to Consolidated Financial Statements (Unaudited).
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| | | | | | | |
| Nine Months Ended September 30, |
(In thousands) | 2017 | | 2016 |
| (Unaudited) |
Cash flows from operating activities: | | | |
Net income | $ | 61,755 |
| | $ | 57,318 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation | 162,619 |
| | 152,849 |
|
Deferred income taxes | 6,492 |
| | 23,773 |
|
Gain on disposal of property and equipment | (6,031 | ) | | (13,250 | ) |
Non-cash equity compensation | 3,215 |
| | 2,325 |
|
Insurance and claims accruals, net of current portion | (6,645 | ) | | (11,070 | ) |
Other | (8,755 | ) | | (8,500 | ) |
Changes in certain working capital items: | | | |
Accounts receivable, net | (18,344 | ) | | (1,489 | ) |
Other current assets | 15,184 |
| | (11,647 | ) |
Accounts payable | 7,107 |
| | 1,898 |
|
Other current liabilities | 351 |
| | 8,968 |
|
Net cash provided by operating activities | 216,948 |
| | 201,175 |
|
Cash flows from investing activities: | | | |
Additions to property and equipment | (205,874 | ) | | (388,386 | ) |
Proceeds from sales of property and equipment | 84,769 |
| | 94,372 |
|
Issuance of notes receivable | (5,000 | ) |
| — |
|
Decrease in notes receivable | 15,637 |
| | 14,007 |
|
Net cash used in investing activities | (110,468 | ) | | (280,007 | ) |
Cash flows from financing activities: | | | |
Repayments of short-term debt | (45,000 | ) | | (20,000 | ) |
Proceeds from issuance of short-term debt | — |
| | 20,000 |
|
Repayments of long-term debt | (60,000 | ) | | (40,000 | ) |
Proceeds from issuance of long-term debt | — |
| | 115,000 |
|
Change in net checks issued in excess of cash balances | 3,538 |
| | 2,665 |
|
Dividends on common stock | (13,721 | ) | | (12,966 | ) |
Tax withholding related to net share settlements of restricted stock awards | (445 | ) | | (623 | ) |
Stock options exercised | 2,339 |
| | 298 |
|
Excess tax benefits from equity compensation | — |
| | (17 | ) |
Payment of notes payable | — |
| | (3,117 | ) |
Net cash provided by (used in) financing activities | (113,289 | ) | | 61,240 |
|
Effect of exchange rate fluctuations on cash | 580 |
| | (505 | ) |
Net decrease in cash and cash equivalents | (6,229 | ) | | (18,097 | ) |
Cash and cash equivalents, beginning of period | 16,962 |
| | 31,833 |
|
Cash and cash equivalents, end of period | $ | 10,733 |
| | $ | 13,736 |
|
Supplemental disclosures of cash flow information: | | | |
Interest paid | $ | 2,004 |
| | $ | 1,838 |
|
Income taxes paid | 15,819 |
| | 4,257 |
|
Supplemental schedule of non-cash investing activities: | | | |
Notes receivable issued upon sale of property and equipment | $ | 4,058 |
| | $ | 22,952 |
|
Change in fair value of interest rate swap | 334 |
| | (517 | ) |
Property and equipment acquired included in accounts payable | 492 |
| | 821 |
|
Property and equipment disposed included in other receivables | 1,300 |
| | 259 |
|
| | | | | | | | | | | |
| Six Months Ended June 30, |
(In thousands) | 2021 | | 2020 |
| (Unaudited) |
Cash flows from operating activities: | | | |
Net income | $ | 118,524 | | | $ | 62,190 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation | 127,816 | | | 136,507 | |
Deferred income taxes | 15,036 | | | (2,896) | |
Gain on disposal of property and equipment | (24,008) | | | (3,411) | |
Non-cash equity compensation | 5,249 | | | 3,544 | |
Insurance and claims accruals, net of current portion | 4,632 | | | 6,601 | |
Other | 842 | | | 11,036 | |
Gains on investment in equity securities | (20,191) | | | 0 | |
Changes in certain working capital items: | | | |
Accounts receivable, net | (49,978) | | | 23,463 | |
Other current assets | 3,144 | | | 14,515 | |
Accounts payable | 16,639 | | | (1,323) | |
Other current liabilities | (8,241) | | | 37,116 | |
Net cash provided by operating activities | 189,464 | | | 287,342 | |
Cash flows from investing activities: | | | |
Additions to property and equipment | (192,983) | | | (170,235) | |
Proceeds from sales of property and equipment | 90,036 | | | 62,626 | |
Investment in equity securities | (5,000) | | | 0 | |
Decrease in notes receivable | 3,342 | | | 4,392 | |
Net cash used in investing activities | (104,605) | | | (103,217) | |
Cash flows from financing activities: | | | |
Repayments of short-term debt | (25,000) | | | (75,000) | |
Proceeds from issuance of short-term debt | 5,000 | | | 0 | |
Repayments of long-term debt | 0 | | | (50,000) | |
Proceeds from issuance of long-term debt | 120,000 | | | 0 | |
| | | |
Dividends on common stock | (12,906) | | | (12,450) | |
Repurchases of common stock | (5,507) | | | (8,798) | |
Tax withholding related to net share settlements of restricted stock awards | (3,740) | | | (3,935) | |
| | | |
| | | |
Net cash provided by (used in) financing activities | 77,847 | | | (150,183) | |
Effect of exchange rate fluctuations on cash | 88 | | | (1,995) | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 162,794 | | | 31,947 | |
Cash, cash equivalents and restricted cash, beginning of period | 29,334 | | | 33,442 | |
Cash, cash equivalents and restricted cash, end of period | $ | 192,128 | | | $ | 65,389 | |
Supplemental disclosures of cash flow information: | | | |
Interest paid | $ | 1,583 | | | $ | 2,996 | |
Income taxes paid | 40,047 | | | 2,992 | |
Supplemental schedule of non-cash investing and financing activities: | | | |
Notes receivable issued upon sale of property and equipment | $ | 2,646 | | | $ | 1,429 | |
Change in fair value of interest rate swaps | 1,663 | | | (6,220) | |
Property and equipment acquired included in accounts payable | 6,715 | | | 12,090 | |
Property and equipment disposed included in other receivables | 32 | | | 1,982 | |
Dividends accrued but not yet paid at end of period | 8,151 | | | 6,219 | |
| | | |
See Notes to Consolidated Financial Statements (Unaudited).
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except share and per share amounts) | Common Stock | | Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Total Stockholders’ Equity |
| (Unaudited) |
BALANCE, December 31, 2020 | $ | 805 | | | $ | 116,039 | | | $ | 1,438,916 | | | $ | (22,833) | | | $ | (337,887) | | | $ | 1,195,040 | |
Comprehensive income | 0 | | | 0 | | | 46,492 | | | (265) | | | 0 | | | 46,227 | |
Purchases of 130,446 shares of common stock | 0 | | | 0 | | | 0 | | | 0 | | | (5,507) | | | (5,507) | |
Dividends on common stock ($0.10 per share) | 0 | | | 0 | | | (6,792) | | | 0 | | | 0 | | | (6,792) | |
Equity compensation activity, 116,868 shares | 0 | | | (3,953) | | | 0 | | | 0 | | | 213 | | | (3,740) | |
Non-cash equity compensation expense | 0 | | | 2,502 | | | 0 | | | 0 | | | 0 | | | 2,502 | |
BALANCE, March 31, 2021 | 805 | | | 114,588 | | | 1,478,616 | | | (23,098) | | | (343,181) | | | 1,227,730 | |
Comprehensive income | 0 | | | 0 | | 72,032 | | | 2,225 | | | 0 | | | 74,257 | |
Dividends on common stock ($0.12 per share) | 0 | | | 0 | | | (8,151) | | | 0 | | | 0 | | | (8,151) | |
Equity compensation activity, 13,725 shares | 0 | | | (266) | | | 0 | | | 0 | | | 266 | | | 0 | |
Non-cash equity compensation expense | 0 | | | 2,747 | | | 0 | | | 0 | | | 0 | | | 2,747 | |
BALANCE, June 30, 2021 | $ | 805 | | | $ | 117,069 | | | $ | 1,542,497 | | | $ | (20,873) | | | $ | (342,915) | | | $ | 1,296,583 | |
| | | | | | | | | | | |
BALANCE, December 31, 2019 | $ | 805 | | | $ | 112,649 | | | $ | 1,294,608 | | | $ | (14,728) | | | $ | (282,326) | | | $ | 1,111,008 | |
Comprehensive income | 0 | | | 0 | | | 23,058 | | | (15,490) | | | 0 | | | 7,568 | |
Purchases of 282,992 shares of common stock | 0 | | | 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 shares | 0 | | | (4,360) | | | 0 | | | 0 | | | 430 | | | (3,930) | |
Non-cash equity compensation expense | 0 | | | 2,406 | | | 0 | | | 0 | | | 0 | | | 2,406 | |
BALANCE, March 31, 2020 | 805 | | | 110,695 | | | 1,311,448 | | | (30,218) | | | (290,694) | | | 1,102,036 | |
Comprehensive income | 0 | | | 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 shares | 0 | | | (199) | | | 0 | | | 0 | | | 194 | | | (5) | |
Non-cash equity compensation expense | 0 | | | 1,138 | | | 0 | | | 0 | | | 0 | | | 1,138 | |
BALANCE, June 30, 2020 | $ | 805 | | | $ | 111,634 | | | $ | 1,344,361 | | | $ | (29,912) | | | $ | (290,500) | | | $ | 1,136,388 | |
See Notes to Consolidated Financial Statements (Unaudited).
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) Accounting Policies
New Accounting Pronouncements Adopted
In July 2015,December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-11, “Inventory:2019-12, “Income Taxes (Topic 740): Simplifying the Measurement of Inventory,Accounting for Income Taxes,” which requires inventoryreduces complexity in accounting for income taxes by removing certain exceptions to be recorded at the lowergeneral principles stated in Topic 740 and by clarifying and amending existing guidance to improve consistent application of cost and net realizable value (insteadsimplify other areas of lower of cost or market).Topic 740. The Company adopted ASU No. 2015-112019-12 as of January 1, 2017.2021. Upon adoption, this update had no effect on our consolidated financial position, results of operations orand cash flows.
Accounting Standards Updates Not Yet Effective
In March 2016,2020, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation: Improvements2020-04, “Reference Rate Reform (Topic 848)” which provides optional guidance for a limited period of time to Employee Share-Based Payment Accounting,”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 simplify several aspectscontracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. We are evaluating the impact of the accounting for share-based payment transactions. The newoptional expedients in this update requires excess tax benefits and tax deficienciestheir applicability to modifications of our existing credit facilities and hedging relationships that reference LIBOR.
(2) Revenue
Revenue Recognition
Revenues are recognized over time as control of the promised services is transferred to our customers, in an amount that reflects the consideration we expect to be recordedentitled to in exchange for those services.
The following table presents our revenues disaggregated by revenue source (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Truckload Transportation Services | $ | 491,200 | | | $ | 445,053 | | | $ | 954,149 | | | $ | 909,916 | |
Werner Logistics | 141,673 | | | 110,163 | | | 279,526 | | | 222,327 | |
Inter-segment eliminations | (193) | | | (14) | | | (327) | | | (25) | |
Transportation services | 632,680 | | | 555,202 | | | 1,233,348 | | | 1,132,218 | |
Other revenues | 17,134 | | | 13,757 | | | 32,912 | | | 29,444 | |
Total revenues | $ | 649,814 | | | $ | 568,959 | | | $ | 1,266,260 | | | $ | 1,161,662 | |
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 June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
United States | $ | 602,146 | | | $ | 516,425 | | | 1,157,385 | | | 1,046,496 | |
Mexico | 39,325 | | | 31,045 | | | 78,081 | | | 74,466 | |
Other | 8,343 | | | 21,489 | | | 30,794 | | | 40,700 | |
Total revenues | $ | 649,814 | | | $ | 568,959 | | | $ | 1,266,260 | | | $ | 1,161,662 | |
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 June 30, 2021 and December 31, 2020, the accounts receivable, trade, net, balance was$391.1 million and $341.1 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 June 30, 2021 and December 31, 2020, the balance of contract assets was $8.9 million and $6.9 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 $2.0 million as of June 30, 2021 and $1.5 million as of December 31, 2020. The amount of revenues recognized in the six months ended June 30, 2021 that was included in the December 31, 2020 contract liability balance was $1.5 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 six months ended June 30, 2021 and June 30, 2020, revenues recognized from performance obligations related to prior periods (for example, due to changes in transaction price) were not material.
(3) Leases
We have entered into operating leases primarily for real estate. The leases have terms which range from 1 year to 11 years, and some include options to renew. Renewal terms are included in the lease term when it is reasonably certain that we will exercise the option to renew.
Operating leases are included in other non-current assets, other current liabilities and other long-term liabilities on the consolidated 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. 2016-09following table presents information about the amount, timing and uncertainty of cash flows arising from our operating leases as of June 30, 2021.
| | | | | |
(In thousands) | June 30, 2021 |
Maturity of Lease Liabilities | |
2021 (remaining) | $ | 1,888 | |
2022 | 3,150 | |
2023 | 2,261 | |
2024 | 1,864 | |
2025 | 1,333 | |
Thereafter | 640 | |
Total undiscounted operating lease payments | $ | 11,136 | |
Less: Imputed interest | (656) | |
Present value of operating lease liabilities | $ | 10,480 | |
| |
Balance Sheet Classification | |
Right-of-use assets (recorded in other non-current assets) | $ | 9,977 | |
| |
Current lease liabilities (recorded in other current liabilities) | $ | 3,360 | |
Long-term lease liabilities (recorded in other long-term liabilities) | 7,120 | |
Total operating lease liabilities | $ | 10,480 | |
| |
Other Information | |
Weighted-average remaining lease term for operating leases | 3.85 years |
Weighted-average discount rate for operating leases | 3.18 | % |
Cash Flows
During the six months ended June 30, 2021 and June 30, 2020, right-of-use assets of $2.1 million and $1.5 million, respectively, were recognized as non-cash asset additions that resulted from new operating lease liabilities. Cash paid for amounts included in the present value of operating lease liabilities was $1.9 million and $2.1 million for the six months ended June 30, 2021 and June 30, 2020, respectively, and is included in operating cash flows.
Operating Lease Expense
Operating lease expense was $3.5 million and $7.1 million for the three and six months ended June 30, 2021, respectively, and $2.1 million and $4.1 million for the three and six months ended June 30, 2020, respectively. This expense included $1.0 million and $2.0 million for the three and six months ended June 30, 2021, respectively, and $0.9 million and $1.9 million for the three and six months ended June 30, 2020, 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 straight-line basis over the term of the lease. Revenues were $3.0 million and $6.1 million for the three and six months ended June 30, 2021, respectively, and $3.0 million and $6.3 million for the three and six months ended June 30, 2020, respectively. The following table presents information about the maturities of these operating leases as of June 30, 2021.
| | | | | |
(In thousands) | June 30, 2021 |
2021 (remaining) | $ | 5,788 | |
2022 | 3,656 | |
2023 | 0 | |
2024 | 0 | |
2025 | 0 | |
Thereafter | 0 | |
Total | $ | 9,444 | |
(4) Investments
Investment in Mastery Logistics Systems, Inc.
In 2020, we entered into a strategic partnership with Mastery Logistics Systems, Inc. (“MLSI”), a transportation technology development company. We are collaborating with MLSI to develop a cloud-based transportation management system using MLSI's SaaS technology which we have agreed to license. In 2020, we paid MLSI $5.0 million for shares of preferred stock of MLSI which represent approximately 5% ownership. This investment is being accounted for under ASC 321, Investments - Equity Securities and is recorded in other noncurrent assets on the consolidated balance sheet. As of June 30, 2021, no events have occurred that would indicate that the value of our investment in MLSI has changed.
Investment in TuSimple
On January 1, 2017.8, 2021, we made a $5.0 million equity investment in TuSimple, an autonomous technology company. Upon adoption, share-based payment excess tax benefitscompletion of TuSimple’s initial public offering in April 2021, our equity investment was converted to Class A common shares. Our interest, which represents an ownership percentage of less than 1%, is being accounted for under ASC 321, Investments - Equity Securities and tax deficiencies are recognizedis recorded in other noncurrent assets on the consolidated balance sheet. We record changes in the value of our investment, based on the share price reported by Nasdaq, in other expense (income) on the consolidated statements of income asincome. In the three and six months ended June 30, 2021, we recognized a component$20.2 million unrealized gain on our investment. As of income tax expense, rather than additional paid-in capital as previously recognized.June 30, 2021, the fair value of our investment was $25.2 million.
(5) Credit Facilities
On June 30, 2021, we amended our existing credit agreement, dated May 14, 2019, with BMO Harris Bank N.A. The Company electedamendment added an unsecured fixed-rate term loan commitment not to report excess tax benefits as operating activities in the consolidated statements of cash flows onexceed a prospective basis, and prior period amounts have not been adjusted. The Company also elected to use actual forfeitures to determine theprincipal amount of share-based compensation expense$100.0 million and increased our borrowing capacity with BMO Harris Bank N.A. from $200.0 million to be recognized. This change was applied on$300.0 million. The outstanding principal balance of the term loan shall bear interest at a modified retrospective basis and resulted in a $0.3 million decrease to retained earnings in first quarter 2017.fixed rate of 1.28%.
(2) Credit Facilities
As of SeptemberJune 30, 2017,2021, we had unsecured committed credit facilities with threetwo banks, as well as athe new term loan commitment described above with one of these banks. We had with Wells Fargo Bank, N.A., a $100.0$300.0 million credit facility which will expire on July 12, 2020, and 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, 2020.May 14, 2024, and a $100.0 million term loan with quarterly principal payments of $1.25 million beginning September 30, 2021 and a final payment of principal and interest due and payable on May 14, 2024. Borrowings under these credit facilities and term note bear variable interest based on the London Interbank Offered Rate (“LIBOR”)., and the term loan has a fixed interest rate.
As of SeptemberJune 30, 2017,2021 and December 31, 2016,2020, our outstanding debt totaled $75.0$300.0 million and $180.0$200.0 million, respectively. Under the credit facilities as of June 30, 2021, we had $50.0 million outstanding at a weighted average variable interest rate of 0.77% and $100.0 million outstanding at a fixed interest rate of 1.28%. We had (i) an additional $75.0 million outstanding under the term commitmentWells Fargo Bank, N.A. credit facility at a variable rate of 1.83%0.76% as of SeptemberJune 30, 2017,2021, which is effectively fixed at 2.5%2.32% with an interest rate swap agreement.agreement through May 14, 2024 and (ii) an additional $75.0 million outstanding under the BMO Harris Bank N.A. credit facility at a variable rate of 0.79% as of June 30, 2021, which is effectively fixed at 2.36% with an interest rate swap agreement through May 14, 2024. The $325.0$600.0 million of borrowing capacity under our credit facilitiesarrangements at SeptemberJune 30, 2017,2021, is further reduced by $28.7by $50.9 million in stand-by letters of credit under which we are obligated. Each of the debt agreements includes, among other things, financial covenants requiring us (i) not to exceed a maximumminimum ratio of total debt
earnings 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 SeptemberJune 30, 2017,2021, we were in compliance with these covenants.
At SeptemberJune 30, 2017,2021, the aggregate future maturities of long-term debt by year are as follows (in thousands):
| | | | | |
2021 | $ | 2,500 | |
2022 | 5,000 | |
2023 | 5,000 | |
2024 | 287,500 | |
2025 | 0 | |
Total | $ | 300,000 | |
|
| | | |
2017 | $ | — |
|
2018 | — |
|
2019 | 75,000 |
|
2020 | — |
|
2021 | — |
|
Total | $ | 75,000 |
|
The carrying amounts of our long-term debt approximate fair value due to the duration of the notes and the variable interest rates.
(3) Income Taxes
We accrued interest expense of $39 thousand and $58 thousand during the three-month periods ended September 30, 2017 and September 30, 2016, respectively, and $142 thousand and $185 thousand during the nine-month periods ended September 30,
2017 and September 30, 2016, respectively, excluding the reversal of accrued interest related to adjustments for the remeasurement of uncertain tax positions. Our total gross liability for unrecognized tax benefits at September 30, 2017 is $4.1 million. If recognized, $2.7 million of unrecognized tax benefits would impact our effective tax rate. Interest of $0.8 million has been reflected as a component of the total liability. We expect no significant increases or decreases for uncertain tax positions during the next twelve months.
We file U.S. federal income tax returns, as well as income tax returns in various states and several foreign jurisdictions. The years 2014 through 2016 are open for examination by the Internal Revenue Service (“IRS”), and various years are open for examination by state and foreign tax authorities. State and foreign jurisdictional statutes of limitations generally range from three to four years.
(4)(6) Commitments and Contingencies
As of SeptemberJune 30, 2017,2021, we have committed to property and equipment purchases of approximately $95.2 million.$269.8 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 $26.2 million as of June 30, 2021, and $23.6 million as of December 31, 2020. Under the terms of the Company’s insurance policies, the Company is the primary obligor of the verdict, and as such, the Company has also recorded a $79.2 million receivable from its third-party insurance providers in other non-current assets and a corresponding liability of the same amount in the long-term portion of insurance and claims accruals in the consolidated balance sheets as of June 30, 2021 and December 31, 2020.
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 Septembervarious post-trial motions, the court awarded $0.5 million to the plaintiffs for attorney fees and costs. Plaintiffs appealed the post-verdict amounts awarded by the trial court for fees, costs and liquidated damages, and the Company filed a cross appeal on the verdict that was in plaintiffs’ favor. The United States Court of Appeals for the Eighth Circuit denied Plaintiffs’ appeal and granted Werner’s appeal, vacating the judgment in favor of the plaintiffs. The appellate court sent the case back to the trial court for proceedings consistent with the appellate court’s opinion. On June 22, 2020, the trial court denied Plaintiffs’ request for a new trial and entered judgment in favor of the Company, dismissing the case with prejudice. On July 21, 2020, Plaintiffs’ counsel filed a notice of appeal of that dismissal. As of June 30, 2017,2021, we had accrued
have an accrual for the jury’s award, attorney fees and costs in the short break matter and had not accrued for the sleeper berth matter.
We are also involved in certain class action litigation in which the plaintiffs allege claims for failure to provide meal and rest breaks, unpaid wages, unauthorized deductions and other items. Based on the knowledge of the facts, management does not currently believe the outcome of these class actions is likely to have a material adverse effect on our financial position or results of operations. However, the final disposition of these matters and the impact of such final dispositions cannot be determined at this time.
(5)(7) 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. Performance awards are excluded from the calculation of dilutive potential common shares until the threshold performance conditions have been satisfied. 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 June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Net income | $ | 72,032 | | | $ | 39,132 | | | $ | 118,524 | | | $ | 62,190 | |
Weighted average common shares outstanding | 67,926 | | | 69,093 | | | 67,929 | | | 69,173 | |
Dilutive effect of stock-based awards | 290 | | | 342 | | | 308 | | | 358 | |
Shares used in computing diluted earnings per share | 68,216 | | | 69,435 | | | 68,237 | | | 69,531 | |
Basic earnings per share | $ | 1.06 | | | $ | 0.57 | | | $ | 1.74 | | | $ | 0.90 | |
Diluted earnings per share | $ | 1.06 | | | $ | 0.56 | | | $ | 1.74 | | | $ | 0.89 | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income | $ | 22,517 |
| | $ | 18,920 |
| | $ | 61,755 |
| | $ | 57,318 |
|
Weighted average common shares outstanding | 72,298 |
| | 72,058 |
| | 72,239 |
| | 72,043 |
|
Dilutive effect of stock-based awards | 303 |
| | 348 |
| | 278 |
| | 321 |
|
Shares used in computing diluted earnings per share | 72,601 |
| | 72,406 |
| | 72,517 |
| | 72,364 |
|
Basic earnings per share | $ | 0.31 |
| | $ | 0.26 |
| | $ | 0.85 |
| | $ | 0.80 |
|
Diluted earnings per share | $ | 0.31 |
| | $ | 0.26 |
| | $ | 0.85 |
| | $ | 0.79 |
|
There were no options to purchase shares of common stock that were outstanding during the periods indicated above that were excluded from the computation of diluted earnings per share because the option purchase price was greater than the average market
price of the common shares during the period. Performance awards are excluded from the calculation of dilutive potential common shares until the threshold performance conditions have been satisfied.
6)(8) Equity Compensation
The Werner Enterprises, Inc. Amended and Restated Equity Plan (the “Equity Plan”), approved by the Company’s shareholders in 2013, provides for grants to employees and non-employee directors of the Company in the form of nonqualified stock options, restricted stock and units (“restricted awards”), performance awards, and stock appreciation rights. The Board of Directors or the Compensation Committee of our Board of Directors determines the terms of each award, including the type, recipients, number of shares subject to and vesting conditions of each award. No awards of stock appreciation rights have been issued under the Equity Plan to date.date, and no stock option awards are outstanding. The maximum number of shares of common stock that may be awarded under the Equity Plan is 20,000,000 shares. The maximum aggregate number of shares that may be awarded to any one person in any one calendar year under the Equity Plan is 500,000. As of SeptemberJune 30, 2017,2021, there were 7,346,3156,534,087 shares available for granting additional awards.
Equity compensation expense is included in salaries, wages and benefits within the Consolidated Statements of Income. As of SeptemberJune 30, 2017,2021, the total unrecognized compensation cost related to non-vested equity compensation awards was approximately $6.1$15.7 million and is expected to be recognized over a weighted average period of 2.21.9 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 June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Restricted awards: | | | | | | | |
Pre-tax compensation expense | $ | 1,538 | | | $ | 1,090 | | | 3,087 | | | 2,488 | |
Tax benefit | 392 | | | 278 | | | 787 | | | 634 | |
Restricted stock expense, net of tax | $ | 1,146 | | | $ | 812 | | | 2,300 | | | 1,854 | |
Performance awards: | | | | | | | |
Pre-tax compensation expense | $ | 1,209 | | | $ | 53 | | | 2,155 | | | 1,063 | |
Tax benefit | 309 | | | 13 | | | 550 | | | 271 | |
Performance award expense, net of tax | $ | 900 | | | $ | 40 | | | 1,605 | | | 792 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Stock options: | | | | | | | |
Pre-tax compensation expense | $ | 2 |
| | $ | 5 |
| | $ | 5 |
| | $ | 14 |
|
Tax benefit | 1 |
| | 2 |
| | 2 |
| | 6 |
|
Stock option expense, net of tax | $ | 1 |
| | $ | 3 |
| | $ | 3 |
| | $ | 8 |
|
Restricted awards: | | | | |
| |
|
Pre-tax compensation expense | $ | 941 |
| | $ | 813 |
| | $ | 2,440 |
| | $ | 1,743 |
|
Tax benefit | 367 |
| | 317 |
| | 952 |
| | 680 |
|
Restricted stock expense, net of tax | $ | 574 |
| | $ | 496 |
| | $ | 1,488 |
| | $ | 1,063 |
|
Performance awards: | | | | |
| |
|
Pre-tax compensation expense | $ | 308 |
| | $ | 517 |
| | $ | 897 |
| | $ | 628 |
|
Tax benefit | 120 |
| | 202 |
| | 350 |
| | 245 |
|
Performance award expense, net of tax | $ | 188 |
| | $ | 315 |
| | $ | 547 |
| | $ | 383 |
|
During the nine-month period ended September 30, 2016, we recorded a $1.8 million reduction in compensation expense and a $0.7 million reduction of tax benefit resulting from a change in forfeiture estimates for certain restricted and performance awards, most of which relate to a previously disclosed executive retirement that occurred in February 2016.
We do not have a formal policy for issuing shares upon an exercise of stock options or vesting of restricted and performance awards. Such shares are generally issued from treasury stock. From time to time, we repurchase shares of our common stock, the timing and amount of which depends on market and other factors. Historically, the shares acquired from such repurchases have provided us with sufficient quantities of stock to issue for equity compensation. Based on current treasury stock levels, we do not expect to repurchase additional shares specifically for equity compensation during 2017.2021.
Stock Options
Stock options are granted at prices equal to the market value of the common stock on the date the option award is granted. Option awards currently outstanding become exercisable in installments from 24 to 72 months after the date of grant. The options are exercisable over a period not to exceed ten years, one day from the date of grant. The following table summarizes stock option activity for the nine months ended September 30, 2017:
|
| | | | | | | | | | | | |
| Number of Options (in thousands) | | Weighted Average Exercise Price ($) | | Weighted Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value (in thousands) |
Outstanding at beginning of period | 171 |
| | $ | 18.19 |
| |
| |
|
Granted | — |
| | — |
| |
| |
|
Exercised | (132 | ) | | 17.72 |
| |
| |
|
Forfeited | — |
| | — |
| |
| |
|
Expired | — |
| | — |
| |
| |
|
Outstanding at end of period | 39 |
| | 19.80 |
| | 2.53 | | $ | 651 |
|
Exercisable at end of period | 34 |
| | 19.45 |
| | 2.30 | | $ | 584 |
|
We did not grant any stock options during the nine-month periods ended September 30, 2017 and September 30, 2016. The fair value of stock option grants is estimated using a Black-Scholes valuation model. The total intrinsic value of stock options exercised was $1.6 million and $95 thousand for the nine-month periods ended September 30, 2017 and September 30, 2016, respectively.
Restricted Awards
Restricted stock entitles the holder to shares of common stock when the award vests. Restricted stock units entitle the holder to a combination of cash or stock equal to the value of common stock when the unit vests. The value of these shares may fluctuate according to market conditions and other factors. Restricted awards currently outstanding vest over periods ranging from 12 to 8460 months from the grant date of the award. The restricted awards do not confer any voting or dividend rights to recipients until such shares vest and do not have any post-vesting sales restrictions.
The following table summarizes restricted award activity for the ninesix months ended SeptemberJune 30, 2017:2021:
| | | | | | | | | | | |
| Number of Restricted Awards (in thousands) | | Weighted Average Grant Date Fair Value ($) |
Nonvested at beginning of period | 367 | | | $ | 35.78 | |
Granted | 127 | | | 41.89 | |
Vested | (121) | | | 34.98 | |
Forfeited | (11) | | | 36.84 | |
Nonvested at end of period | 362 | | | 38.16 | |
|
| | | | | | |
| Number of Restricted Awards (in thousands) | | Weighted Average Grant Date Fair Value ($) |
Nonvested at beginning of period | 293 |
| | $ | 25.98 |
|
Granted | 81 |
| | 26.90 |
|
Vested | (16 | ) | | 24.34 |
|
Forfeited | (10 | ) | | 26.87 |
|
Nonvested at end of period | 348 |
| | 26.24 |
|
We estimate the fair value of restricted awards based upon the market price of the underlying common stock on the date of grant, reduced by the present value of estimated future dividends because the awards are not entitled to receive dividends prior to vesting. Our estimate of future dividends is based on the most recent quarterly dividend rate at the time of grant, adjusted for any known future changes in the dividend rate. Cash settled restricted stock units are recorded as a liability within the Consolidated Balance Sheets and are adjusted to fair value each reporting period.
The total fair value of previously granted restricted awards vested during the nine-month periodsix-month periods ended SeptemberJune 30, 20172021 and June 30, 2020 was $0.5$5.1 million and for the nine-month period ended September 30, 2016 was $0.3 million. When restricted awards vest, we withhold$3.4 million, respectively. We withheld shares based on the closing stock price on the vesting date to settle the employees’ statutory obligation for the applicable income and other employment taxes. The shares withheld to satisfy the tax withholding obligations arewere recorded as treasury stock.
Performance Awards
Performance awards entitle the recipient to shares of common stock upon attainment of performance objectives as pre-established by the Compensation Committee. If the performance objectives are achieved, performance awards currently outstanding vest, subject to continued employment, over periods ranging from 12 to 6036 months fromafter the grant date of the award. The performance awards do not confer any voting or dividend rights to recipients until such shares vest and do not have any post-vesting sales restrictions.
The following table summarizes performance award activity for the ninesix months ended SeptemberJune 30, 2017:2021:
| | | | | | | | | | | |
| Number of Performance Awards (in thousands) | | Weighted Average Grant Date Fair Value ($) |
Nonvested at beginning of period | 262 | | | $ | 32.96 | |
Granted | 74 | | | 40.93 | |
Vested | (100) | | | 33.04 | |
Forfeited | 0 | | | 0 | |
Nonvested at end of period | 236 | | | 34.61 | |
|
| | | | | | |
| Number of Performance Awards (in thousands) | | Weighted Average Grant Date Fair Value ($) |
Nonvested at beginning of period | 124 |
| | $ | 27.33 |
|
Granted | 69 |
| | 26.89 |
|
Vested | (35 | ) | | 27.07 |
|
Forfeited | — |
| | — |
|
Nonvested at end of period | 158 |
| | 27.20 |
|
The 20172021 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, 20172021 to December 31, 2018.2022. Shares earned based on cumulative diluted earnings per share may be capped based on absolutethe Company’s total shareholder return during the three-year period ended December 31, 2019.2023, relative to the total shareholder return of a peer group of companies for the same period. The 20172021 performance awards will vest in one installment on the third anniversary from the grant date. In February 2017,January 2021, the Compensation Committee determined the 20162018 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.2020 shares granted.
We estimate the fair value of performance awards based upon the market price of the underlying common stock on the date of grant, reduced by the present value of estimated future dividends because the awards are not entitled to receive dividends prior to vesting. Our estimate of future dividends is based on the most recent quarterly dividend rate at the time of grant, adjusted for any known future changes in the dividend rate.
The vesting date fair value of performance awards that vested during the nine-monthsix-month periods ended SeptemberJune 30, 20172021 and SeptemberJune 30, 20162020 was $1.0$4.1 million and $1.6$5.8 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)(9) 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 fivethree operating units that provide non-trucking services to our customers. These fivethree 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) 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)(iii) Werner Final Mile (“Final Mile”) offers home and business deliveries of large or heavy items using third-party agents with two associates operating a liftgate straight truck. In first quarter 2021, we completed the previously-announced sale of the Werner Global Logistics (“WGL”) freight forwarding services for international ocean and air shipments to Scan Global Logistics Group, and we realized a $1.0 million gain when the transaction closed on February 26, 2021. Werner Logistics will continue to provide North American truck brokerage, freight management, intermodal and final mile services.
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”���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 June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Revenues | | | | | | | |
Truckload Transportation Services | $ | 491,200 | | | $ | 445,053 | | | $ | 954,149 | | | $ | 909,916 | |
Werner Logistics | 141,673 | | | 110,163 | | | 279,526 | | | 222,327 | |
Other | 16,725 | | | 13,315 | | | 32,124 | | | 28,383 | |
Corporate | 409 | | | 442 | | | 788 | | | 1,061 | |
Subtotal | 650,007 | | | 568,973 | | | 1,266,587 | | | 1,161,687 | |
Inter-segment eliminations | (193) | | | (14) | | | $ | (327) | | | $ | (25) | |
Total | $ | 649,814 | | | $ | 568,959 | | | $ | 1,266,260 | | | $ | 1,161,662 | |
| | | | | | | |
Operating Income | | | | | | | |
Truckload Transportation Services | $ | 73,108 | | | $ | 51,225 | | | $ | 130,736 | | | $ | 80,314 | |
Werner Logistics | 3,927 | | | 3,139 | | | 8,501 | | | 4,224 | |
Other | 1,663 | | | (534) | | | 2,529 | | | 2,366 | |
Corporate | (1,835) | | | (1,012) | | | (2,432) | | | (3,020) | |
Total | $ | 76,863 | | | $ | 52,818 | | | $ | 139,334 | | | $ | 83,884 | |
(10) Subsequent Event
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenues | | | | | | | |
Truckload Transportation Services | $ | 407,566 |
| | $ | 384,312 |
| | $ | 1,196,071 |
| | $ | 1,136,478 |
|
Werner Logistics | 104,568 |
| | 109,459 |
| | 305,225 |
| | 310,001 |
|
Other | 16,020 |
| | 14,804 |
| | 47,257 |
| | 43,148 |
|
Corporate | 593 |
| | 313 |
| | 1,539 |
| | 1,300 |
|
Subtotal | 528,747 |
| | 508,888 |
| | 1,550,092 |
| | 1,490,927 |
|
Inter-segment eliminations | (104 | ) | | (212 | ) | | (720 | ) | | (768 | ) |
Total | $ | 528,643 |
| | $ | 508,676 |
| | $ | 1,549,372 |
| | $ | 1,490,159 |
|
| | | | |
| | |
Operating Income | | | | |
| | |
Truckload Transportation Services | $ | 34,009 |
| | $ | 19,846 |
| | $ | 93,511 |
| | $ | 74,971 |
|
Werner Logistics | 1,318 |
| | 4,894 |
| | 6,652 |
| | 16,502 |
|
Other | 1,001 |
| | (1,191 | ) | | 605 |
| | (4,964 | ) |
Corporate | (454 | ) | | 5,525 |
| | (2,009 | ) | | 4,605 |
|
Total | $ | 35,874 |
| | $ | 29,074 |
| | $ | 98,759 |
| | $ | 91,114 |
|
(8) Derivative Financial Instrument
InOn July 1, 2021, we acquired an 80% equity ownership interest in ECM Transport Group (“ECM”) for a cash purchase price of $142.4 million, with an exclusive option to purchase the normal courseremaining 20% after a period of business wefive years. ECM consists of ECM Transport and Motor Carrier Service, which 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 lossregional truckload carriers that operate in the event of non-performance by the counterparty. We do not use derivative instruments for trading or speculative purposesMid-Atlantic, Ohio and have no derivative financial instruments to reduce our exposure to fuel price fluctuations.
Our objective in managing exposure to interest rate risk is to limit the impact on earnings and cash flow. The extent to which we use such instruments is dependent on our access to these contracts in the financial markets and our success using other methods.
Our outstanding derivative financial instrument is recognized as an other long-term liability in the Consolidated Balance Sheets at fair value. The interest rate swap is accounted for as a cash flow hedging instrument. At inception, we formally designated and documented the financial instrument as a hedge of a specific underlying exposure, the risk management objective, and the manner in which effectivenessNortheast regions 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 flowsUnited States.
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•ECM Acquisition
•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 20162020 Form 10-K.
ECM Acquisition:
On July 1, 2021, Werner acquired an 80% equity ownership interest in ECM Transport Group (“ECM”) for a cash purchase price of $142.4 million. ECM achieved revenues of $108 million in 2020 with an operating margin 19.8%. ECM consists of ECM Transport and Motor Carrier Service (MCS), which are regional truckload carriers that together operate nearly 500 trucks and 2,000 trailers in the Mid-Atlantic, Ohio and Northeast regions of the U.S. with low driver turnover. Future revenues generated by ECM and MCS will be reported in One-Way Truckload within our TTS segment.
Werner financed the transaction through a combination of cash on hand, existing credit facilities and a new $100.0 million fixed-rate term loan maturing in May 2024 with BMO Harris Bank N.A., one of Werner’s two lead banks. The remaining 20% ownership interest in ECM will be retained by Ed Meier, founder and President of ECM. Werner Enterprises retains an exclusive option to buy the remaining 20% of ECM Transport Group after a period of five years.
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 globalNorth American 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, weWe 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 thirdsecond quarter 20172021 to thirdsecond quarter 2016,2020, several industry-wide issues have caused, and could continue to cause, costs to increase in future periods. These issues include shortages of drivers or independent contractors, changing fuel prices, higher new truck and trailer purchase prices and compliance with new or proposed regulations.regulations and tightening of the commercial truck liability insurance market. Our main fixed costs include depreciation expense for tractors and trailers and equipment licensing fees (included in taxes and licenses 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 fivethree operating units within our Werner Logistics segment (Brokerage, Freight Management,(Truckload Logistics, Intermodal, Werner Global Logistics international and Final Mile). In first quarter 2021, we completed the previously-announced sale of the WGL freight forwarding services for international ocean and air shipments to Scan Global Logistics Group. WGL had annual revenues of $53 million in 2020, and we realized a $1.0 million gain from the sale in first quarter 2021. 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. 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). Over half of our office associates continue working from home.
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, enabled us to more effectively manage through the difficult economic environment created by the pandemic. While there remain significant uncertainties related to COVID-19 and its effect on the economy, we believe that demand for our services will continue to be strong during the remainder of 2021.
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) June 30, | | Six Months Ended (6ME) June 30, | | Percentage Change in Dollar Amounts |
| 2021 | | 2020 | | 2021 | | 2020 | | 3ME | 6ME |
(Amounts in thousands) | $ | % | | $ | % | | $ | % | | $ | % | | % | % |
Operating revenues | $ | 649,814 | | 100.0 | | | $ | 568,959 | | 100.0 | | | $ | 1,266,260 | | 100.0 | | | $ | 1,161,662 | | 100.0 | | | 14.2 | | 9.0 | |
| | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | |
Salaries, wages and benefits | 210,095 | | 32.4 | | | 194,981 | | 34.3 | | | 414,948 | | 32.8 | | | 400,978 | | 34.5 | | | 7.8 | | 3.5 | |
Fuel | 58,503 | | 9.0 | | | 30,677 | | 5.4 | | | 109,341 | | 8.6 | | | 79,448 | | 6.8 | | | 90.7 | | 37.6 | |
Supplies and maintenance | 49,414 | | 7.6 | | | 43,343 | | 7.6 | | | 95,561 | | 7.5 | | | 89,064 | | 7.7 | | | 14.0 | | 7.3 | |
Taxes and licenses | 23,744 | | 3.7 | | | 23,953 | | 4.2 | | | 46,977 | | 3.7 | | | 46,803 | | 4.0 | | | (0.9) | | 0.4 | |
Insurance and claims | 20,739 | | 3.2 | | | 25,789 | | 4.5 | | | 42,795 | | 3.4 | | | 61,853 | | 5.3 | | | (19.6) | | (30.8) | |
Depreciation | 63,865 | | 9.8 | | | 67,670 | | 11.9 | | | 127,816 | | 10.1 | | | 136,507 | | 11.8 | | | (5.6) | | (6.4) | |
Rent and purchased transportation | 150,920 | | 23.2 | | | 120,704 | | 21.2 | | | 297,413 | | 23.5 | | | 247,146 | | 21.3 | | | 25.0 | | 20.3 | |
Communications and utilities | 3,333 | | 0.5 | | | 3,536 | | 0.6 | | | 6,355 | | 0.5 | | | 7,344 | | 0.6 | | | (5.7) | | (13.5) | |
Other | (7,662) | | (1.2) | | | 5,488 | | 1.0 | | | (14,280) | | (1.1) | | | 8,635 | | 0.8 | | | (239.6) | | (265.4) | |
Total operating expenses | 572,951 | | 88.2 | | | 516,141 | | 90.7 | | | 1,126,926 | | 89.0 | | | 1,077,778 | | 92.8 | | | 11.0 | | 4.6 | |
| | | | | | | | | | | | | | |
Operating income | 76,863 | | 11.8 | | | 52,818 | | 9.3 | | | 139,334 | | 11.0 | | | 83,884 | | 7.2 | | | 45.5 | | 66.1 | |
Total other expense (income) | (19,770) | | (3.1) | | | 807 | | 0.1 | | | (19,187) | | (1.5) | | | 1,817 | | 0.1 | | | (2,549.8) | | (1,156.0) | |
Income before income taxes | 96,633 | | 14.9 | | | 52,011 | | 9.2 | | | 158,521 | | 12.5 | | | 82,067 | | 7.1 | | | 85.8 | | 93.2 | |
Income taxes | 24,601 | | 3.8 | | | 12,879 | | 2.3 | | | 39,997 | | 3.1 | | | 19,877 | | 1.7 | | | 91.0 | | 101.2 | |
Net income | $ | 72,032 | | 11.1 | | | $ | 39,132 | | 6.9 | | | $ | 118,524 | | 9.4 | | | $ | 62,190 | | 5.4 | | | 84.1 | | 90.6 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended (3ME) September 30, | | Nine Months Ended (9ME) September 30, | | Percentage Change in Dollar Amounts |
| 2017 | | 2016 | | 2017 | | 2016 | | 3ME | 9ME |
(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 benefits | 170,238 |
| 32.2 |
| | 162,862 |
| 32.0 |
| | 500,620 |
| 32.3 |
| | 479,298 |
| 32.2 |
| | 4.5 | % | 4.4 | % |
Fuel | 50,266 |
| 9.5 |
| | 40,638 |
| 8.0 |
| | 140,551 |
| 9.1 |
| | 112,034 |
| 7.5 |
| | 23.7 | % | 25.5 | % |
Supplies and maintenance | 41,986 |
| 7.9 |
| | 41,027 |
| 8.1 |
| | 120,276 |
| 7.8 |
| | 130,559 |
| 8.8 |
| | 2.3 | % | (7.9 | )% |
Taxes and licenses | 21,671 |
| 4.1 |
| | 21,540 |
| 4.2 |
| | 64,095 |
| 4.1 |
| | 64,353 |
| 4.3 |
| | 0.6 | % | (0.4 | )% |
Insurance and claims | 20,669 |
| 3.9 |
| | 19,106 |
| 3.8 |
| | 60,336 |
| 3.9 |
| | 59,384 |
| 4.0 |
| | 8.2 | % | 1.6 | % |
Depreciation | 53,578 |
| 10.1 |
| | 51,781 |
| 10.2 |
| | 162,619 |
| 10.5 |
| | 152,849 |
| 10.3 |
| | 3.5 | % | 6.4 | % |
Rent and purchased transportation | 126,087 |
| 23.9 |
| | 133,876 |
| 26.3 |
| | 377,146 |
| 24.3 |
| | 379,155 |
| 25.4 |
| | (5.8 | )% | (0.5 | )% |
Communications and utilities | 4,199 |
| 0.8 |
| | 4,206 |
| 0.8 |
| | 12,158 |
| 0.8 |
| | 12,110 |
| 0.8 |
| | (0.2 | )% | 0.4 | % |
Other | 4,075 |
| 0.8 |
| | 4,566 |
| 0.9 |
| | 12,812 |
| 0.8 |
| | 9,303 |
| 0.6 |
| | (10.8 | )% | 37.7 | % |
Total operating expenses | 492,769 |
| 93.2 |
| | 479,602 |
| 94.3 |
| | 1,450,613 |
| 93.6 |
| | 1,399,045 |
| 93.9 |
| | 2.7 | % | 3.7 | % |
| | | | | | | | | | | | | |
|
Operating income | 35,874 |
| 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 taxes | 36,060 |
| 6.8 |
| | 29,334 |
| 5.8 |
| | 99,130 |
| 6.4 |
| | 92,281 |
| 6.2 |
| | 22.9 | % | 7.4 | % |
Income taxes | 13,543 |
| 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 | % |
The following tables set forth the operating revenues, operating expenses and operating income for the TruckloadTTS segment as well asand certain statistical data regarding our TruckloadTTS segment operations, as well as statistical data for the periods indicated.One-Way Truckload and Dedicated operating units within TTS.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Truckload Transportation Services segment (amounts in thousands) | $ | | % | | $ | | % | | $ | | % | | $ | | % |
Trucking revenues, net of fuel surcharge | $ | 428,523 | | | | | $ | 406,834 | | | | | $ | 839,175 | | | | | $ | 815,932 | | | |
Trucking fuel surcharge revenues | 57,439 | | | | | 34,208 | | | | | 104,898 | | | | | 85,249 | | | |
Non-trucking and other operating revenues | 5,238 | | | | | 4,011 | | | | | 10,076 | | | | | 8,735 | | | |
Operating revenues | 491,200 | | | 100.0 | | | 445,053 | | | 100.0 | | | 954,149 | | | 100.0 | | | 909,916 | | | 100.0 | |
Operating expenses | 418,092 | | | 85.1 | | | 393,828 | | | 88.5 | | | 823,413 | | | 86.3 | | | 829,602 | | | 91.2 | |
Operating income | $ | 73,108 | | | 14.9 | | | $ | 51,225 | | | 11.5 | | | $ | 130,736 | | | 13.7 | | | $ | 80,314 | | | 8.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
Truckload Transportation Services segment | 2021 | | 2020 | | % Change | | 2021 | | 2020 | | % Change |
Average tractors in service | 7,664 | | | 7,762 | | | (1.3) | % | | 7,727 | | | 7,812 | | | (1.1) | % |
Average revenues per tractor per week (1) | $ | 4,301 | | | $ | 4,032 | | | 6.7 | % | | $ | 4,177 | | | $ | 4,017 | | | 4.0 | % |
Total tractors (at quarter end) | | | | | | | | | | | |
Company | 7,305 | | | 7,165 | | | 2.0 | % | | 7,305 | | | 7,165 | | | 2.0 | % |
Independent contractor | 340 | | | 485 | | | (29.9) | % | | 340 | | | 485 | | | (29.9) | % |
Total tractors | 7,645 | | | 7,650 | | | (0.1) | % | | 7,645 | | | 7,650 | | | (0.1) | % |
Total trailers (at quarter end) | 23,090 | | | 21,820 | | | 5.8 | % | | 23,090 | | | 21,820 | | | 5.8 | % |
| | | | | | | | | | | |
One-Way Truckload | | | | | | | | | | | |
Trucking revenues, net of fuel surcharge (in 000’s) | $ | 166,171 | | | $ | 167,984 | | | (1.1) | % | | $ | 323,010 | | | $ | 345,833 | | | (6.6) | % |
Average tractors in service | 2,715 | | | 3,149 | | | (13.8) | % | | 2,785 | | | 3,210 | | | (13.2) | % |
Total tractors (at quarter end) | 2,605 | | | 3,115 | | | (16.4) | % | | 2,605 | | | 3,115 | | | (16.4) | % |
Average percentage of empty miles | 10.72 | % | | 13.01 | % | | (17.6) | % | | 11.04 | % | | 12.41 | % | | (11.0) | % |
Average revenues per tractor per week (1) | $ | 4,709 | | | $ | 4,103 | | | 14.8 | % | | $ | 4,461 | | | $ | 4,143 | | | 7.7 | % |
Average % change in revenues per total mile (1) | 16.7 | % | | (1.9) | % | | | | 13.1 | % | | (2.7) | % | | |
Average % change in total miles per tractor per week | (1.7) | % | | (0.3) | % | | | | (4.8) | % | | 2.3 | % | | |
Average completed trip length in miles (loaded) | 877 | | | 813 | | | 7.9 | % | | 865 | | | 838 | | | 3.2 | % |
| | | | | | | | | | | |
Dedicated | | | | | | | | | | | |
Trucking revenues, net of fuel surcharge (in 000’s) | $ | 262,352 | | | $ | 238,850 | | | 9.8 | % | | $ | 516,165 | | | $ | 470,099 | | | 9.8 | % |
Average tractors in service | 4,949 | | | 4,613 | | | 7.3 | % | | 4,942 | | | 4,602 | | | 7.4 | % |
Total tractors (at quarter end) | 5,040 | | | 4,535 | | | 11.1 | % | | 5,040 | | | 4,535 | | | 11.1 | % |
Average revenues per tractor per week (1) | $ | 4,079 | | | $ | 3,983 | | | 2.4 | % | | $ | 4,018 | | | $ | 3,928 | | | 2.3 | % |
(1)Net of fuel surcharge revenues.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 revenues | 50,164 |
| | | | 41,994 |
| | | | 147,641 |
| | | | 111,018 |
| | |
Non-trucking and other operating revenues | 6,288 |
| | | | 5,645 |
| | | | 19,394 |
| | | | 16,722 |
| | |
Operating revenues | 407,566 |
| | 100.0 | | 384,312 |
| | 100.0 | | 1,196,071 |
| | 100.0 | | 1,136,478 |
| | 100.0 |
Operating expenses | 373,557 |
| | 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 | 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change |
Operating ratio, net of fuel surcharge revenues (1) | 90.5 | % | | 94.2 | % | | | | 91.1 | % | | 92.7 | % | | |
Average revenues per tractor per week (2) | $ | 3,693 |
| | $ | 3,589 |
| | 2.9 | % | | $ | 3,634 |
| | $ | 3,547 |
| | 2.4 | % |
Average trip length in miles (loaded) | 469 |
| | 468 |
| | 0.2 | % | | 469 |
| | 466 |
| | 0.6 | % |
Average percentage of empty miles (3) | 12.53 | % | | 12.55 | % | | (0.2 | )% | | 12.40 | % | | 13.08 | % | | (5.2 | )% |
Average tractors in service | 7,314 |
| | 7,216 |
| | 1.4 | % | | 7,261 |
| | 7,291 |
| | (0.4 | )% |
Total trailers (at quarter end) | 22,435 |
| | 22,655 |
| | | | 22,435 |
| | 22,655 |
| | |
Total tractors (at quarter end): | | | | | | | | | | | |
Company | 6,700 |
| | 6,355 |
| | | | 6,700 |
| | 6,355 |
| | |
Independent contractor | 675 |
| | 820 |
| | | | 675 |
| | 820 |
| | |
Total tractors | 7,375 |
| | 7,175 |
| | | | 7,375 |
| | 7,175 |
| | |
| |
(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 June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Werner Logistics segment (amounts in thousands) | $ | | % | | $ | | % | | $ | | % | | $ | | % |
Operating revenues | $ | 141,673 | | | 100.0 | | | $ | 110,163 | | | 100.0 | | | $ | 279,526 | | | 100.0 | | | $ | 222,327 | | | 100.0 | |
Rent and purchased transportation expense | 124,388 | | | 87.8 | | | 92,842 | | | 84.3 | | | 244,915 | | | 87.6 | | | 188,774 | | | 84.9 | |
Gross margin | 17,285 | | | 12.2 | | | 17,321 | | | 15.7 | | | 34,611 | | | 12.4 | | | 33,553 | | | 15.1 | |
Other operating expenses | 13,358 | | | 9.4 | | | 14,182 | | | 12.9 | | | 26,110 | | | 9.4 | | | 29,329 | | | 13.2 | |
Operating income | $ | 3,927 | | | 2.8 | | | $ | 3,139 | | | 2.8 | | | $ | 8,501 | | | 3.0 | | | $ | 4,224 | | | 1.9 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 expense | 89,507 |
| | 85.6 | | 91,695 |
| | 83.8 | | 259,277 |
| | 84.9 | | 255,954 |
| | 82.6 |
Gross margin | 15,061 |
| | 14.4 | | 17,764 |
| | 16.2 | | 45,948 |
| | 15.1 | | 54,047 |
| | 17.4 |
Other operating expenses | 13,743 |
| | 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 June 30, | | | | Six Months Ended June 30, | | |
Werner Logistics segment | 2021 | | 2020 | | % Change | | 2021 | | 2020 | | % Change |
Average tractors in service | 34 | | | 31 | | | 9.7 | % | | 36 | | | 32 | | | 12.5 | % |
Total tractors (at quarter end) | 41 | | | 30 | | | 36.7 | % | | 41 | | | 30 | | | 36.7 | % |
Total trailers (at quarter end) | 1,325 | | | 1,635 | | | (19.0) | % | | 1,325 | | | 1,635 | | | (19.0) | % |
|
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
Werner Logistics | 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change |
Average tractors in service | 48 |
| | 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 SeptemberJune 30, 20172021 Compared to Three Months Ended SeptemberJune 30, 20162020
Operating Revenues
Operating revenues increased 3.9%14.2% for the three months ended SeptemberJune 30, 2017,2021, compared to the same period of the prior year. When comparing thirdsecond quarter 20172021 to thirdsecond quarter 2016, Truckload2020, TTS segment revenues increased $23.3$46.1 million, or 6.1%10.4%, and Werner Logistics revenues decreased $4.9increased $31.5 million, or 4.5%28.6%.
Our results in second quarter 2021 reflect strong freight market conditions in a strengthening economy and tight driver market. Freight demand in our One-Way Truckload fleet was strong. This trend has continued during third quarter to-date. In our Dedicated fleet, freight demand remained strong in second quarter 2021. Improving demand from a rapidly recovering economy, combined with several factors that are limiting capacity, resulted in a robust second quarter freight market.
Trucking revenues, net of fuel surcharge, increased 4.3%5.3% in thirdsecond quarter 20172021 compared to thirdsecond quarter 20162020 due to a 2.9%6.7% increase in average revenues per tractor per week, andnet of fuel surcharge, partially offset by a 1.4%1.3% decrease in the average number of tractors in service. The increase in average tractorsrevenues per tractor was due primarily to improved pricing in service. Ourboth Dedicated and One-Way Truckload, offset by a decline in miles per truck from an increased mix of Dedicated trucks to total trucks and fewer team drivers. 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 throughoutfor the quarter. In July and August 2017, freight trended better than normal and meaningfully better than the challenging freight marketsecond half of third quarter 2016. As we moved into September, the freight market strengthened further due2021 to increase in parta range of 16% to 19% when compared to the significant disruption caused by two major hurricanessame period 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,2020, 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 tighteningcurrently expect Dedicated average revenues per truck per week to increase in a range of supply when the electronic hours of service mandate for the trucking industry becomes effective on December 18, 2017.3% to 5% in 2021 compared to 2020.
The average number of tractors in service in the TruckloadTTS segment increased 1.4%decreased 1.3% to 7,3147,664 in thirdsecond quarter 20172021 from 7,2167,762 in thirdsecond quarter 2016.2020, impacted by the extremely difficult driver recruiting market. We ended thirdsecond quarter 20172021 with 7,3757,645 trucks in the TruckloadTTS segment, a year-over-year increasedecrease of 200 trucks compared to the end of third quarter 2016, and a sequential increase of 605 trucks compared to the end of second quarter 2017.2020, and a sequential decrease of 90 trucks compared to the end of first quarter 2021. Within TTS, our Dedicated unit ended second quarter 2021 with 5,040 trucks (or 66% of our total TTS segment trucks) compared to 4,535 trucks (or 59%) a year ago. We currently expect truck growth in 2021 to be from our 500-truck acquisition of ECM and expect our truck count at the end of 2021 to be in the range of 1% to 4% higher when compared to the fleet size at year-end 2020. 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%67.9% to $50.2$57.4 million in thirdsecond quarter 20172021 from $42.0$34.2 million in thirdsecond quarter 20162020 due primarily to higher average diesel fuel prices, partially offset by fewer miles in the 2017 quarter.second quarter 2021. These revenues represent collections from customers for the increase in fuel and fuel-related expenses, including the fuel component of our independent contractor cost (recorded as rent and purchased transportation expense) and fuel taxes (recorded in taxes and licenses expense), when diesel fuel prices rise. Conversely, when fuel prices decrease, fuel surcharge revenues decrease. To lessen the effect of fluctuating fuel prices on our margins, we collect fuel surcharge revenues from our customers for the cost of diesel fuel and taxes in excess of specified base fuel price levels according to terms in our customer contracts. Fuel surcharge
rates generally adjust weekly based on an independent U.S. Department of Energy fuel price survey which is released every Monday. Our fuel surcharge programs are designed to (i) recoup higher fuel costs from customers when fuel prices rise and (ii) provide customers with the benefit of lower fuel costs when fuel prices decline. These programs generally enable us to recover a majority, but not all, of the fuel price increases. The remaining portion is generally not recoverable because it results from empty and out-of-route miles (which are not billable to customers) and truck idle time. Fuel prices that change rapidly in short time periods also impact our recovery because the surcharge rate in most programs only changes once per week.
Werner Logistics revenues are generated by its fivethree operating units, following the sale of its WGL freight forwarding services for international ocean and air shipments in first quarter 2021. Werner Logistics revenues 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$193 thousand in thirdsecond quarter 20172021 and $0.2 million$14 thousand in thirdsecond quarter 20162020 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 thirdsecond quarter 2017,2021, Werner Logistics revenues decreased $4.9increased $31.5 million, or 4.5%28.6%, due to higher pricing and operating incomevolume growth in Truckload Logistics and Intermodal. Truckload Logistics revenues (69% of total Logistics revenues) increased by 49%. Truckload Logistics volume increased 10% in second quarter 2021, and revenues per shipment increased 37%. Intermodal revenues (29% of Logistics revenues) increased 52% in second quarter 2021, due to volume growth of 30% and 17% higher revenues per shipment. The Werner Logistics gross margin dollars decreased $3.6remained flat at $17.3 million or 73.1%, compared to thirdfor second quarter 2016.2021 and second quarter 2020. The Werner Logistics gross margin percentage in thirdsecond quarter 20172021 of 14.4%12.2% decreased from 16.2%15.7% in thirdsecond quarter 2016.2020 due to higher spot truckload and intermodal dray rates which significantly increased the cost of capacity for contractual brokerage shipments and Intermodal shipments in second quarter 2021. The Werner Logistics operating incomemargin percentage of 2.8% in thirdsecond quarter 2017 of 1.3% declined from third quarter 2016 of 4.5%. Tighter carrier capacity in third quarter 2017 compared to third quarter 2016 resulted in higher purchased transportation costs causing the lower gross margin and2021 remained flat, while operating income percentages.
In third quarter 2017, Werner Logistics achieved solid revenue growth year over year in our truck brokerage solution, while our intermodal and international solutions had lower revenuesincreased 25% to $3.9 million as other operating expenses declined 6% due to more challenging market conditions. As previously disclosed, a large Werner Logistics Freight Management customer (5.5% of Werner Logistics revenues in third quarter 2016) that was acquiredimproved automation and efficiency.
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%88.2% for the three months ended SeptemberJune 30, 2017, compared to 94.3%2021 and 90.7% for the three months ended SeptemberJune 30, 2016.2020. Expense items that impacted the overall operating ratio are described on the following pages. The tables on pages 16 and 1720 through 22 show the Consolidated Statements of Income in dollars and as a percentage of total operating revenues and the percentage increase or decrease in the dollar amounts of those items compared to the same quarter of the prior year, as well as the operating ratios, operating margins, and certain statistical information for our two reportable segments, TruckloadTTS and Werner Logistics.
Salaries, wages and benefits increased $7.4$15.1 million or 4.5%7.8% in thirdsecond quarter 20172021 compared to thirdsecond quarter 20162020 and increased 0.2%decreased 1.9% as a percentage of operating revenues to 32.2%32.4%. The higher dollar amount of salaries, wages and benefits expense in the 2017 thirdsecond quarter of 2021 was due primarily to increased driver pay rates, partially offset by 6.8 million fewer company truck miles and higher driver and student pay rates. These increases were partially offset by lower workers’ compensation expense in thirdsecond quarter 2017. When evaluated on a per-mile basis, driver salaries, wages and benefits also increased, which2021. In January 2021, we primarily attribute to higherimplemented driver pay increases of approximately $10 million annually in thirdour One-Way Truckload fleet, and will implement another pay increase in August of approximately $11 million annually. Within Dedicated, we continue to implement pay increases as needed. As a result, driver pay per company driver mile increased nearly 11% in second quarter 2017 compared to third quarter 2016.2021. Non-driver salaries, wages and benefits in the non-trucking Werner Logistics segment decreased 8.2%, due primarily to increased 8.4%.automation and improved operational efficiency.
We renewed our workers’ compensation insurance coverage for the policy year beginningon April 1, 2017.2021. Our coverage levels are the same as the prior policy year. We continue to maintain a self-insurance retention of $1.0$2.0 million per claim. Our workers’ compensation insurance premiums for the policy year beginning April 2017 were similar to those2021 are $0.3 million higher than the premiums for the previous policy year.
The rapidly recovering economy combined with a severely constrained driver recruiting market is presenting labor challenges for customers and carriers alike and became more challenging in thirdsecond quarter 2017.2021, 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, 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 as we strive to make Wernerbe the preferredtruckload employer of choice, for the best drivers, including raising driver pay, loweringproviding a modern truck and trailer fleet with the age of our truck fleet, installinglatest safety equipment and training features on all new trucks,technology, investing in our driver training schoolsschool network and collaborating with customers to improve or eliminate freight with unproductive operating characteristics that prevent our drivers from maximizing productivity. Our driver turnover rate once again improved, achieving the lowest third quarter rate in 19 years.offering a wide variety of driving positions including daily and weekly home time opportunities. We are unable to predict whether we will experience future driver shortages.shortages or maintain our current driver retention rates. If such a driver shortage were to occur and additional driver pay rate increases became necessary to attract and retain drivers, our results of operations would be negatively impacted to the extent that we could not obtain corresponding freight rate increases.
Fuel increased $9.6$27.9 million or 23.7%90.7% in thirdsecond quarter 20172021 compared to thirdsecond quarter 20162020 and increased 1.5%3.6% as a percentage of operating revenues to 9.0% due to higher average diesel fuel prices, and increasedpartially offset by approximately 6.8 million
fewer company truck miles.miles in second quarter 2021. Average diesel fuel prices were $1.09 per gallon higher in second quarter 2021 than in second quarter 2020 and were 26 cents per gallon higher in third quarter 2017 than in thirdfirst quarter 2016 and were 15 cents per gallon higher than in second quarter 2017. The increase was partially offset by slightly improved miles per gallon (“mpg”).2021.
We continue to employ measures to improve our fuel mpg such as (i) limiting truck engine idle time, (ii) optimizing the speed, weight and specifications of our equipment and (iii) implementing mpg-enhancing equipment changes to our fleet including new trucks, with U.S. Environmental Protection Agency (the “EPA”) 2010 compliant engines, more aerodynamic truck features, idle reduction systems, trailer tire inflation systems, trailer skirts and automated manual transmissions to reduce our fuel gallons purchased. However, fuel savings from mpg improvement is partially offset by higher depreciation expense and the additional cost of diesel exhaust fluid (required in tractors with engines that meet the 2010 EPA emission standards).fluid. Although our fuel management programs require significant capital investment and research and development, we intend to continue these and other environmentally conscious initiatives, including our active participation as an EPA SmartWay Transport Partner. The SmartWay Transport Partnership is a national voluntary program developed by the EPA and freight industry representatives to reduce greenhouse gases and air pollution and promote cleaner, more efficient ground freight transportation.
For October 2017,July 2021, the average diesel fuel price per gallon was approximately 2893 cents higher than the average diesel fuel price per gallon in October 2016July 2020 and approximately 3295 cents higher than in fourththird quarter 2016.2020.
Shortages of fuel, increases in fuel prices and petroleum product rationing can have a materially adverse effect on our operations and profitability. We are unable to predict whether fuel price levels will increase or decrease in the future or the extent to which fuel surcharges will be collected from customers. As of SeptemberJune 30, 2017,2021, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.
Supplies and maintenance increased $1.0$6.1 million or 2.3%14.0% in thirdsecond quarter 20172021 compared to thirdsecond quarter 20162020 and remained flat as a percentage of operating revenues. The higher dollar amount of supplies and maintenance expense was due primarily to higher driver and placement driver-related costs such as driver lodging and advertising.
Insurance and claims decreased $5.1 million or 19.6% in second quarter 2021 compared to second quarter 2020 and decreased 0.2%1.3% as a percentage of operating revenues due primarily to higher company truck miles driven in third quarter 2017 compared to third quarter 2016,a lower amount of unfavorable reserve development on large dollar claims, partially offset by our younger trailer fleet and the resulting lower equipment maintenance expense.higher liability insurance premiums of $2.0 million. We also incurred higher driver recruitinginsurance and other driver-related costsclaims expense of $1.3 million in second quarter 2021 and $1.2 million in second quarter 2020 for accrued interest related to a previously-disclosed adverse jury verdict rendered May 17, 2018, which we are appealing (see Note 6 in the 2017 quarter.
Insurance and claims increased $1.6Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report). Interest is accrued at $0.4 million or 8.2% in third quarter 2017 compared to third quarter 2016 and increased 0.1%per month, until such time as a 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 renewedrenewed our liability insurance policies on August 1, 20172021 and took on additional risk exposure by increasing our self-insured retention and deductible levels. Effective on that date, we are responsible for the first $3.0 million per claim with an annual $6.0 million aggregate for claims between $3.0 million and $5.0 million. We also have an additional $5.0 million deductible per claim for each claim between $5.0 million and $10.0 million. As a result, we are responsible for the first $10.0 million per claim until we meet the $6.0on all claims with an annual $10.0 million aggregate for claims between $3.0$10.0 million and $5.0$15.0 million. For the policy year that ended July 31, 2016,began August 1, 2020, we were responsible for the first $2.0$10.0 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.no aggregates. 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, 20172021 are about $3.7 $7.0 million lowerhigher than premiums for the previous policy year.
Depreciation expense increased $1.8decreased $3.8 million or 3.5%5.6% in thirdsecond quarter 20172021 compared to thirdsecond quarter 20162020 and decreased 0.1%2.1% as a percentage of operating revenues. This expense increase isDuring first quarter 2020, we changed the estimated life of certain trucks to be sold in 2020 to more rapidly depreciate these truck to their estimated residual values due primarily to the weak used truck market. These trucks continued to depreciate at the same higher cost of new trucks purchased compared to the cost of used trucks thatrate per truck until all were sold over the past 12 monthsin 2020. The effect of this change in accounting estimate increased second quarter 2020 depreciation expense by $3.7 million and the purchasehad no effect on second quarter 2021.
The average age of new trailers over the past 12 months to replace older used trailers which were fully depreciated.
In 2015our truck fleet remains low by industry standards and 2016, we invested nearly $1 billionwas 2.0 years as of capital expenditures (before sales of equipment) primarily to reduceJune 30, 2021, and the average age of our trucks and trailers. Our investmenttrailers was 4.1 years. We are continuing to invest in newernew trucks and trailers improvesand our terminals in 2021 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. The2021, 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 $7.8increased $30.2 million or 5.8%25.0% in thirdsecond quarter 20172021 compared to thirdsecond quarter 20162020 and decreased 2.4%increased 2.0% as a percentage of operating revenues. Rent and purchased transportation expense consists mostly of payments to third-party capacity providers in the Werner Logistics segment and other non-trucking operations and payments to independent contractors in the 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 $31.5 million, butand as a percentage of Werner Logistics revenues increased to 85.6% 87.8%
in thirdsecond quarter 20172021 from 83.8%84.3% in thirdsecond quarter 2016. Tighter industry-wide carrier2020, due primarily to higher spot truckload and intermodal dray rates which significantly increased the cost of capacity for contractual brokerage shipments and intermodal shipments in thirdsecond quarter 2017 compared to third quarter 2016 resulted in higher purchased transportation costs causing the lower gross margin percentage.2021.
Rent and purchased transportation expense for the TruckloadTTS segment decreased $5.8$1.0 million in thirdsecond quarter 20172021 compared to thirdsecond quarter 2016. This decrease is due primarily to lower payments to independent contractors due to fewer independent contractor trucks and miles during third quarter 2017 compared to third quarter 2016, partially offset by higher average fuel reimbursement per mile in the 2017 quarter.2020. Independent contractor miles decreased approximately 5.5 million miles in second quarter 2021 and as a percentage of total miles were 11.8%6.2% in thirdsecond quarter 20172021 compared to 14.8%8.5% in thirdsecond quarter 2016.2020. The lower expense resulting from fewer independent contractor miles was partially offset by an increase in the per-mile settlement rate for certain independent contractors in first quarter 2021 and higher average 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 $0.5$13.2 million or 10.8% in thirdsecond quarter 20172021 compared to thirdsecond quarter 20162020 and decreased 0.1%2.2% 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$13.5 million in thirdsecond quarter 20172021, compared to $3.1$0.9 million in thirdsecond quarter 2016,2020. We realized substantially higher average gains per truck and trailer due to significantly improved pricing in the market for our used equipment, which includedwe believe is a $6.5 million real estate gain and $3.4 milliontemporary result of losses onincreased demand for previously used equipment sales. In third quarter 2017, webecause of production delays limiting availability of new equipment in the industry. We sold fewermore trucks and fewer trailers in second quarter 2021 than in thirdsecond 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 2017 compared to third quarter 2016. The used truck pricing market remained difficult in third quarter 2017 due to a higher than normal supply of used trucks in the market and low buyer demand. Other operating expenses, primarily provision for doubtful accounts related to the driver training schools and professional and consulting fees, declined by $1.4 million in third quarter 2017 compared to third quarter 2016.2020.
Other Expense (Income)
Other expense (income) increased $0.1decreased $20.6 million and increased 0.1% as a percentage of operating revenues in thirdsecond quarter 20172021 compared to thirdsecond quarter 2016. Interest income was lower2020. We recognized a $20.2 million unrealized gain on our minority equity investment in TuSimple, an autonomous technology company, in second quarter 2021. We record changes in the 2017value of our investment based on the share price reported by Nasdaq (see Note 4 in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report). Interest expense decreased $0.5 million in second quarter 2021 compared to second quarter 2020 due primarily to lower average outstanding notes receivable, and interest expense was lower as well.
debt in the 2021 period.
Income Taxes
Our effective income tax rate (income taxes expressed as a percentage of income before income taxes) was 37.6%25.5% in thirdsecond quarter 2017 and 35.5%2021 compared to 24.8% in thirdsecond quarter 2016.2020. The higherlower income tax rate in 2017 issecond quarter 2020 was attributed primarily to a lower amount of favorable tax adjustments for the remeasurement of uncertain tax positions 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 ofdiscrete income tax expense.items in second quarter 2020.
NineSix Months Ended SeptemberJune 30, 20172021 Compared to NineSix Months Ended SeptemberJune 30, 20162020
Operating Revenues
Operating revenues increased 4.0%9.0% for the ninesix months ended SeptemberJune 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$23.2 million, or 2.8%, due primarily to a 2.4%4.0% increase in average revenues per tractor per week, partially offset by a 0.4%1.1% decrease in the average number of tractors in service. Average revenues per total mile, net of fuel surcharge, increased 2.3% in the first nine months of 2017 compared to the same period in 2016, and average monthly miles per tractor increased by 0.2%. TruckloadTTS segment fuel surcharge revenues for the ninesix months ended SeptemberJune 30, 20172021 increased $36.6$19.6 million or 33.0%23.0% when compared to the ninesix months ended SeptemberJune 30, 20162020 due to higher average diesel fuel prices in the 20172021 period. When comparing the first six months of 2021 to the first six months of 2020, TTS segment revenues increased $44.2 million, or 4.9%, and Werner Logistics revenues decreased to $305.2increased $57.2 million, in the first nine months of 2017 compared to $310.0 million in the same 2016 period.or 25.7%.
Operating Expenses
Our operating ratio (operating expenses expressed as a percentage of operating revenues) was 93.6%89.0% for the ninesix months ended SeptemberJune 30, 2017, compared to 93.9%2021 and 92.8% for the ninesix months ended SeptemberJune 30, 2016.2020. Expense items that impacted the overall operating ratio are described on the following pages. The tables on pages 16 and 1720 through 22 show the Consolidated Statements of Income in dollars and as a percentage of total operating revenues and the percentage increase or decrease in the dollar amounts of those items
compared to the same periodquarter 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 $21.3$14.0 million or 4.4%3.5% in the first ninesix months of 20172021 compared to the first ninesix months of 20162020 and increaseddecreased 1.7% as a percentage of operating revenues to 32.3%32.8%. The higher dollar amount of salaries, wages and benefits expense was due primarily to higherincreased driver and student pay rates, increasedpartially offset by 18.8 million fewer company truck miles and higher workers’ compensation expense in the 2017 period. When evaluated onfirst six months of 2021. As a per-mile basis,result, driver salariespay per company driver mile increased as well.nearly 9% in the first six months of 2021. Non-driver salaries, wages and benefits in the non-trucking Werner Logistics segment increaseddecreased 9.8%.
Fuel increased $28.5$29.9 million or 25.5%37.6% in the first ninesix months of 20172021 compared to the same period in 20162020 and increased 1.6%1.8% as a percentage of operating revenues due to higher average diesel fuel prices, partially offset by approximately 18.8 million fewer company truck miles in the first six months of 2021. Average diesel fuel prices were 66 cents per gallon higher in the first six months of 2021 than in the same 2020 period.
Supplies and maintenance increased $6.5 million or 7.3% in the first six months of 2021 compared to same period in 2020 and decreased 0.2% as a percentage of operating revenues. The higher dollar amount of supplies and maintenance expense was due primarily to higher driver and placement driver-related costs such as driver lodging and advertising.
Insurance and claims decreased $19.1 million or 30.8% in the first six months of 2021 compared to the same period in 2020 and decreased 1.9% as a percentage of operating revenues due primarily to higher average diesel fuel prices in 2017,lower expense for new large dollar claims and a lower amount of unfavorable development on large dollar claims, partially offset by improved mpg. Average diesel fuel prices were 30 cents per gallon higher liability insurance premiums of $4.0 million. In January 2020, one of our trucks was involved in a serious accident. We self-insure for the first $10.0 million of liability coverage for this policy period and have appropriate excess liability coverage with insurance carriers above that amount. As a result, we recorded $10.0 million of insurance and claims expense in first quarter 2020 for this accident.
Depreciation expense decreased $8.7 million or 6.4% in the first ninesix months of 2017 than in the same 2016 period.
Supplies and maintenance decreased $10.3 million or 7.9% in the first nine months of 20172021 compared to the same period in 20162020 and decreased 1.0%1.7% 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 to be sold in 2020 to more rapidly depreciate the trucksthese truck to their estimated residual values due to the weak used truck market, which resultedmarket. These trucks continued to depreciate at the same higher rate per truck until all were sold in additional2020. The effect of this change in accounting estimate increased the first six months of 2020 depreciation expense of $3.4by $8.7 million in 2017, and the higher cost of new trucks purchased versus used trucks that were sold. In addition, the purchase of new trailers over the past 12 months to replace older used trailers which were fully depreciated also contributed to the increase in depreciation expense.had no effect on 2021.
Rent and purchased transportation expense decreased $2.0 million or 0.5% in the first nine months of 2017 compared to the same 2016 period and decreased 1.1% as a percentage of operating revenues. Rent and purchased transportation for the TruckloadTTS segment decreased $5.3$5.4 million in the first ninesix months of 2017 compared to the same 2016 period. This decrease is due primarily to fewer independent contractor miles driven in the first nine months of 20172021 compared to the same period in 2016.2020. Independent contractor miles as a percentage of totaldecreased approximately 11.3 million miles were 12.4% and 14.4% in the six months ended June 30, 2021. The lower expense resulting from fewer independent contractor miles was partially offset by an increase in the per-mile settlement rate for certain independent contractors in first nine months of 2017quarter 2021 and 2016, respectively.higher average diesel fuel prices. Werner Logistics rent and purchased transportation expense increased $3.3$56.1 million as a result of higher logistics revenues and higher spot truckload and dray rates and increased to 87.6% as a percentage of Werner Logistics revenues increased toin the 2021 period from 84.9% in the 2017 period from 82.6% in the 20162020 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 $3.5decreased $22.9 million in the first ninesix months of 20172021 compared to the same period in 20162020 and increased 0.2%decreased 1.9% as a percentage of operating revenues. Gains on sales of assets (primarily used trucks and trailers) decreased to $6.0were $25.0 million in the ninesix months ended SeptemberJune 30, 2017 from $13.32021, compared to $3.4 million in the ninesix months ended SeptemberJune 30, 2016, which included gains of $10.5 million from sales of real estate. In the 2017 year-to-date period, we sold fewer trucks and trailers,2020. We realized substantially higher average gains per truck comparedand trailer due to average lossesimproved pricing in the market for our used equipment. We sold more trucks and realized lower average gains per trailer sold when compared tofewer trailers in the first six months of 2021 than in the same period in 2020. We also realized a $1.0 million gain from the sale of 2016. Provision for doubtful accounts related to our driver schools and professional and consulting fees were lowerWGL in the 2017 period.first quarter 2021.
Other Expense (Income)
Other expense (income) increased $0.8decreased $21.0 million in the first ninesix months of 20172021 compared to the same 20162020 period and increased 0.1% as a percentage of operating revenues, due primarily to lower interest income.the aforementioned $20.2 million unrealized gain on our equity investment. Interest incomeexpense decreased $1.2 million in the first six months of 2021 compared to the first six months of 2020 due to lower average outstanding notes receivabledebt in the first nine months of 2017 compared to the first nine months of 2016.2021 period.
Income Taxes
Our effective income tax rate (income taxes expressed as a percentage of income before income taxes) decreased to 37.7%was 25.2% for the first ninesix months of 2017 from 37.9%2021 compared to 24.2% for the first ninesix months of 2016.2020. The lowerhigher income tax rate isin the year-to-date 2021 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 lower amount of favorable discrete income tax adjustments for the remeasurement of uncertain tax positionsitems in the first nine months2021 period.
Liquidity and Capital Resources:
During the ninesix months ended SeptemberJune 30, 2017,2021, we generated cash flow from operations of $216.9$189.5 million, an 8%a 34.1% or $15.8$97.9 million increasedecrease in cash flows compared to the same nine-monthsix-month period a year ago. The increasedecrease in net cash provided by operating activities resultedwas due primarily to working capital changes resulting from the effecttiming of depreciation on netfederal and state estimated income lower gain on disposal of operating equipment,tax payments and general working capital items,changes in accounts receivable, partially offset by a decrease from deferred income taxes.higher 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 $110.5was $104.6 million for the nine-monthsix-month period ended SeptemberJune 30, 2017 from $280.02021 compared to $103.2 million for the nine-monthsix-month period ended SeptemberJune 30, 2016.2020. Net property additions (primarily revenue equipment) were $121.1$102.9 million for the nine-monthsix-month period ended SeptemberJune 30, 2017,2021, compared to $294.0$107.6 million during the same period of 2016. This decrease occurred as we completed a significant reinvestment in our fleet. As of September 30, 2017, we were committed to property and equipment purchases of approximately $95.2 million.2020. We currently estimate net capital expenditures (primarily revenue equipment) in 20172021 to be in the range of $175$275 million to $225$300 million, compared to net capital expenditures in 20162020 of $429.6$266.2 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 June 30, 2021, we were committed to property and equipment purchases of approximately $269.8 million.
Net financing activities used $113.3provided $77.8 million during the ninesix months ended SeptemberJune 30, 2017,2021, and provided $61.2used $150.2 million during the same period in 2016. During2020. We had net borrowings of $100.0 million during the ninesix months ended SeptemberJune 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. Our2021, bringing our outstanding debt at SeptemberJune 30, 2017 was $75.02021 to $300.0 million. The proceeds were used to finance the July 1, 2021 purchase of ECM. We repaid $125.0 million of debt during the six months ended June 30, 2020. We paid dividends of $13.7$12.9 million in the nine-monthsix-month period ended SeptemberJune 30, 20172021 and $13.0$12.5 million in the six-month period ended SeptemberJune 30, 2016.2020. We increased our quarterly dividend rate by $0.01 per share, or 17%11% beginning with the quarterly dividend to be paid in May 2021, and we increased our quarterly dividend rate by $0.02 per share, or 20%, beginning with the quarterly dividend to be paid in July 2017. We did not repurchase any shares of2021. Financing activities for the six months ended June 30, 2021, also included common stock during the nine months ended September 30, 2017 or 2016. From time to time, therepurchases of 130,446 shares at a cost of $5.5 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 SeptemberJune 30, 2017,2021, the Company had purchased 3,287,2912,313,438 shares pursuant to our current Board of Directors repurchase authorization and had 4,712,7092,686,562 shares remaining available for repurchase.
Management believes our financial position at SeptemberJune 30, 20172021 is strong. As of SeptemberJune 30, 2017,2021, we had $10.7$192.1 million of cash and cash equivalents (prior to the July 1, 2021 closing payment for ECM) and over $1nearly $1.3 billion of stockholders’ equity. Cash is invested primarily in government portfolio money market funds. As of SeptemberJune 30, 2017,2021, we had a total borrowing capacity of $325.0$600.0 million of credit pursuant to threeunder our credit facilities (see Note 25 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$300.0 million. The remaining $250.0$300.0 million of credit available under thesethe facilities at SeptemberJune 30, 20172021 is reduced by the $28.7$50.9 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 2020 Form 10-K includes our disclosure of contractual obligations and commercial commitments as of September 30, 2017.
Payments Due by Period
|
| | | | | | | | | | | | | | | | | | | | | | | |
(Amounts in millions) | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years | | Period Unknown |
Contractual Obligations | | | | | | | | | | | |
Unrecognized tax benefits | $ | 4.1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 4.1 |
|
Long-term debt including current maturities | 75.0 |
| | — |
| | 75.0 |
| | — |
| | — |
| | — |
|
Interest payments on debt | 3.7 |
| | 1.9 |
| | 1.8 |
| | — |
| | — |
| | — |
|
Property and equipment purchase commitments | 95.2 |
| | 95.2 |
| | — |
| | — |
| | — |
| | — |
|
Total contractual cash obligations | $ | 178.0 |
| | $ | 97.1 |
| | $ | 76.8 |
| | $ | — |
| | $ | — |
| | $ | 4.1 |
|
Other Commercial Commitments | | | | | | | | | | | |
Unused lines of credit | $ | 221.3 |
| | $ | — |
| | $ | 221.3 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Stand-by letters of credit | 28.7 |
| | 28.7 |
| | — |
| | — |
| | — |
| | — |
|
Total commercial commitments | $ | 250.0 |
| | $ | 28.7 |
| | $ | 221.3 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Total obligations | $ | 428.0 |
| | $ | 125.8 |
| | $ | 298.1 |
| | $ | — |
| | $ | — |
| | $ | 4.1 |
|
AsDecember 31, 2020. Except for amending our existing debt agreements and entering into a new debt agreement with additional borrowings under such agreements, and the associated future interest expense, as disclosed in Note 5 in the Notes to Consolidated Financial Statements (Unaudited) under Item I of September 30, 2017, we had unsecured committed credit facilities with three banks as well as a term commitment with onePart I of this Form 10-Q, there were no material changes in the nature of these banks. We had with Wells Fargo Bank, N.A., a $100 million credit facility which will expire on July 12, 2020, and a $75 million term commitment with principal due and payable on September 15, 2019. We had an unsecured line of credit of $75 million with U.S. Bank, N.A., which will expire on July 13, 2020. We also had a $75 million credit facility with BMO Harris Bank, N.A., which will expire on March 5, 2020. Borrowings under these credit facilities and term note bear variable interest based onitems during the London Interbank Offered Rate (“LIBOR”). As of Septembersix months ended June 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.2021.
Regulations:
Item 1 of Part I of our 20162020 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, thereThere have been no material changes in the status of thesethe proposed regulations previously disclosed in the 20162020 Form 10-K.
The Federal Motor Carrier Safety Administration (“FMCSA”) proposed to change the method for assigning a motor carrier’s Safety Fitness Determination (“SFD”) in January 2016, which would replace the three-tier federal rating system in place since 1982 with a single determination
Interstate carriers are subject to the FMCSA Hours of Service (“HOS”) regulations. FMCSA adopted a final rule in December 2011 that included provisions affecting restart periods, rest breaks, on-duty time, and penalties for violations, and we began dispatching drivers under the revised HOS rules effective July 1, 2013. The Consolidated Appropriations Act of 2016 was passed by Congress with HOS language to reduce negative effects of restricted hours and require the FMCSA study to demonstrate results with statistically significant improvements in safety and driver health, among other things, before the agency could reinstate restart rule restrictions that became effective in July 2013. In March 2017, FMCSA released the HOS Restart study report, which indicated that the restrictions do not improve safety; as a result, the pre-July 2013 restart rule continues to be in effect indefinitely.
In an effort to increase highway safety and improve compliance, Werner supports FMCSA’s electronic logging devices (“ELDs”) mandate. The final ELD rule was issued in December 2015 and becomes effective on December 18, 2017, when carriers must adopt and use compliant ELDs. In March 2016, a legal complaint was filed by the Owner-Operator Independent Drivers Association (“OOIDA”) to overturn the ELD mandate. OOIDA asked the U.S. 7th Circuit Court of Appeals to strike down the rule, arguing the rule is an unconstitutional violation of truckers’ rights and will do little to enhance safety. On October 31, 2016, OOIDA’s lawsuit was denied. OOIDA appealed the decision to the U.S. Supreme Court on April 11, 2017. On June 12, 2017, the U.S. Supreme Court denied OOIDA’s request to take on the issue, leaving in place the lower court’s ruling to uphold the mandate and its December 18, 2017 effective date.
FMCSA issued its final rule for Entry-Level Driver Training (“ELDT”) in December 2016. On December 27, 2016, four groups petitioned FMCSA to reconsider the final rule. The petition was denied by FMCSA on January 19, 2017. This final rule was slated to take effect February 6, 2017, with a compliance date of February 7, 2020; however, agencies were directed by the President in January 2017 to postpone for 60 days the effective date of rules published in the Federal Register but not yet effective. On May 23, 2017, the rule was delayed for a third time; as a result, the final rule became effective June 5, 2017. The compliance date is still set for February 7, 2020.
Critical Accounting Policies and Estimates:
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires us to make estimates and assumptions that affect the (i) reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and (ii) reported amounts of revenues and expenses during the reporting period. We evaluate these estimates on an ongoing basis as events and circumstances change, utilizing historical experience, consultation with experts and other methods considered reasonable in the particular circumstances. Actual results could differ from those estimates and may significantly impact our results of operations from period to period. It is also possible that materially different amounts would be reported if we used different estimates or assumptions.
Information regarding our Critical Accounting Policies and Estimates can be found in our 20162020 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 20162020 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.primarily in Mexico. 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$1.9 million for thirdsecond quarter 20172021 and $1.0 $0.9 million for thirdsecond quarter 2016.2020. These were recorded in accumulated other comprehensive lossincome (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 SeptemberJune 30, 2017,2021, 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.increases, and we had $100 million of debt outstanding at June 30, 2021 at a fixed rate of 1.28%. We had $50 million of variable rate debt outstanding at June 30, 2021. 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 by approximately $500,000.
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. On March 5, 2021, ICE Benchmark Administration ratified its proposal on future borrowings.ceasing publication of one-week and two-month settings of the USD LIBOR benchmark at the end of December 2021, and ceasing publication of the remaining overnight and one-, three-, six- and 12-month USD LIBOR settings at the end of the June 2023. LIBOR is a widely-referenced benchmark rate, and our unsecured credit facilities are referenced to LIBOR. We are communicating with our banks regarding the eventual transition to a new benchmark rate.
Item 4. Controls and Procedures.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). Our disclosure controls and procedures are designed to provide reasonable assurance of achieving the desired
control objectives. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at a reasonable assurance level in enabling us to record, process, summarize and report information required to be included in our periodic filings with the SEC within the required time period and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, concluded that no changes in our internal control over financial reporting occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We have confidence in our internal controls and procedures. Nevertheless, our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that the internal controls or disclosure procedures and controls will prevent all errors or intentional fraud. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of such internal controls are met. Further, the design of an internal control system must reflect that resource constraints exist, and the benefits of controls must be evaluated relative to their costs. Because of the inherent limitations in all internal control systems, no evaluation of controls can provide absolute assurance that all control issues, misstatements and instances of fraud, if any, have been prevented or detected.
PART II
OTHER INFORMATION
Item 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 SeptemberJune 30, 2017,2021, the Company had purchased 3,287,2912,313,438 shares pursuant to this authorization and had 4,712,7092,686,562 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 thirdsecond quarter 20172021 by either the Company or any “affiliated purchaser,” as defined by Rule 10b-18 of the Exchange Act.
Item 6. Exhibits.
|
| | | | | | | | | | | | | |
Exhibit No. | | Exhibit | | Incorporated by Reference to: |
| | | | |
| | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | |
| | | | |
| | |
| | | | |
| | |
| | | | |
| | |
101.INS101 | | XBRL Instance DocumentThe following unaudited financial information from Werner Enterprises’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in iXBRL (Inline Extensible Business Reporting Language) includes: (i) Consolidated Statements of Income for the three and six months ended June 30, 2021 and June 30, 2020, (ii) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2021 and June 30, 2020, (iii) Consolidated Condensed Balance Sheets as of June 30, 2021 and December 31, 2020, (iv) Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and June 30, 2020, (v) Consolidated Statements of Stockholders’ Equity for the three months ended June 30, 2021, March 31, 2021, June 30, 2020 and March 31, 2020, and (vi) the Notes to Consolidated Financial Statements (Unaudited) as of June 30, 2021. | | Filed herewith |
| | | | |
101.SCH104 | | The cover page from this Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in Inline XBRL Taxonomy Extension Schema Document(included as Exhibit 101). | | Filed herewith |
| | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | Filed herewith |
| | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | Filed herewith |
| | | | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | Filed herewith |
| | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | Filed herewith |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| | | | | | | | | | |
| WERNER ENTERPRISES, INC. |
| | |
Date: November 2, 2017August 5, 2021 | By: | | /s/ John J. Steele |
| | | John J. Steele |
| | | Executive Vice President, Treasurer and Chief Financial Officer
|
| | |
Date: November 2, 2017August 5, 2021 | By: | | /s/ James L. Johnson |
| | | James L. Johnson |
| | | Executive Vice President, Chief Accounting Officer and Corporate Secretary
|