SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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

~~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 filer~~Accelerated Filer

ý☒

Accelerated filer

☐

Non-accelerated filer

o ~~(Do not check if a smaller reporting company)~~

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

As of ~~October 31, 2017, 72,336,976~~ May 5, 2023, 63,376,934shares of the registrant’s common stock, par value $0.01 per share, were outstanding.

WERNER ENTERPRISES, INC.

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 Part I, Item 1A (Risk Factors) ~~of Part I~~ of our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2022 (“~~2016~~2022 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.

WERNER ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF INCOME


	Three Months Ended March 31,
(In thousands, except per share amounts)	2023		2022
Operating revenues	$	832,714	$	764,605
Operating expenses:
Salaries, wages and benefits	268,315		241,996
Fuel	91,414		88,421
Supplies and maintenance	68,225		57,025
Taxes and licenses	25,425		23,833
Insurance and claims	36,485		27,492
Depreciation and amortization	74,313		67,229
Rent and purchased transportation	220,224		185,237
Communications and utilities	4,733		3,926
Other	(9,806)		(14,065)
Total operating expenses	779,328		681,094
Operating income	53,386		83,511
Other expense (income):
Interest expense	7,916		1,439
Interest income	(1,552)		(275)
Loss on investments in equity securities	81		9,806
Other	7		73
Total other expense, net	6,452		11,043
Income before income taxes	46,934		72,468
Income tax expense	11,400		17,433
Net income	35,534		55,035
Net income attributable to noncontrolling interest	(310)		(1,286)
Net income attributable to Werner	$	35,224	$	53,749
Earnings per share:
Basic	$	0.56	$	0.82
Diluted	$	0.55	$	0.82
Weighted-average common shares outstanding:
Basic	63,306		65,543
Diluted	63,695		65,878

See Notes to Consolidated Financial Statements (Unaudited).

WERNER ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three Months Ended March 31,
(In thousands)	2023		2022
Net income	$	35,534	$	55,035
Other comprehensive income (loss):
Foreign currency translation adjustments	3,001		1,153
Change in fair value of interest rate swaps, net of tax	(973)		3,631
Other comprehensive income, net	2,028		4,784
Comprehensive income	37,562		59,819
Comprehensive income attributable to noncontrolling interest	(310)		(1,286)
Comprehensive income attributable to Werner	$	37,252	$	58,533

See Notes to Consolidated Financial Statements (Unaudited).

WERNER ENTERPRISES, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS


(In thousands, except share amounts)	March 31, 2023		December 31, 2022
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	129,591	$	107,240
Accounts receivable, trade, less allowance of $10,240 and $10,271, respectively	460,999		518,815
Other receivables	29,400		29,875
Inventories and supplies	14,926		14,527
Prepaid taxes, licenses and permits	13,956		17,699
Other current assets	60,904		74,459
Total current assets	709,776		762,615
Property and equipment	2,875,063		2,885,641
Less – accumulated depreciation	1,020,469		1,060,365
Property and equipment, net	1,854,594		1,825,276
Goodwill	129,104		132,717
Intangible assets, net	94,030		81,502
Other non-current assets	328,812		295,145
Total assets	$	3,116,316	$	3,097,255
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY
Current liabilities:

Accounts payable	$	128,955	$	124,483
Current portion of long-term debt	5,000		6,250
Insurance and claims accruals	80,738		78,620
Accrued payroll	43,541		49,793

Accrued expenses	20,057		20,358
Other current liabilities	25,038		30,016
Total current liabilities	303,329		309,520
Long-term debt, net of current portion	686,250		687,500
Other long-term liabilities	58,567		59,677
Insurance and claims accruals, net of current portion	245,900		244,946

Deferred income taxes	312,724		313,278
Total liabilities	1,606,770		1,614,921
Commitments and contingencies
Temporary equity - redeemable noncontrolling interest	39,009		38,699
Stockholders’ equity:
Common stock, $0.01 par value, 200,000,000 shares authorized; 80,533,536 shares
issued; 63,376,934 and 63,223,003 shares outstanding, respectively	805		805
Paid-in capital	128,050		129,837
Retained earnings	1,902,858		1,875,873
Accumulated other comprehensive loss	(9,264)		(11,292)
Treasury stock, at cost; 17,156,602 and 17,310,533 shares, respectively	(551,912)		(551,588)
Total stockholders’ equity	1,470,537		1,443,635
Total liabilities, temporary equity and stockholders’ equity	$	3,116,316	$	3,097,255

See Notes to Consolidated Financial Statements (Unaudited).

WERNER ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended March 31,
(In thousands)	2023		2022
Cash flows from operating activities:
Net income	$	35,534	$	55,035
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	74,313		67,229
Deferred income taxes	(111)		(254)
Gain on disposal of property and equipment	(18,339)		(20,458)
Non-cash equity compensation	3,403		3,026
Insurance and claims accruals, net of current portion	954		4,470
Loss on investments in equity securities	81		9,806
Other	(417)		(2,080)
Changes in certain working capital items:
Accounts receivable, net	57,866		11,279
Other current assets	17,336		13,152
Accounts payable	6,484		12,330
Other current liabilities	(10,257)		1,422
Net cash provided by operating activities	166,847		154,957
Cash flows from investing activities:
Additions to property and equipment	(161,764)		(73,629)
Proceeds from sales of property and equipment	59,021		36,555
Net cash invested in acquisition	(188)		705

Payment to acquire equity method investment	(2,125)		—
Issuance of notes receivable	(25,000)		—
Decrease in notes receivable	826		1,831
Net cash used in investing activities	(129,230)		(34,538)
Cash flows from financing activities:
Repayments of short-term debt	(2,500)		(1,250)

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

Dividends on common stock	(8,220)		(7,895)
Repurchases of common stock	—		(36,180)
Tax withholding related to net share settlements of restricted stock awards	(5,514)		(3,658)



Net cash used in financing activities	(16,234)		(48,983)
Effect of exchange rate fluctuations on cash	968		317
Net increase in cash and cash equivalents	22,351		71,753
Cash and cash equivalents, beginning of period	107,240		54,196
Cash and cash equivalents, end of period	$	129,591	$	125,949
Supplemental disclosures of cash flow information:
Interest paid	$	8,244	$	1,536
Income taxes paid	219		837
Supplemental schedule of non-cash investing and financing activities:
Notes receivable issued upon sale of property and equipment	$	756	$	1,613
Change in fair value of interest rate swaps	(973)		3,631
Property and equipment acquired included in accounts payable	4,008		13,671
Property and equipment disposed included in other receivables	110		154
Dividends accrued but not yet paid at end of period	8,239		7,807
Contingent consideration associated with acquisitions	(800)		—

See Notes to Consolidated Financial Statements (Unaudited).

WERNER ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND

TEMPORARY EQUITY - REDEEMABLE NONCONTROLLING INTEREST


	Three Months Ended March 31, 2023
(In thousands, except share and per share amounts)	Common Stock		Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Stockholders’ Equity		Temporary Equity - Redeemable Noncontrolling Interest
BALANCE, December 31, 2022	$	805	$	129,837	$	1,875,873	$	(11,292)	$	(551,588)	$	1,443,635	$	38,699
Net income attributable to Werner	—		—		35,224		—		—		35,224		—
Net income attributable to noncontrolling interest	—		—		—		—		—		—		310
Other comprehensive income	—		—		—		2,028		—		2,028		—

Dividends on common stock ($0.13 per share)	—		—		(8,239)		—		—		(8,239)		—
Equity compensation activity, 153,931 shares	—		(5,190)		—		—		(324)		(5,514)		—
Non-cash equity compensation expense	—		3,403		—		—		—		3,403		—

BALANCE, March 31, 2023	$	805	$	128,050	$	1,902,858	$	(9,264)	$	(551,912)	$	1,470,537	$	39,009


	Three Months Ended March 31, 2022
(In thousands, except share and per share amounts)	Common Stock		Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Stockholders’ Equity		Temporary Equity - Redeemable Noncontrolling Interest
BALANCE, December 31, 2021	$	805	$	121,904	$	1,667,104	$	(20,604)	$	(441,659)	$	1,327,550	$	35,947
Net income attributable to Werner	—		—		53,749		—		—		53,749		—
Net income attributable to noncontrolling interest	—		—		—		—		—		—		1,286
Other comprehensive income	—		—		—		4,784		—		4,784		—
Purchases of 845,100 shares of common stock	—		—		—		—		(36,180)		(36,180)		—
Dividends on common stock ($0.12 per share)	—		—		(7,807)		—		—		(7,807)		—
Equity compensation activity, 112,751 shares	—		(3,773)		—		—		115		(3,658)		—
Non-cash equity compensation expense	—		3,026		—		—		—		3,026		—


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

See Notes to Consolidated Financial Statements (Unaudited).

WERNER ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1) Basis of Presentation and Recent Accounting Pronouncements

Basis of Presentation

The accompanying unaudited interim consolidated financial statements ~~contained herein reflect all adjustments~~include the accounts of Werner Enterprises, Inc. and its subsidiaries (collectively, the “Company” or “Werner”). Noncontrolling interest on the consolidated condensed balance sheets represents the portion of a consolidated entity in which inwe do not have a direct equity ownership. In these notes, the ~~opinion of management, are necessary for a fair statement of the financial condition, results of operations~~terms “we,” “us,” or “our” refer to Werner Enterprises, Inc. and ~~cash flows for the periods presented. The interim~~its subsidiaries. All significant intercompany accounts and transactions relating to these entities have been eliminated.

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

Operating results for the ~~three-month and nine-month periods~~three months ended ~~September 30, 2017,~~March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2023. In the opinion of management, the information set forth in the accompanying consolidated condensed balance sheets is fairly stated in all material respects in relation to the consolidated balance sheets from which it has been derived.

These ~~interim~~ consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and accompanying notes contained in our ~~2016~~2022 Form 10-K.

~~WERNER ENTERPRISES, INC.~~(2) Business Acquisitions

~~CONSOLIDATED STATEMENTS OF INCOME~~Developments during the three months ended March 31, 2023 related to our 2022 business acquisitions are discussed below.

Three Months Ended
September 30, Nine Months Ended
September 30,
(In thousands, except per share amounts) 2017 2016 2017 2016
(Unaudited)
Operating revenues $ 528,643
$ 508,676
$ 1,549,372
$ 1,490,159
Operating expenses:
Salaries, wages and benefits 170,238
162,862
500,620
479,298
Fuel 50,266
40,638
140,551
112,034
Supplies and maintenance 41,986
41,027
120,276
130,559
Taxes and licenses 21,671
21,540
64,095
64,353
Insurance and claims 20,669
19,106
60,336
59,384
Depreciation 53,578
51,781
162,619
152,849
Rent and purchased transportation 126,087
133,876
377,146
379,155
Communications and utilities 4,199
4,206
12,158
12,110
Other 4,075
4,566
12,812
9,303
Total operating expenses 492,769
479,602
1,450,613
1,399,045
Operating income 35,874
29,074
98,759
91,114
Other expense (income):
Interest expense 492
749
1,892
1,839
Interest income (766 ) (1,055 ) (2,556 ) (3,154 )
Other 88
46
293
148
Total other income (186 ) (260 ) (371 ) (1,167 )
Income before income taxes 36,060
29,334
99,130
92,281
Income taxes 13,543
10,414
37,375
34,963
Net income $ 22,517
$ 18,920
$ 61,755
$ 57,318
Earnings per share:
Basic $ 0.31
$ 0.26
$ 0.85
$ 0.80
Diluted $ 0.31
$ 0.26
$ 0.85
$ 0.79
Dividends declared per share $ 0.070
$ 0.060
$ 0.200
$ 0.180
Weighted-average common shares outstanding:
Basic 72,298
72,058
72,239
72,043
Diluted 72,601
72,406
72,517
72,364

~~See Notes~~On November 5, 2022, we acquired 100% of the equity interests in Reed Transport Services, Inc. and RTS-TMS, Inc., doing business as ReedTMS Logistics (“ReedTMS”), for a total purchase price of $108.6 million after including the impacts of working capital adjustments, cash acquired, net present value of future insurance payments, and contingent consideration. ReedTMS is an asset-light logistics provider and dedicated truckload carrier that offers a comprehensive suite of freight brokerage and truckload solutions to ~~Consolidated Financial Statements (Unaudited).~~

~~See Notes to Consolidated Financial Statements (Unaudited).~~

~~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

~~See Notes to Consolidated Financial Statements (Unaudited).~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~(1) Accounting Policies~~

~~In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-11, “Inventory: Simplifying the Measurement~~a diverse customer base. The results of ~~Inventory,” which requires inventory to be recorded at the lower of cost and net realizable value (instead of lower of cost or market). The Company adopted ASU No. 2015-11~~operations for ReedTMS are included in our consolidated financial statements beginning November 5, 2022. Pro forma information for this acquisition is not provided as ~~of January 1, 2017. Upon adoption, this update had no effect~~it did not have a material impact on our consolidated ~~financial position,~~operating results.

The following table summarizes the provisional purchase price allocation for ReedTMS, including any adjustments during the three months ended March 31, 2023 (in thousands):


	November 5, 2022 Opening Balance sheet as Reported at December 31, 2022		Adjustments (1)		November 5, 2022 Opening Balance sheet as Reported at March 31, 2023
Purchase Price
Cash consideration paid	$	116,989	$	—	$	116,989	(2)
Cash and cash equivalents acquired	(12,120)		—		(12,120)
Contingent consideration arrangement	5,000		(800)		4,200		(3)
Working capital surplus (deficiency)	(689)		188		(501)
Total purchase price (fair value of consideration)	109,180		(612)		108,568
Purchase Price Allocation
Current assets	52,531		49		52,580
Property and equipment	35,000		(12,485)		22,515
Intangible assets	12,000		15,300		27,300
Other non-current assets	7,927		(1)		7,926
Total assets acquired	107,458		2,863		110,321
Current liabilities	(45,497)		(389)		(45,886)
Other long-term liabilities	(5,622)		527		(5,095)
Total liabilities assumed	(51,119)		138		(50,981)
Goodwill	$	52,841	$	(3,613)	$	49,228

(1) No material statement of income effects were identified with these adjustments.

(2) Includes $0.9 million related to the net present value of future insurance payments. At closing, $11.5 million of the cash consideration was placed in escrow to secure certain indemnification obligations of the sellers and to cover post-closing adjustments. During the three months ended March 31, 2023, we received $2.1 million from escrow for post-closing adjustments. The remaining balance of the escrow, except for $0.5 million, was returned to the sellers. In exchange, the sellers obtained a $10.0 million Standby Letter of Credit with the Company named as beneficiary.

(3) The contingent earnout liability is recorded in other long-term liabilities on the consolidated condensed balance sheets as of March 31, 2023 and December 31, 2022. For additional information regarding the valuation of the contingent liability, see Note 6 – Fair Value.

On October 1, 2022, we acquired 100% of the equity interests in FAB9, Inc., doing business as Baylor Trucking, Inc. (“Baylor”), for a total purchase price of $89.0 million after including the impacts of working capital adjustments, cash acquired, and contingent consideration. Baylor operates in the east central and south central United States. The results of operations ~~or cash flows.~~for Baylor are included in our consolidated financial statements beginning October 1, 2022. Pro forma information for this acquisition is not provided as it did not have a material impact on our consolidated operating results. No measurement period adjustments were recorded during the three months ended March 31, 2023.

Purchase Price Allocations

~~In March 2016,~~We accounted for the ~~FASB issued ASU No. 2016-09, “Compensation - Stock Compensation: Improvements~~ReedTMS and Baylor purchases using the acquisition method of accounting under GAAP. The purchase price of each acquisition has been allocated to ~~Employee Share-Based Payment Accounting,” to simplify several aspects~~the assets acquired and liabilities assumed using market data and valuation techniques. The estimated fair values of the ~~accounting~~assets acquired and liabilities assumed are considered provisional for ~~share-based payment transactions.~~ReedTMS and Baylor, pending the completion of acquired tangible assets valuations, independent valuations of certain acquired intangible assets, and calculations of deferred taxes based upon the underlying tax basis of assets acquired and liabilities assumed. The determination of estimated fair values requires management to make significant estimates and assumptions. We believe that the information available provides a reasonable basis for estimating the values of assets acquired and liabilities assumed in the ReedTMS and Baylor acquisitions; however, these provisional estimates may be adjusted upon the availability of new ~~update requires excess tax benefits~~information regarding facts and ~~tax deficiencies~~circumstances which existed at the acquisition dates, and such adjustments may impact future earnings. We expect to finalize the valuation of assets and liabilities for ReedTMS and Baylor as soon as practicable, but not later than one year from the respective acquisition dates. Any adjustments to the initial estimates of the fair value of the

acquired assets and liabilities assumed in the ReedTMS and Baylor acquisitions will be recorded as adjustments to the respective assets and liabilities, with the residual amounts allocated to goodwill.

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 ~~recorded~~entitled to in exchange for those services.

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


	Three Months Ended March 31,
	2023		2022
Truckload Transportation Services	$	588,330	$	558,417
Werner Logistics	228,669		189,008
Inter-segment eliminations	(5,261)		(722)
Transportation services	811,738		746,703
Other revenues	20,976		17,902
Total revenues	$	832,714	$	764,605

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


	Three Months Ended March 31,
	2023		2022
United States	$	782,293	$	710,904
Mexico	41,813		43,291
Other	8,608		10,410
Total revenues	$	832,714	$	764,605

Contract Balances and Accounts Receivable

A receivable is an unconditional right to consideration and is recognized when shipments have been completed and the related performance obligation has been fully satisfied. At March 31, 2023 and December 31, 2022, the accounts receivable, trade, net, balance was$461.0 million and $518.8 million, respectively. Contract assets represent a conditional right to consideration in exchange for goods or services and are transferred to receivables when the rights become unconditional. At March 31, 2023 and December 31, 2022, the balance of contract assets was $7.3 million and $8.9 million, respectively. We have recognized contract assets within the other current assets financial statement caption on the consolidated condensed balance sheets. These contract assets are considered current assets as they will be settled in less than 12 months.

Contract liabilities represent advance consideration received from customers and are recognized as revenues over time as the related performance obligation is satisfied. At March 31, 2023 and December 31, 2022, the balance of contract liabilities was $1.2 million and $0.9 million, respectively. The amount of revenues recognized in the three months ended March 31, 2023 that was included in the December 31, 2022 contract liability balance was $0.9 million. We have recognized contract liabilities within the accounts payable and other current liabilities financial statement captions on the consolidated ~~statements~~condensed balance sheets. These contract liabilities are considered current liabilities as they will be settled in less than 12 months.

Performance Obligations

We have elected to apply the practical expedient in Accounting Standards Codification (“ASC”) Topic 606, Revenue From Contracts With Customers, to not disclose the value of ~~income~~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 ~~a component of income tax expense when share-based awards vest or are settled. The update also eliminates~~revenue in the ~~requirement~~period subsequent to ~~reclassify cash flows~~the reporting date; transit times generally average approximately 3 days.

During the three months ended March 31, 2023 and 2022, revenues recognized from performance obligations related to prior periods (for example, due to changes in transaction price) were not material.

(4) Goodwill and Intangible Assets

Goodwill represents the excess ~~tax benefits from operating activities~~of cost over the fair value of net identifiable tangible and intangible assets acquired in business combinations. The following table summarizes changes in the carrying amount of goodwill by segment for the three months ended March 31, 2023 (in thousands):


	TTS		Werner Logistics		Total
Balance as of December 31, 2022	$	53,897	$	78,820	$	132,717
Purchase accounting adjustments (1)	(7,841)		4,228		(3,613)
Balance as of March 31, 2023	$	46,056	$	83,048	$	129,104

(1) The purchase accounting adjustments consist of post-closing adjustments related to ~~financing activities~~net assets assumed in the acquisition of ReedTMS. For additional information regarding these purchase accounting adjustments, see Note 2.

The following table presents acquired intangible assets (in thousands):


	March 31, 2023						December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Customer relationships	$	80,200	$	(7,974)	$	72,226	$	64,900	$	(5,714)	$	59,186
Trade names	24,600		(2,796)		21,804		24,600		(2,284)		22,316
Total intangible assets	$	104,800	$	(10,770)	$	94,030	$	89,500	$	(7,998)	$	81,502

Amortization expense on intangible assets was $2.8 million and $1.4 million for the three months ended March 31, 2023 and 2022, respectively, and is reported in depreciation and amortization on the consolidated statements of ~~cash flows.~~income. As of March 31, 2023, we estimate future amortization expense for intangible assets will be $7.6 million for the remainder of 2023, and $10.1 million for each of the five succeeding fiscal years.

We have entered into operating leases primarily for real estate. The ~~standard also provides an accounting policy election~~leases have terms which range from 1 year to ~~account for forfeitures as they occur~~18 years, and ~~now allows for withholding up~~some include options to renew. Renewal terms are included in the ~~maximum statutory tax rate~~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 ~~certain share-based awards without triggering liability accounting.~~

~~The Company adopted ASU No. 2016-09 as of January 1, 2017. Upon adoption, share-based payment excess tax benefits~~the consolidated condensed balance sheets. These assets and ~~tax deficiencies~~liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date, using our incremental borrowing rate because the rate implicit in each lease is not readily determinable. We have certain contracts for real estate that may contain lease and non-lease components which we have elected to treat as a single lease component. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Variable lease expense is recognized in the period in which the obligation for those payments is incurred. Lease expense is reported in rent and purchased transportation on the consolidated statements of ~~income~~income.

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


	March 31, 2023			December 31, 2022
Balance Sheet Classification
Right-of-use assets (recorded in other non-current assets)	$	39,805		$	40,963

Current lease liabilities (recorded in other current liabilities)	$	9,388		$	9,396
Long-term lease liabilities (recorded in other long-term liabilities)	31,827			32,897
Total operating lease liabilities	$	41,215		$	42,293

Other Information
Weighted-average remaining lease term for operating leases	6.29 years			6.43 years
Weighted-average discount rate for operating leases	3.4		%	3.3		%

The following table presents the maturities of operating lease liabilities as of March 31, 2023 (in thousands):


Maturity of Lease Liabilities
2023 (remaining)	$	8,040
2024	9,950
2025	7,853
2026	5,937
2027	3,997
Thereafter	9,548
Total undiscounted operating lease payments	$	45,325
Less: Imputed interest	(4,110)
Present value of operating lease liabilities	$	41,215

During the three months ended March 31, 2023 and 2022, right-of-use assets of $1.5 million and $10.2 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 $2.9 million and $1.8 million for the three months ended March 31, 2023 and 2022, respectively, and are included in operating cash flows.

Operating Lease Expense

Operating lease expense was $6.2 million and $5.1 million for the three months ended March 31, 2023 and 2022, respectively. This expense included $3.0 million and $2.1 million for long-term operating leases for the three months ended March 31, 2023 and 2022, respectively, with the remainder for variable and short-term lease expense.

Lessor Operating Leases

We are the lessor of tractors and trailers under operating leases with initial terms of 2 to 10 years. We recognize revenue for such leases on a ~~component~~straight-line basis over the term of ~~income tax expense, rather~~the lease. Revenues were $2.7 million and $3.2 million for the three months ended March 31, 2023 and 2022, respectively. The following table presents information about the maturities of these operating leases as of March 31, 2023 (in thousands):


2023 (remaining)	$	6,907
2024	1,875
2025	307
2026	316
2027	80
Thereafter	—
Total	$	9,485

Fair Value Measurement — Definition and Hierarchy

ASC 820-10, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.

ASC 820-10 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of the Company. Unobservable inputs reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability, developed based on the best information available in the circumstances.

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows:

Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access.

Level 2 — Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Such inputs include quoted prices in markets that are not active, quoted prices for similar assets and liabilities in active and inactive markets, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

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

In general, and where applicable, we use quoted prices in active markets for identical assets or liabilities to determine fair value. This pricing methodology applies to our Level 1 assets and liabilities. If quoted prices in active markets for identical assets and liabilities are not available to determine fair value, then we use quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable, either directly or indirectly. This pricing methodology would apply to Level 2 assets and liabilities.

The following table presents the fair value hierarchy for our assets and liabilities measured at fair value on a recurring basis (in thousands):


	Level in Fair Value Hierarchy	Fair Value
		March 31, 2023		December 31, 2022
Assets:
Other non-current assets:
Equity securities (1)	1	$	642	$	723
Liabilities:
Other long-term liabilities:
Contingent consideration associated with acquisitions	3	$	12,877	$	13,400

(1) Represents our investments in autonomous technology companies. For additional ~~paid-in capital~~information regarding the valuation of these equity securities, see Note 7 – Investments.

The following table presents changes in the fair value of our contingent earnout liabilities (in thousands):


	Three Months Ended March 31,
	2023		2022
Balance at beginning of period	$	13,400	$	2,500
Measurement period adjustment associated with the acquisition of ReedTMS (1)	(800)		—
Change in fair value	277		—
Balance at end of period	$	12,877	$	2,500

(1) The measurement period adjustment was recorded in goodwill on the consolidated condensed balance sheet.

The estimated fair values of our contingent consideration arrangements are based upon probability-adjusted inputs for each acquired entity. Additionally, as ~~previously recognized. The Company elected to report excess tax benefits as~~the liability is stated at present value, the passage of time alone will increase the estimated fair value of the liability each reporting period. Any changes in fair value will be recorded in other operating ~~activities in~~expenses on the consolidated statements of income.

Our ownership interests in Mastery Logistics Systems, Inc. (“MLSI”) and Fleet Defender, Inc. do not have readily determinable fair values and are accounted for using the measurement alternative in ASC 321, Investments - Equity Securities. Our ownership interest in Autotech Fund III, L.P. (“Autotech Fund III”) is accounted for under ASC 323, “Investments - Equity Method and Joint Ventures.” For additional information regarding the valuation of these investments, see Note 7 – Investments.

Fair Value of Financial Instruments Not Recorded at Fair Value

Cash and cash ~~flows~~equivalents, accounts receivable trade, and accounts payable are short-term in nature and accordingly are carried at amounts that approximate fair value.

The carrying amount of our fixed-rate debt not measured at fair value on a ~~prospective~~recurring basis was $91.3 million and ~~prior period amounts~~$93.8 million as of March 31, 2023 and December 31, 2022, respectively. The estimated fair value of our fixed-rate debt using the income approach, based on its net present value, discounted at our current borrowing rate, was $85.9 million and $87.2 million as of March 31, 2023 and December 31, 2022, respectively (categorized as Level 2 of the fair value hierarchy). The carrying amount

of our variable-rate long-term debt approximates fair value due to the duration of our credit arrangement and the variable interest rate (categorized as Level 2 of the fair value hierarchy).

Equity Investments without Readily Determinable Fair Values

Our strategic equity investments without readily determinable fair values include MLSI, a transportation management systems company, and Fleet Defender, Inc., a platform cybersecurity company for fleet owners. MLSI is developing a cloud-based transportation management system using MLSI's SaaS technology which we have ~~not been adjusted.~~agreed to license. These investments are being accounted for under ASC 321 using the measurement alternative and are recorded in other noncurrent assets on the consolidated condensed balance sheets. We record changes in the values of these investments based on events that occur that would indicate the values have changed, in loss (gain) on investments in equity securities on the consolidated statements of income. As of March 31, 2023 and December 31, 2022, the value of our investment in MLSI was $86.8 million and the value of our investment in Fleet Defender, Inc. was $250 thousand. There was no activity related to our equity investments without readily determinable fair values during the three months ended March 31, 2023 and 2022. As of March 31, 2023, cumulative upward adjustments on our equity securities without readily determinable fair values totaled $56.8 million.

Equity Investments with Readily Determinable Fair Values

We own strategic minority equity investments in autonomous technology companies, which are being accounted for under ASC 321 and are recorded in other noncurrent assets on the consolidated condensed balance sheets. We record changes in the value of these investments, based on the share prices reported by Nasdaq, in loss (gain) on investments in equity securities on the consolidated statements of income. As of March 31, 2023 and December 31, 2022, the value of these investments was $0.6 million and $0.7 million, respectively. We recognized an unrealized loss of $0.1 million and $9.8 million on these investments for the three months ended March 31, 2023 and 2022, respectively. For additional information regarding the fair value of these equity investments, see Note 6 – Fair Value.

Equity Method Investment

In January 2023, we committed to make a $20.0 million investment in Autotech Fund III pursuant to a limited partnership agreement. Autotech Fund III is managed by Autotech Ventures, a venture capital firm focused on ground transportation technology. Our interest, which represents an ownership percentage of less than 20%, is being accounted for under ASC 323, “Investments - Equity Method and Joint Ventures.” As a limited partner, we will make periodic capital contributions toward this total commitment amount. As of March 31, 2023, our cumulative investment in Autotech Fund III was $2.1 million, which we contributed during the three months ended March 31, 2023. As of March 31, 2023, the value of our investment in Autotech Fund III was $2.1 million and is recorded in other noncurrent assets on the consolidated condensed balance sheets. We will record earnings and losses attributed to the fund in loss (earnings) from equity method investment on the consolidated statements of income. No earnings or losses were recognized for the three months ended March 31, 2023. The ~~Company also elected to use actual forfeitures to determine the~~carrying amount of ~~share-based compensation expense~~Autotech Fund III as of March 31, 2023 approximates its fair value, as this is the most recent information available to us at this time.

(8) Notes Receivable

We provide financing to some individuals who want to become independent contractors by purchasing a tractor from us and leasing their services to us. We maintain a primary security interest in the tractor until the independent contractor pays the note balance in full. On January 24, 2023, we purchased a $25.0 million subordinated promissory note from MLSI with a maturity date of January 24, 2030. The proceeds of the promissory note may be ~~recognized. This change was applied~~used by MLSI for working capital and general business purposes, including a limited amount for possible repayment of certain advances. There are no scheduled principal payments due on ~~a modified retrospective basis~~the MLSI promissory note until the maturity date, and ~~resulted~~interest accrues at 7.5% compounded annually, with the first accrued interest payment due on January 24, 2028, and at the end of each calendar year thereafter. The independent contractor notes receivable, MLSI subordinated promissory note, and other notes receivable are included in ~~a $0.3 million decrease~~other current assets and other non-current assets in the consolidated balance sheets.

The following table presents our notes receivable (in thousands):


	March 31, 2023		December 31, 2022
Independent contractor notes receivable	$	8,080	$	8,287
MLSI subordinated promissory note	25,000		—
Other notes receivable	8,058		7,921
Notes receivable	41,138		16,208
Less current portion	2,654		2,691
Notes receivable – non-current	$	38,484	$	13,517

We also provide financing to ~~retained earnings~~some individuals who attended our driver training schools. The student notes receivable is included in ~~first quarter 2017.~~other receivables and other non-current assets in the consolidated balance sheets. The following table presents our student notes receivable (in thousands):


	March 31, 2023		December 31, 2022
Student notes receivable	$	62,971	$	63,351
Allowance for doubtful student notes receivable	(22,885)		(23,491)
Total student notes receivable, net of allowance	40,086		39,860
Less current portion, net of allowance	13,194		12,574
Student notes receivable – non-current	$	26,892	$	27,286

~~(2)~~(9) Debt and Credit Facilities

~~As of September 30, 2017,~~On December 20, 2022, we ~~had~~entered into a $1.075 billion unsecured ~~committed credit facilities with three banks as well as a term commitment with one of these banks. We had with Wells Fargo Bank, N.A., a $100.0 million~~ credit facility ~~which will expire on July 12, 2020, and~~with a ~~$75.0 million term commitment with principal due and payable on September 15, 2019. We had an~~group of lenders (the “2022 Credit Agreement”), replacing our previous unsecured ~~line of credit of $75.0 million with U.S. Bank, N.A., which will expire on July 13, 2020. We also had a $75.0 million~~ credit facility with BMO Harris Bank N.A. (“BMO Harris”), ~~which will expire~~dated May 14, 2019, as amended, and the credit agreement with Wells Fargo Bank, National Association, dated March 25, 2022. The 2022 Credit Agreement is scheduled to mature on ~~March 5, 2020. Borrowings~~December 20, 2027 and has a $100.0 million maximum limit for the aggregate amount of letters of credit issued.

Revolving credit loans drawn under ~~these~~the 2022 Credit Agreement bear interest, at our option, at (i) the Base Rate (the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.50%, or (c) the one-month Term SOFR plus 1.10%), plus a margin ranging between 0.125% and 0.750%, or (ii) Term SOFR plus 0.10% and a margin ranging between 1.125% and 1.750%. Swingline loans drawn under the 2022 Credit Agreement bear interest at the Base Rate, as defined above, plus a margin ranging between 0.125% and 0.750%. The 2022 Credit Agreement also requires us to pay quarterly (i) a letter of credit ~~facilities~~commission on the daily amount available to be drawn under such standby letters of credit at rates ranging between 1.125% and ~~term note bear variable interest~~1.750% per annum and (ii) a nonrefundable commitment fee on the average daily unused amount of the commitment at rates ranging between 0.125% and 0.250% per annum. The margin, letter of credit commission, and commitment fee rates are based on our ratio of net funded debt to earnings before interest, income taxes, depreciation and amortization (“EBITDA”). There are no scheduled principal payments due on the ~~London Interbank Offered Rate (“LIBOR”~~2022 Credit Agreement until the maturity date, and interest is payable in arrears at periodic intervals not to exceed three months.

On June 30, 2021, we entered into a $100.0 million unsecured fixed-rate term loan commitment with BMO Harris, with quarterly principal payments of $1.25 million and a final payment of principal and interest due and payable on May 14, 2024 ("BMO Term Loan").

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

As of ~~September 30, 2017,~~March 31, 2023 and December 31, ~~2016,~~2022, our outstanding debt totaled ~~$75.0~~$691.3 million and ~~$180.0~~$693.8 million, respectively. WeAs of March 31, 2023, we had ~~$75.0~~an outstanding revolving credit loan balance of $600.0 million ~~outstanding~~ under the ~~term commitment~~2022 Credit Agreement, including (i) $450.0 million at a variable interest rate of ~~1.83% as of September 30, 2017,~~6.11% and (ii) $150.0 million which is effectively fixed at ~~2.5%~~2.88% with antwo interest rate swap ~~agreement.~~agreements through May 14, 2024. In addition, as of March 31, 2023, we had $91.3 million outstanding under the BMO Term Loan at a fixed interest rate of 1.28%. The ~~$325.0 million~~$1.075 billion of borrowing capacity under our ~~credit facilities~~2022 Credit Agreement at ~~September 30, 2017,~~March 31, 2023, is further reduced by ~~$28.7~~$60.4 million in stand-by letters of credit under which we are obligated. ~~Each~~Availability of such funds under the current debt agreements ~~includes,~~is conditional upon various customary terms and covenants. Such covenants include, among other things, two financial covenants requiring us (i) not to exceed a maximum ratio of ~~total~~net funded debt to ~~total capitalization and/or~~EBITDA and (ii) ~~not~~ to exceed a ~~maximum~~minimum ratio of ~~total funded debt~~EBITDA to ~~earnings before~~ interest ~~income taxes, depreciation and amortization (as such terms are defined in each credit facility). At September 30, 2017,~~expense. As of March 31, 2023, we were in compliance with these covenants.

At ~~September 30, 2017,~~March 31, 2023, the aggregate future maturities of long-term debt by year are as follows (in thousands):


2023 (remaining)	$	3,750
2024	87,500
2025	—
2026	—
2027	600,000
Total	$	691,250

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)~~(10) Commitments and Contingencies

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

$271.4 million at March 31, 2023.

We are involved in certain claims and pending litigation, including those described herein, arising in the ordinary course of business. The majority of these claims relate to bodily injury, property damage, cargo and workers’ compensation incurred in the transportation of freight, as well as certain class action litigation related to personnel and employment matters. We accrue for the uninsured portion of contingent losses from these and other pending claims when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Based on the knowledge of the facts, management believes the resolution of claims and pending litigation, taking into account existing reserves, will not have a material adverse effect on our consolidated financial statements. Moreover, the results of complex legal proceedings are difficult to predict, and our view of these matters may change in the future as the litigation and related events unfold.

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

The Company has premium-based liability insurance to cover the potential outcome from this jury verdict. Under the Company’s insurance policies in effect on the date of this accident, the Company’s maximum liability for this accident is $10.0 million (plus pre-judgment and post-judgment interest) with premium-based coverage that exceeds the jury verdict amount. As a result of this jury verdict, the Company had recorded a liability of $35.5 million as of March 31, 2023, and $34.1 million as of December 31, 2022. Under the terms of the Company’s insurance policies, the Company is the primary obligor of the verdict, and as such, the Company has also recorded a $79.2 million receivable from its third-party insurance providers in other non-current assets and a corresponding liability of the same amount in the long-term portion of insurance and claims accruals in the consolidated condensed balance sheets as of March 31, 2023 and December 31, 2022.

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

We ~~are~~have been involved in class action litigation in the U.S. District Court for the District of Nebraska, in which the plaintiffs allege that we owe drivers for unpaid wages under the Fair Labor Standards Act ~~(FLSA)~~(“FLSA”) and the Nebraska Wage Payment and Collection Act and that we failed to pay minimum wage per hour for drivers in our ~~student driver training program,~~Career Track Program, related to short break time and sleeper berth time. The period covered by this class action suit is August 2008 through March 2014. The case was tried to a jury in May 2017, resulting in a verdict of $0.8 million in plaintiffs’ favor on the short break matter and a verdict in our favor on the sleeper berth matter. As a result of ~~September 30, 2017,~~various post-trial motions, the court awarded $0.5 million to the plaintiffs for attorney fees and costs. Plaintiffs appealed the post-verdict amounts awarded by the trial court for fees, costs and liquidated damages, and the Company filed a cross appeal on the verdict that was in plaintiffs’ favor. The United States Court of Appeals for the Eighth Circuit denied Plaintiffs’ appeal and granted Werner’s appeal, vacating the judgment in favor of the plaintiffs. The appellate court sent the case back to the trial court for proceedings consistent with the appellate court’s opinion. On June 22, 2020, the trial court denied Plaintiffs’ request for a new trial and entered judgment in favor of the Company, dismissing the case with prejudice. On July 21, 2020, Plaintiffs’ counsel filed a notice of appeal of that dismissal. On August 3, 2022, the Eighth Circuit Court of Appeals vacated the district court’s judgment and remanded the case, for the trial court to determine whether the plaintiffs should be granted a new trial on the short break claim. On January 10, 2023, the trial court denied Plaintiff’s motion for a new trial and entered judgment in Werner’s favor on all claims. As of March 31, 2023, 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.

(11) Earnings Per Share

Basic earnings per share is computed by dividing net income attributable to Werner by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income attributable to Werner 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 ~~period~~periods presented.

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


	Three Months Ended March 31,
	2023		2022
Net income attributable to Werner	$	35,224	$	53,749
Weighted average common shares outstanding	63,306		65,543
Dilutive effect of stock-based awards	389		335
Shares used in computing diluted earnings per share	63,695		65,878
Basic earnings per share	$	0.56	$	0.82
Diluted earnings per share	$	0.55	$	0.82

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) Equity Compensation~~

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

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

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.

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:

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 84 months from the grant date of the award. The restricted awards do not confer any voting or dividend rights to recipients until such shares vest and do not have any post-vesting sales restrictions. The following table summarizes restricted award activity for the nine months ended September 30, 2017:

Number of
Restricted
Awards (in
thousands)

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

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

The total fair value of previously granted restricted awards vested during the nine-month period ended September 30, 2017 was $0.5 million and for the nine-month period ended September 30, 2016 was $0.3 million. When restricted awards vest, we withhold shares based on the closing stock price on the vesting date to settle the employees’ statutory obligation for the applicable income and other employment taxes. The shares withheld to satisfy the tax withholding obligations are recorded as treasury stock.

~~Performance Awards~~

Performance awards entitle the recipient to shares of common stock upon attainment of performance objectives as pre-established by the Compensation Committee. If the performance objectives are achieved, performance awards currently outstanding vest, subject to continued employment, over periods ranging from 12 to 60 months from the grant date of the award. The performance awards do not confer any voting or dividend rights to recipients until such shares vest and do not have any post-vesting sales restrictions. The following table summarizes performance award activity for the nine months ended September 30, 2017:

Number of
Performance
Awards (in
thousands)

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

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

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

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

~~(7)~~(12) Segment Information

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

The ~~Truckload~~TTS segment consists of ~~three~~two operating units, ~~One-Way Truckload,~~ Dedicated and ~~Temperature Controlled.~~One-Way Truckload. These units are aggregated because they have similar economic characteristics and meet the other aggregation criteria described in the accounting guidance for segment reporting. Dedicated provides truckload services dedicated to a specific customer, generally for a retail distribution center or manufacturing facility, utilizing either dry van or specialized trailers. One-Way Truckload is comprised of the following operating fleets: (i) the medium-to-long-haul van (“Van”) fleet transports a variety of consumer nondurable products and other commodities in truckload quantities over irregular routes using dry van ~~trailers;~~trailers, including Mexico cross-border routes; (ii) the expedited (“Expedited”) fleet provides time-sensitive truckload services utilizing driver teams; ~~and~~ (iii) the regional short-haul (“Regional”) fleet provides comparable truckload van service within geographic regions across the United ~~States. Dedicated provides truckload services dedicated to a specific customer, generally for a retail distribution center or manufacturing facility, utilizing either dry van or specialized trailers.~~States; and (iv) the Temperature Controlled fleet provides truckload services for temperature sensitive products over irregular routes utilizing temperature-controlled trailers. ~~(We previously utilized the name “Specialized Services” to encompass the operations of both Dedicated and Temperature Controlled.)~~ Revenues for the ~~Truckload~~TTS segment include a small amount of non-trucking revenues which consist primarily of the intra-Mexico portion of cross-border shipments delivered to or from Mexico where we utilize a third-party capacity provider.

The Werner Logistics segment is a non-asset based transportation and logistics provider. Werner Logistics provides services throughout North America and generates the majority of our non-trucking revenues through ~~five~~three operating ~~units that provide non-trucking services to our customers.~~units. These ~~five~~three Werner Logistics operating units are as follows: (i) ~~truck brokerage (“Brokerage”)~~Truckload Logistics, which uses contracted carriers to complete ~~customer shipments; (ii)~~shipments for brokerage customers and freight management ~~(“Freight Management”) offers~~customers for which we offer a full range of single-source logistics management services and solutions; ~~(iii)~~(ii) the intermodal (“Intermodal”) unit offers rail transportation through alliances with rail and drayage providers as an alternative to truck transportation; ~~(iv) 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~~residential and ~~business~~commercial deliveries of large or heavy items using ~~two associates~~third-party agents, independent contractors, and Company employees with two-person delivery teams operating a liftgate straight truck.

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

We do not prepare separate balance sheets by segment and, as a result, assets

are not separately identifiable by segment. Based on our operations, certain revenue-generating assets (primarily tractors and trailers) are interchangeable between segments. Depreciation for these interchangeable assets is allocated to segments based on the actual number of units utilized by the segment during the period. Other depreciation and amortization is allocated to segments based on specific identification or as a percentage of a metric such as average number of tractors. Inter-segment eliminations ~~in the table below~~ represent transactions between reporting segments that are eliminated in consolidation.

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


	Three Months Ended March 31,
	2023		2022
Revenues by Segment
Truckload Transportation Services	$	588,330	$	558,417
Werner Logistics	228,669		189,008
Other	20,501		17,513
Corporate	475		389
Subtotal	837,975		765,327
Inter-segment eliminations	(5,261)		(722)
Total	$	832,714	$	764,605


	Three Months Ended March 31,
	2023		2022
Operating Income (Loss) by Segment
Truckload Transportation Services	$	50,986	$	76,093
Werner Logistics	4,937		8,681
Other	549		445
Corporate	(3,086)		(1,708)
Total	$	53,386	$	83,511


	Three Months Ended March 31,
	2023		2022
Depreciation and Amortization by Segment
Truckload Transportation Services	$	66,843	$	61,837
Werner Logistics	4,059		2,268
Other	2,873		2,681
Corporate	538		443
Total	$	74,313	$	67,229

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

Table of Contents

~~(8) Derivative Financial Instrument~~

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

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

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

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

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

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

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

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

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

•Overview

•Results of Operations

•Liquidity and Capital Resources

~~Contractual Obligations and Commercial Commitments~~•Regulations

~~Regulations~~

•Critical Accounting ~~Policies and~~ Estimates

~~Accounting Standards~~

The MD&A should be read in conjunction with our ~~2016~~2022 Form 10-K.

Overview:

We have two reportable segments, Truckload Transportation Services (“~~Truckload”~~TTS”) and Werner Logistics, and we operate in the truckload and logistics sectors of the transportation industry. In the truckload sector, we focus on transporting consumer nondurable products that generally ship more consistently throughout the year. In the logistics sector, besides managing transportation requirements for individual customers, we provide additional sources of truck capacity, alternative modes of transportation, a ~~global~~North 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 ~~Truckload~~TTS segment) or obtain qualified third-party capacity at a reasonable price (with respect to our Werner Logistics segment). ~~Although our business volume is not highly concentrated, we~~We may also be affected by our customers’ financial failures or loss of customer business.

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

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

The operating ratio is a common industry measure used to evaluate our profitability and that of our ~~Truckload~~TTS segment operating fleets. The operating ratio consists of operating expenses expressed as a percentage of operating revenues. The most significant variable expenses that impact the ~~Truckload~~TTS segment are driver salaries and benefits, fuel, fuel taxes (included in taxes and licenses expense), payments to independent contractors (included in rent and purchased transportation expense), supplies and maintenance and insurance and claims. As discussed further in the comparison of operating results for ~~third~~first quarter ~~2017~~2023 to ~~third~~first quarter ~~2016,~~2022, 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~~changing used truck and trailer ~~purchase prices and~~pricing, 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 ~~Truckload~~TTS segment requires substantial cash expenditures for tractor

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

Table of Contents

We provide non-trucking services primarily through the ~~five~~three operating units within our Werner Logistics segment ~~(Brokerage, Freight Management,~~(Truckload Logistics, Intermodal, ~~Werner Global Logistics international~~ and Final Mile). Unlike our ~~Truckload~~TTS segment, the Werner Logistics segment is less asset-intensive and is instead dependent upon qualified associates, information systems and qualified third-party capacity providers. The largest expense item related to the Werner Logistics segment is the cost of purchased transportation we pay to third-party capacity providers. This expense item is recorded as rent and purchased transportation expense. Other operating expenses consist primarily of salaries, wages and ~~benefits.~~benefits, as well as depreciation and amortization, supplies and maintenance, and other general expenses. We evaluate the Werner Logistics segment’s financial performance by reviewing ~~the gross margin percentage (revenues less rent~~operating expenses and ~~purchased transportation expenses~~operating income expressed as a percentage of ~~revenues) and the operating income percentage. The gross margin~~revenues. Purchased transportation expenses as a percentage of revenues 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.

Results of Operations:

The following table sets forth the ~~Consolidated Statements~~consolidated statements of ~~Income~~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) March 31,						Percentage Change in Dollar Amounts
	2023			2022				3ME
(in thousands)	$		%	$		%			%
Operating revenues	$	832,714	100.0	$	764,605	100.0			8.9
Operating expenses:
Salaries, wages and benefits	268,315		32.2	241,996		31.6			10.9
Fuel	91,414		11.0	88,421		11.6			3.4
Supplies and maintenance	68,225		8.2	57,025		7.5			19.6
Taxes and licenses	25,425		3.1	23,833		3.1			6.7
Insurance and claims	36,485		4.4	27,492		3.6			32.7
Depreciation and amortization	74,313		8.9	67,229		8.8			10.5
Rent and purchased transportation	220,224		26.4	185,237		24.2			18.9
Communications and utilities	4,733		0.6	3,926		0.5			20.6
Other	(9,806)		(1.2)	(14,065)		(1.8)			(30.3)
Total operating expenses	779,328		93.6	681,094		89.1			14.4
Operating income	53,386		6.4	83,511		10.9			(36.1)
Total other expense, net	6,452		0.8	11,043		1.4			(41.6)
Income before income taxes	46,934		5.6	72,468		9.5			(35.2)
Income tax expense	11,400		1.3	17,433		2.3			(34.6)
Net income	35,534		4.3	55,035		7.2			(35.4)
Net income attributable to noncontrolling interest	(310)		(0.1)	(1,286)		(0.2)			(75.9)
Net income attributable to Werner	$	35,224	4.2	$	53,749	7.0			(34.5)

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 %

Table of Contents

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


	Three Months Ended March 31,
	2023			2022
TTS segment (in thousands)	$		%	$		%
Trucking revenues, net of fuel surcharge	$	493,242		$	472,361
Trucking fuel surcharge revenues	88,301			79,815
Non-trucking and other operating revenues	6,787			6,241
Operating revenues	588,330		100.0	558,417		100.0
Operating expenses	537,344		91.3	482,324		86.4
Operating income	$	50,986	8.7	$	76,093	13.6


	Three Months Ended March 31,
TTS segment	2023			2022			% Change
Average tractors in service	8,561			8,238			3.9	%
Average revenues per tractor per week (1)	$	4,432		$	4,411		0.5	%
Total tractors (at quarter end)
Company	8,170			7,960			2.6	%
Independent contractor	305			265			15.1	%
Total tractors	8,475			8,225			3.0	%
Total trailers (at quarter end)	27,440			26,185			4.8	%
One-Way Truckload
Trucking revenues, net of fuel surcharge (in 000’s)	$	183,130		$	186,760		(1.9)	%
Average tractors in service	3,191			3,064			4.1	%
Total tractors (at quarter end)	3,130			3,040			3.0	%
Average percentage of empty miles	14.09		%	11.75		%	19.9	%
Average revenues per tractor per week (1)	$	4,414		$	4,690		(5.9)	%
Average % change in revenues per total mile (1)	(3.2)		%	20.8		%
Average % change in total miles per tractor per week	(2.8)		%	(8.1)		%
Average completed trip length in miles (loaded)	620			716			(13.4)	%
Dedicated
Trucking revenues, net of fuel surcharge (in 000’s)	$	310,112		$	285,601		8.6	%
Average tractors in service	5,370			5,174			3.8	%
Total tractors (at quarter end)	5,345			5,185			3.1	%
Average revenues per tractor per week (1)	$	4,441		$	4,247		4.6	%

(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

Table of Contents

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), total operating expenses, and operating income, as well as certain statistical data regarding the Werner Logistics segment.


	Three Months Ended March 31,
	2023			2022
Werner Logistics segment (in thousands)	$		%	$		%
Operating revenues	$	228,669	100.0	$	189,008	100.0
Operating expenses:
Purchased transportation expense	188,498		82.4	157,521		83.3
Other operating expenses	35,234		15.4	22,806		12.1
Total operating expenses	223,732		97.8	180,327		95.4
Operating income	$	4,937	2.2	$	8,681	4.6

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 March 31,
Werner Logistics segment	2023	2022	% Change
Average tractors in service	39	53	(26.4)	%
Total tractors (at quarter end)	32	54	(40.7)	%
Total trailers (at quarter end)	2,580	1,605	60.7	%

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 ~~September 30, 2017~~March 31, 2023 Compared to Three Months Ended ~~September 30, 2016~~March 31, 2022

Operating Revenues

Operating ~~revenues~~revenues increased ~~3.9%~~8.9% for the three months ended ~~September 30, 2017, compared~~March 31, 2023, compared to the same period of the prior year. When comparing ~~third~~first quarter ~~2017~~2023 to ~~third~~first quarter ~~2016, Truckload~~2022, TTS segment ~~revenues~~revenues increased ~~$23.3~~$29.9 million, or ~~6.1%~~5.4%, and Werner Logistics revenues ~~decreased $4.9~~increased $39.7 million, or ~~4.5%~~21.0%.

Dedicated freight demand in first quarter 2023 was solid and steady. One-Way Truckload and Logistics were challenged by overall market conditions with seasonally less freight available than normal and increased price competition. This was in contrast to first quarter a year ago, when we benefited from a seasonally strong freight market. In first quarter 2022, freight was unusually strong for both One-Way Truckload and Logistics, as we benefited from a strong pricing environment and numerous project and pop-up freight opportunities that typically do not occur during first quarter. The freight market and spot rates in One-Way Truckload and Logistics did not experience the typical seasonal improvement in March 2023 and in fact, declined. Freight demand in April 2023 remains challenging and consistent with March 2023.

Trucking revenues, net of fuel ~~surcharge,~~surcharge, increased ~~4.3%~~4.4% in ~~third~~first quarter ~~2017~~2023 compared to ~~third~~first quarter ~~2016~~2022 due to a ~~2.9%~~ 3.9% increase in the average number of tractors in service and a 0.5% increase in average revenues per tractor per week, ~~and~~net of fuel surcharge. During first quarter 2023, Dedicated average revenues per tractor per week, net of fuel surcharge increased 4.6%, slightly ahead of our full year guidance range, partially offset by a ~~1.4% increase~~3.2% decrease in ~~average tractors in service. Our~~One-Way Truckload average revenues per total mile, net of fuel surcharge ~~increased by 3.4%~~due to lower rates in ~~third quarter 2017~~a much softer freight market. We continue to expect Dedicated average revenues per tractor per week, net of fuel surcharge, to remain flat or increase up to 3% in 2023 compared to ~~third quarter 2016 and~~2022. We continue to expect average ~~miles~~revenues per ~~truck decreased by 0.5%.~~

~~Third quarter 2017 freight demand in our~~total mile, net of fuel surcharge, for the One-Way Truckload fleet ~~improved throughout~~to decline in a range of 3% to 6% in the ~~quarter. In July and August 2017, freight trended better than normal and meaningfully better than~~first half of 2023 when compared to first half of 2022. We expect the ~~challenging~~One-Way freight market ofto be weak in second and third quarters 2023, then improve in fourth quarter 2016. As we moved into September, the freight market strengthened further due in part to the significant disruption caused by two major hurricanes in south Texas and Florida. These catastrophic weather events resulted in short-term costs in September due to out-of-route miles, higher fuel costs, equipment issues, and driver domicile issues; additionally, the multiple days of school closings at our Florida-based driving schools negatively impacted our driver hiring. At the same time, these events improved spot market pricing and further widened the positive gap between demand and capacity, which better positions the freight and contractual rate markets going forward. Freight volumes in October 2017 were seasonally better than normal.2023.

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

The average number of tractors in service in the ~~Truckload segment~~TTS segment increased ~~1.4%~~3.9% to ~~7,314~~8,561 in ~~third~~first quarter 2023 from 8,238 in first quarter ~~2017 from 7,216 in third~~2022, due primarily to the Baylor Trucking, Inc. (“Baylor”) acquisition on October 1, 2022 and the ReedTMS Logistics (“ReedTMS”) acquisition on November 5, 2022. We ended first quarter ~~2016. We ended third quarter 2017 with 7,375 trucks~~2023 with 8,475 tractors in the ~~Truckload~~TTS segment, a year-over-year increase of ~~200 trucks~~250 tractors compared to the end of first quarter 2022, and a sequential decrease of 125 tractors compared to the end of ~~third~~fourth quarter ~~2016, and~~2022. During first quarter 2023, our tractor fleet declined 1%, as we decreased our fleet size to adjust to freight market conditions. We do not plan to grow our fleet in second quarter 2023, but assuming the freight market begins to show improvement during the second half of 2023, we expect a ~~sequential~~small amount of growth in our Dedicated tractor fleet in 2023 compared to 2022. Within TTS, our Dedicated unit ended first quarter 2023 with 5,345 tractors (or 63% of our total TTS segment tractors) compared to 5,185 tractors (or 63%) a year ago. We currently expect our fleet size at the end of 2023 to be in a range of a decrease of 2% to an increase of ~~60 trucks~~1% when compared to the fleet size at the end of ~~second quarter 2017.~~2022. We cannot predict whether future driver shortages, if any, will adversely affect our ability to maintain our fleet size. If such a driver market shortage were to occur, it could result in a fleet size reduction, and our results of operations could be adversely affected.

Table of Contents

Trucking fuel surcharge revenues increased ~~19.5%~~10.6% to ~~$50.2~~$88.3 million in ~~third~~first quarter ~~2017~~2023 from ~~$42.0~~$79.8 million in ~~third~~first quarter ~~2016~~2022 due primarily to ~~higher average fuel prices~~a 3.9% increase in the ~~2017 quarter.~~average number of tractors in service in the TTS segment. 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~~tractor idle time. Fuel prices that change rapidly in short time periods also impact our recovery because the surcharge rate in most programs only changes once per week.

Werner Logistics revenues are generated by its ~~five~~three operating ~~units and~~units. Werner Logistics revenues exclude revenues for full truckload shipments transferred to the ~~Truckload~~TTS segment, which are recorded as trucking revenues by the ~~Truckload~~TTS segment. Werner Logistics also recorded revenue and brokered freight expense of ~~$0.1~~$5.3 million in ~~third~~first quarter ~~2017~~2023 and ~~$0.2~~$0.7 million in ~~third~~first quarter ~~2016~~2022 for ~~Intermodal drayage movements~~shipments performed by the ~~Truckload~~TTS segment (also recorded as trucking revenue by the ~~Truckload~~TTS segment), and these transactions between reporting segments are eliminated in consolidation. In ~~third~~first quarter ~~2017,~~2023, Werner Logistics revenues ~~decreased $4.9~~increased $39.7 million, or ~~4.5%~~21.0%, as growth from the ReedTMS acquisition offset lower brokerage pricing and ~~operating income dollars~~Intermodal revenues. Truckload Logistics revenues (78% of Logistics revenues) increased by 41% in first quarter 2023, driven by an increase in shipments due to the ReedTMS acquisition and growth in our organic shipments, partially offset by a decline in revenues per shipment. Intermodal revenues (12% of Logistics revenues) decreased ~~$3.6~~33% in first quarter 2023, due primarily to a decrease in shipments. Final Mile revenues (10% of Logistics revenues) increased $2.4 million ~~or 73.1%, compared to third~~in first quarter ~~2016. The Werner Logistics gross margin percentage in third quarter 2017 of 14.4% decreased from 16.2% in third quarter 2016.~~2023. The Werner Logistics operating income ~~percentage~~decreased to $4.9 million in ~~third~~first quarter ~~2017 of 1.3% declined~~2023 from ~~third~~$8.7 million in first quarter ~~2016 of 4.5%. Tighter carrier capacity~~2022, due to a seasonally weak freight market in ~~third~~first quarter ~~2017~~2023 compared to ~~third quarter 2016 resulted~~a seasonally strong freight market in ~~higher purchased transportation costs causing the lower gross margin and operating income percentages.~~

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

~~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.

2022.

Operating Expenses

Our operating ratio (operating expenses expressed as a percentage of ~~operating~~operating revenues) was ~~93.2%~~93.6% for the three months ended ~~September 30, 2017, compared to 94.3%~~March 31, 2023 and 89.1% for the three months ended ~~September 30, 2016.~~March 31, 2022. We experienced a more direct impact from inflation on multiple expense items in first quarter 2023 compared to first quarter 2022. Expense items that impacted the overall operating ratio are described on the following pages. The tables on pages ~~16 and 17~~21 through 23 show the ~~Consolidated Statements~~consolidated statements of ~~Income~~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~~period of the prior year, as well as the operating ratios, operating margins, and certain statistical information for our two reportable segments, ~~Truckload~~TTS and Werner Logistics.

Salaries, wages and benefits increased ~~$7.4~~$26.3 million or ~~4.5%~~10.9% in ~~third~~first quarter ~~2017~~2023 compared to ~~third~~first quarter ~~2016~~2022 and increased ~~0.2%~~0.6% as a percentage of operating revenues to 32.2%. The higher dollar amount of salaries, wages and benefits expense in the ~~2017 third~~first quarter of 2023 was due primarily to increased ~~company truck miles~~non-driver and higher driver and student pay rates. These increases were partially offset by lower workers’ compensation expense in third quarter 2017. When evaluated on a per-mile basis, driver salaries, wages and benefits also increased, which we primarily attribute to higher driver pay and the impact of 6.5 million more company tractor miles in ~~third~~the first quarter ~~2017 compared~~of 2023. The increase in non-driver pay was primarily due to ~~third quarter 2016.~~a larger number of non-driver employees, including the impact from our ReedTMS and Baylor acquisitions. Non-driver salaries, wages and benefits in ~~the~~our non-trucking Werner Logistics segment increased ~~8.4%.~~

66% in first quarter 2023 compared to first quarter 2022, primarily as a result of the ReedTMS acquisition.

We renewed our workers’ compensation insurance coverage ~~for the policy year beginning~~on April 1, ~~2017.~~2023. 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~~2023 were ~~similar~~flat compared to ~~those for~~ the previous policy year.

~~The~~While inflationary cost pressures continue to be challenging, particularly for labor, equipment maintenance and insurance, we have begun to see some easing in the competitive driver recruiting and retention markets. A competitive driver market ~~became more challenging in third quarter 2017.~~presents labor challenges for customers and carriers alike. Several ongoing market factors ~~persist~~persisted including a declining number of, and increased competition for, driver training school graduates, ~~an historically low national unemployment rate,~~ aging truck driver demographics and increased truck safety regulations. We ~~proactively took many~~continue to take significant actions ~~in the last two years~~ to strengthen our driver recruiting and retention as we strive to ~~make Werner~~be the ~~preferred~~truckload employer of choice, ~~for the best drivers,~~ including ~~raising~~competitive driver pay, ~~lowering~~providing a modern tractor and trailer fleet with the ~~age of our truck fleet, installing~~latest safety equipment and ~~training features on all new trucks,~~technology, investing in our driver training ~~schools~~school 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.

Table of Contents

Fuel increased ~~$9.6~~$3.0 million or ~~23.7%~~3.4% in ~~third~~first quarter ~~2017~~2023 compared to ~~third~~first quarter ~~2016~~2022 and ~~increased 1.5%~~decreased 0.6% as a percentage of operating revenues to 11.0%, primarily due to ~~higher~~6.5 million more company tractor miles in first quarter 2023, partially offset by slightly lower average diesel fuel ~~prices and increased company truck miles.~~prices. Average diesel fuel prices were 26nine cents per gallon ~~higher~~lower in ~~third~~first quarter ~~2017~~2023 than in ~~third~~first quarter ~~2016~~2022 and were 1570 cents per gallon ~~higher~~lower than in ~~second~~fourth quarter ~~2017. The increase was partially offset by slightly improved miles per gallon (“mpg”).~~

2022.

We continue to employ measures to improve our fuel mpg such as (i) limiting ~~truck~~tractor engine idle time by installing auxiliary power units, (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,~~tractors, more aerodynamic ~~truck~~tractor 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~~a U.S. Environmental Protection Agency (“EPA”) SmartWay Transport Partner. The SmartWay Transport Partnership is a national voluntary program developed by the EPA and freight industry representatives to reduce greenhouse gases and air pollution and promote cleaner, more efficient ground freight transportation.

For ~~October 2017,~~April 2023, the average diesel fuel price per gallon was approximately ~~28 cents higher~~$1.17 lower than the average diesel fuel price per gallon in ~~October 2016~~April 2022 and approximately ~~32 cents higher~~$1.53 lower than in ~~fourth~~second quarter ~~2016.~~

2022.

Shortages of fuel, increases in fuel prices and petroleum product rationing can have a ~~materially~~material adverse effect on our operations and profitability. We are unable to predict whether fuel price levels will increase or decrease in the future or the extent to which fuel surcharges will be collected from customers. As of ~~September 30, 2017,~~March 31, 2023, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.

Supplies and maintenance increased ~~$1.0~~$11.2 million or ~~2.3%~~19.6% in ~~third~~first quarter ~~2017~~2023 compared to ~~third~~first quarter ~~2016~~2022 and ~~decreased 0.2%~~increased 0.7% as a percentage of operating revenues. Supplies and maintenance expense increased due to the higher costs for over-the-road tractor and trailer maintenance and tires resulting from inflationary cost increases and the impact of 6.5 million more company tractor miles.

Insurance and claims increased $9.0 million or 32.7% in first quarter 2023 compared to first quarter 2022 and increased 0.8% as a percentage of operating revenues due primarily to a higher ~~company truck miles driven in third quarter 2017 compared to third quarter 2016, partially offset by our younger trailer fleet and the~~amount of unfavorable reserve development resulting ~~lower equipment maintenance expense.~~from an increasing cost-per-claim. We also incurred ~~higher driver recruiting~~insurance and ~~other driver-related costs~~claims expense of $1.4 million and $1.3 million in first quarter 2023 and first quarter 2022, respectively, for accrued interest related to a previously-disclosed adverse jury verdict rendered May 17, 2018, which we are appealing. Interest will continue to accrue monthly until such time as the outcome of our appeal is finalized. For additional information related to this lawsuit, see Note 10 in the ~~2017 quarter.~~

~~Insurance and claims increased $1.6 million or 8.2%~~Notes to Consolidated Financial Statements (Unaudited) set forth in ~~third quarter 2017 compared to third quarter 2016 and increased 0.1% as a percentage~~Part I 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.~~this report. The majority of our insurance and claims expense results from our claim experience and claim development under our self-insurance program; the remainder results from insurance premiums for claims in excess of our self-insured limits.

We ~~renewed~~renewed our liability insurance policies on August 1, ~~2017~~2022 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 $6.0~~on all claims with an annual $10.0 million aggregate for claims between ~~$3.0~~$10.0 million and ~~$5.0~~$20.0 million. For the policy year that ~~ended July 31, 2016,~~began August 1, 2021, we were responsible for the first ~~$2.0~~$10.0 million per claim on all claims with an annual ~~$8.0~~$10.0 million aggregate for claims between ~~$2.0~~$10.0 million and ~~$5.0~~$15.0 million ~~and an annual aggregate of $5.0 million for claims between $5.0 million and $10.0 million.~~. We maintain liability insurance coverage with insurance carriers ~~substantially~~ in excess of the $10.0 million per claim. ~~As a result of the higher self-insured retention and deductible amounts under the new policies, our~~Our liability insurance premiums for the policy year that began August 1, ~~2017~~2022 are ~~about $3.7~~ $1.9 million ~~lower~~higher than premiums for the previous policy year.

Depreciation and amortization expense increased ~~$1.8~~$7.1 million or ~~3.5%~~10.5% in ~~third~~first quarter ~~2017~~2023 compared to ~~third~~first quarter ~~2016~~2022 and ~~decreased~~increased 0.1% as a percentage of operating ~~revenues. This expense increase is~~revenues due primarily to depreciation and amortization on tangible and intangible assets recorded in the ReedTMS and Baylor acquisitions and the higher cost of new ~~trucks purchased compared to the cost~~tractors and trailers.

The average age of ~~used trucks that were sold over the past 12 months~~our tractor fleet remains low by industry standards and ~~the purchase~~was 2.2 years as of ~~new trailers over the past 12 months to replace older used trailers which were fully depreciated.~~

~~In 2015~~March 31, 2023, and ~~2016, we invested nearly $1 billion of capital expenditures (before sales of equipment) primarily to reduce~~ the average age of our ~~trucks and trailers. Our investment~~trailers was 5.1 years. We are continuing to invest in ~~newer trucks~~new tractors and trailers ~~improves~~and our terminals in 2023 to improve our driver experience, ~~raises~~increase operational efficiency and ~~helps us to better~~more effectively manage our maintenance, safety and fuel costs. ~~We intend to maintain our newer fleet age~~During the remainder of ~~trucks and trailers. The~~2023, we expect the average age of our ~~company truck fleet was~~tractor and trailer fleets to remain at ~~1.9 years as of September 30, 2017.~~

or near current levels.

Rent and purchased transportation expense ~~decreased $7.8~~increased $35.0 million or ~~5.8%~~18.9% in ~~third~~first quarter ~~2017~~2023 compared to ~~third~~first quarter ~~2016~~2022 and ~~decreased 2.4%~~increased 2.2% as a percentage of operating revenues. Werner Logistics recorded brokered freight expense of $5.3 million in first quarter 2023 and $0.7 million in first quarter 2022 for shipments performed by the TTS segment, which is eliminated in consolidation. Rent and purchased transportation expense consists mostly of payments to third-party capacity providers in the Werner Logistics segment and other non-trucking operations and payments to independent contractors in the ~~Truckload~~TTS segment. The payments to third-party capacity providers generally vary depending on changes in the volume of services

Table of Contents

generated by the Werner Logistics segment. Werner Logistics ~~rent and~~ purchased transportation expense ~~decreased $2.2~~increased $31.0 million ~~but~~primarily due to the ReedTMS acquisition and decreased as a percentage of Werner Logistics revenues ~~increased~~ to ~~85.6%~~82.4% in ~~third~~first quarter ~~2017~~2023 from ~~83.8%~~83.3% in ~~third~~first quarter ~~2016. Tighter industry-wide carrier capacity in third quarter 2017 compared to third quarter 2016 resulted in higher purchased transportation costs causing the lower gross margin percentage.~~

2022.

Rent and purchased transportation expense for the ~~Truckload~~TTS segment ~~decreased $5.8~~increased $7.5 million in ~~third~~first quarter ~~2017~~2023 compared to ~~third~~first quarter ~~2016. This decrease is~~2022 due primarily to ~~lower payments to independent contractors due to fewer~~the Baylor acquisition and more independent contractor ~~trucks and~~ miles ~~during third~~in first quarter ~~2017 compared to third quarter 2016, partially offset by higher average fuel reimbursement per mile in the 2017 quarter.~~2023. Independent contractor miles increased approximately 1.1 million miles in first quarter 2023 and as a percentage of total miles were ~~11.8%~~4.9% in ~~third~~first quarter ~~2017~~2023 compared to ~~14.8%~~4.5% in ~~third~~first quarter ~~2016.~~2022. Because independent contractors supply their own tractors and drivers and are responsible for their operating expenses, the ~~decrease~~increase 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.~~

licenses to the rent and purchased transportation category.

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

Other operating expenses ~~decreased $0.5~~increased $4.3 million ~~or 10.8%~~ in ~~third~~first quarter ~~2017~~2023 compared to ~~third~~first quarter ~~2016~~2022 and ~~decreased 0.1%~~increased 0.6% as a percentage of operating ~~revenues.~~revenues due primarily to a decrease in gains on the sales of property and equipment, and increased costs associated with professional technology services. Gains on sales of ~~assets~~property and equipment (primarily used ~~trucks~~tractors 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~~property and equipment were ~~$2.2~~$18.3 million in ~~third~~first quarter ~~2017~~2023, compared to ~~$3.1~~$20.5 million in ~~third~~first quarter ~~2016, which included a $6.5 million real estate gain~~2022. We sold significantly more tractors and ~~$3.4 million of losses on equipment sales. In third~~trailers in first quarter ~~2017, we sold fewer trucks and fewer trailers than in third quarter 2016. We realized average gains per truck in third quarter 2017~~2023 compared to ~~average losses in third~~first quarter ~~2016~~2022 and realized substantially lower average gains per tractor and trailer due to lower pricing in ~~third quarter 2017 compared to third quarter 2016. The~~the market for our used ~~truck pricing market remained difficult in third quarter 2017~~equipment, which we believe is due to a greater number of small carriers exiting the trucking industry due to lower spot rates and higher ~~than normal supply~~operating costs. For the used tractor market, we expect gradually declining customer demand in a difficult freight and financing market, which should moderate pricing and equipment gains as the year progresses. We continue to expect our gains on sales of ~~used trucks~~property and equipment in 2023 to decrease to between $30 million and $50 million for 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.

full year.

Other Expense (Income)

Other expense, ~~(income) increased $0.1~~net of income, decreased $4.6 million ~~and increased 0.1% as a percentage of operating revenues~~ in ~~third~~first quarter ~~2017~~2023 compared to ~~third~~first quarter ~~2016. Interest income was lower in the 2017 quarter~~2022 due primarily to ~~lower average outstanding notes receivable, and~~a $9.7 million decrease in the amount of unrealized losses recognized on our investments in equity securities in first quarter 2023 compared to first quarter 2022 (see Note 7 in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report), partially offset by a $5.2 million increase in net interest expense. Net interest expense ~~was lower as well.~~

increased primarily due to higher interest rates for variable rate debt and an increase in average debt outstanding.

Income ~~Taxes~~Tax Expense

Our effective income tax rate (income taxes expressed as a percentage of income before income taxes) was ~~37.6%~~24.3% in ~~third~~first quarter 2017 and 35.5% in third quarter 2016. The higher income tax rate in 2017 is attributed primarily to a lower amount of favorable tax adjustments for the remeasurement of uncertain tax positions in third quarter 20172023 compared to ~~third~~24.1% in first quarter 2016 and the effect of applying a state tax rate increase to our deferred tax liabilities, partially offset by recognizing excess tax benefits related to share-based awards as a component of income tax expense.2022.

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

~~Operating Revenues~~

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

~~Operating Expenses~~

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

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

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

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

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

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

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

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

~~Other Expense (Income)~~

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

~~Income Taxes~~

Our effective income tax rate (income taxes expressed as a percentage of income before income taxes) decreased to 37.7% for the first nine months of 2017 from 37.9% for the first nine months of 2016. The lower income tax rate is 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 tax adjustments for the remeasurement of uncertain tax positions in the first nine months of 2017 compared to the same period of 2016.

Liquidity and Capital Resources:

We closely manage our liquidity and capital resources. Our liquidity requirements depend on key variables, including the level of investment needed to support business strategies, the performance of the business, capital expenditures, borrowing arrangements, and working capital management. Capital expenditures, business acquisitions, stock repurchases, and dividend payments are components of our cash flow and capital management strategy, which to a large extent, can be adjusted in response to economic and other changes in the business environment. Management’s approach to capital allocation focuses on investing in key priorities that support our business and growth strategies and providing shareholder returns, while funding ongoing operations.

Management believes our financial position at March 31, 2023 is strong. As of March 31, 2023, we had $129.6 million of cash and cash equivalents and over $1.4 billion of stockholders’ equity. Cash is invested primarily in short-term money market funds. In addition, we have a $1.075 billion credit facility, for which our total available borrowing capacity was $414.6 million as of March 31, 2023 (see Note 9 in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report for information regarding our credit agreements). After considering recent developments in the banking sector, we believe the six commercial banks in our $1.075 billion syndicated credit facility all have strong tier-one capital ratios and good loan-to-deposit ratios. We believe our liquid assets, cash generated from operating activities, and borrowing capacity under our existing

Table of Contents

credit facility will provide sufficient funds to meet our cash requirements and our planned shareholder returns for the foreseeable future.

Item 7 of Part II of our 2022 Form 10-K includes our disclosure of material cash requirements as of December 31, 2022. There were no material changes in the nature of these items during the three months ended March 31, 2023.

Cash Flows

During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2023, we generated cash flow from operations of ~~$216.9~~$166.8 million, ~~an 8%~~a 7.7% or ~~$15.8~~$11.9 million increase in cash flows compared to the same ~~nine-month~~three-month period a year ago. The increase in net cash provided by operating activities ~~resulted~~was due primarily ~~from the effect of depreciation on net income, lower gain on disposal of operating equipment, and general~~to working capital ~~items,~~changes, including a decrease in accounts receivable days sales outstanding during first quarter 2023, partially offset by a decrease ~~from deferred~~in net income ~~taxes.~~for the three-month period ended March 31, 2023 compared to the same period in 2022. We were able to ~~repay debt,~~ make net capital expenditures, make a strategic loan and investment, and pay dividends with the net cash provided by operating activities and existing cash balances.

Net cash used in investing activities ~~decreased to $110.5~~was $129.2 million for the ~~nine-month~~three-month period ended ~~September 30, 2017 from $280.0~~March 31, 2023 compared to $34.5 million ~~for~~during the ~~nine-month~~same period ~~ended September 30, 2016.~~in 2022. Net property and equipment additions (primarily revenue equipment) were ~~$121.1~~$102.7 million for the ~~nine-month~~three-month period ended ~~September 30, 2017,~~March 31, 2023, compared to ~~$294.0~~$37.1 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.~~2022. We currently estimate net capital expenditures (primarily revenue equipment) in ~~2017~~2023 to be in the range of ~~$175~~$350 million to ~~$225~~$400 million, compared to net capital expenditures in ~~2016~~2022 of ~~$429.6~~$317.6 million. We intend to fund these net capital expenditures through cash ~~flow~~flows from operations and financing available under our existing credit ~~facilities,~~facility, if necessary.

As of March 31, 2023, we were committed to property and equipment purchases of approximately $271.4 million. We also purchased a $25.0 million subordinated promissory note from MLSI on January 24, 2023, with a maturity date of January 24, 2030 (see Note 8 in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report for information regarding our notes receivable).

Net cash used in financing activities ~~used $113.3~~was $16.2 million during the ~~nine~~three months ended ~~September 30, 2017, and provided $61.2~~March 31, 2023 compared to $49.0 million during the same period in ~~2016. During~~2022. We repaid $2.5 million on our debt during the ~~nine~~three months ended ~~September 30, 2017, we repaid $105.0~~March 31, 2023, decreasing our outstanding debt to $691.3 million at March 31, 2023, and had net repayments on our debt of ~~debt; in~~$1.3 million during the same ~~2016~~ period ~~we had borrowings of $135.0 million and repayments of $60.0 million. Our outstanding debt at September 30, 2017 was $75.0 million.~~in 2022. We paid dividends of ~~$13.7~~$8.2 million during the three months ended March 31, 2023 and $7.9 million during the same period in ~~the nine-month period ended September 30, 2017 and $13.0 million in the period ended September 30, 2016.~~2022. We ~~increased our~~currently plan to continue paying a quarterly ~~dividend rate by $0.01 per share, or 17%, beginning with the dividend paid in July 2017.~~ dividend.

We did not repurchase any shares of common stock during the ~~nine~~three months ended ~~September 30, 2017 or 2016. From time to time,~~March 31, 2023. Financing activities for the same period in 2022 included common stock repurchase of 845,100 shares at a cost of $36.2 million. The Company has repurchased, and may continue to repurchase, shares of the Company’s common stock. The timing and amount of such purchases depend upon economic and stock market conditions and other factors. As of ~~September 30, 2017,~~March 31, 2023, the Company had purchased ~~3,287,291~~3,688,190 shares pursuant to our current Board of Directors repurchase authorization and had ~~4,712,709~~2,311,810 shares remaining available for repurchase.

Management believes our financial position at September 30, 2017 is strong. As of September 30, 2017, we had $10.7 million of cash and cash equivalents and over $1 billion of stockholders’ equity. Cash is invested primarily in government portfolio money market funds. As of September 30, 2017, we had a total of $325.0 million of credit pursuant to three credit facilities (see Note 2 in the Notes to Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q), of which we had borrowed $75.0 million. The remaining $250.0 million of credit available under these facilities at September 30, 2017 is reduced by the $28.7 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 on our strong financial position, management does not foresee any significant barriers to obtaining sufficient financing, if necessary.

~~Contractual Obligations and Commercial Commitments:~~

~~The following tables set forth our contractual obligations and commercial commitments as of September 30, 2017.~~

~~Payments Due by Period~~

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

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

As of September 30, 2017, we had unsecured committed credit facilities with three banks as well as a term commitment with one 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 on the London Interbank Offered Rate (“LIBOR”). As of September 30, 2017, we had $75 million outstanding under the term commitment at a variable rate of 1.83%, which is effectively fixed at 2.5% with an interest rate swap agreement. Interest payments on debt are based on the debt balance and interest rates at September 30, 2017. The borrowing capacity under these credit facilities is further reduced by the amount of stand-by letters of credit under which we are obligated. The stand-by letters of credit are primarily required for insurance policies. The unused lines of credit are available to us in the event we need financing for the replacement of our fleet or for other significant capital expenditures. Management believes our financial position is strong, and we therefore expect that we could obtain additional financing, if necessary. Property and equipment purchase commitments relate to committed equipment expenditures, primarily for revenue equipment. As of September 30, 2017, we had recorded a $4.1 million liability for unrecognized tax benefits. We expect none of it to be settled within the next twelve months and are unable to reasonably determine when the $4.1 million categorized as “period unknown” will be settled.

Regulations:

Item 1 of Part I of our ~~2016~~2022 Form 10-K includes a discussion of pending proposed regulations that may have an effect on our operations if they become adopted and effective as proposed. ~~Except as described below, there~~The following is an update to the regulations set forth in our 2022 Form 10-K.

California’s ongoing emissions reduction goals have significantly impacted the industry. The California Air Resources Board regulations apply not only to California intrastate carriers, but also to carriers outside of California who own or dispatch equipment in the state. In March 2023, the EPA granted California the authority to enforce environmental rules that are more strict than current EPA requirements. These rules would apply to vehicles beginning with the 2024 model year. Werner continues to structure our fleet plans to operate compliant equipment in California. Approximately 4% of our truck miles in 2022 were in the state of California.

There have been no other material changes in the status of ~~these~~the proposed regulations previously disclosed in the ~~2016~~2022 Form 10-K.

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

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

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

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

Critical Accounting ~~Policies and~~ Estimates:

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ~~(“U.S. GAAP”)~~ requires us to make estimates and assumptions that affect the (i) reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and (ii) reported amounts of revenues and expenses during the reporting period. We evaluate these estimates on an ongoing basis as events and circumstances change, utilizing historical experience, consultation with experts and other methods considered reasonable in the particular circumstances. Actual results could differ from those estimates and may significantly impact our results of operations

Table of Contents

from period to period. It is also possible that materially different amounts would be reported if we used different estimates or assumptions.

Information regarding our Critical Accounting ~~Policies and~~ Estimates can be found in our ~~2016~~2022 Form 10-K. ~~The most critical accounting policies and estimates that require us to make significant judgments and estimates and affect our financial statements include the following:~~

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

Estimates of accrued liabilities for insurance and claims for ~~liability and physical~~bodily injury, property damage ~~losses~~ and workers’ ~~compensation.~~

~~Accounting for income taxes.~~

compensation is a critical accounting estimate that requires us to make significant judgments and estimates and affects our financial statements.

There have been no material changes to ~~these~~this critical accounting ~~policies and estimates~~estimate from ~~those~~that discussed in our ~~2016~~2022 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, regulatory changes, 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,~~March 31, 2023, 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 ~~losses~~gains were ~~$0.6~~$3.0 million and $1.2 million for ~~third~~first quarter ~~2017~~2023 and ~~$1.0 million for third quarter 2016. These~~2022, respectively, and were recorded in accumulated other comprehensive loss within stockholders’ equity in the ~~Consolidated Balance Sheets.~~

consolidated condensed balance sheets.

Interest Rate Risk

We manage interest rate exposure through a mix of variable interest rate debt and interest rate swap agreements. We had ~~$75~~$150.0 million of variable interest rate debt outstanding at ~~September 30, 2017,~~March 31, 2023, for which the interest rate is effectively fixed at ~~2.5%~~2.88% through ~~September 2019~~May 2024 with antwo interest rate swap ~~agreement~~agreements to reduce our exposure to interest rate increases. ~~Interest~~In addition, we had $450.0 million of variable interest rate debt outstanding at March 31, 2023. The interest rates on our ~~unused~~ credit ~~facilities~~facility are based on Secured Overnight Financing Rate (“SOFR”). See Note 9 in the ~~LIBOR (see Contractual Obligations and Commercial Commitments). Increases~~Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report for further detail of our debt. Assuming this level of borrowing, a hypothetical one-percentage point increase in the SOFR interest ~~rates could impact~~rate would increase our annual interest expense ~~on future borrowings.~~by approximately $4.5 million.

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~~U.S. Securities and Exchange Commission (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.

Table of Contents

Because of the inherent limitations in all internal control systems, no evaluation of controls can provide absolute assurance that all control issues, misstatements and instances of fraud, if any, have been prevented or detected.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

For information regarding legal proceedings, see Note 10 in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report.

Item 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed under Item 1A (Risk Factors) in our 2022 Form 10-K, which could materially affect our business, financial condition, and future results of operations. The risks described in our 2022 Form 10‑K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and results of operations.

There have been no material changes from the risk factors disclosed in our 2022 Form 10-K.

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

On ~~October 15, 2007, we announced that on October 11, 2007~~November 9, 2021, our Board of Directors approved ~~an increase in the number of shares of our common~~and announced a new stock ~~that~~repurchase program under which the Company is authorized to ~~repurchase. Under this authorization, the Company is permitted~~repurchase up to ~~repurchase an additional 8,000,000 shares.~~6,000,000 shares of its common stock. As of ~~September 30, 2017,~~March 31, 2023, the Company had ~~purchased 3,287,291~~purchased 3,688,190 shares pursuant to this authorization and had ~~4,712,709 shares~~2,311,810 shares remaining available for repurchase. The Company may purchase shares from time to time depending on market, economic, and other factors. The authorization will continue unless withdrawn by the Board of Directors.

No shares of common stock were repurchased during ~~the third~~ first quarter ~~2017~~2023 by either the Company or any “affiliated purchaser,” as defined by Rule 10b-18 of the Exchange Act.

Table of Contents

Item 6. Exhibits.

Exhibit No.

Exhibit

Incorporated by Reference to:

3(i)

Restated Articles of Incorporation of Werner Enterprises, Inc.

Exhibit 3(i) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007

3(ii)

Revised and Restated By-Laws of Werner Enterprises, Inc.

Exhibit 3.1 to the Company’s Current Report on Form 8-K dated ~~May 10, 2016~~August 14, 2018

1110.1

~~Statement Re: Computation~~Named Executive Officer Compensation

Item 5.02 of ~~Per Share Earnings~~

~~See Note 5 (Earnings Per Share) in~~ the ~~Notes to Consolidated Financial Statements (Unaudited) under Item 1 of Part I of this Quarterly~~Company’s Current Report on Form ~~10-Q for~~8-K dated February 10, 2023; Item 5.02 of the ~~quarterly period ended September 30, 2017~~Company’s Current Report on Form 8-K dated February 23, 2023

10.2

Non-Employee Director Compensation

Filed herewith

31.1

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

Filed herewith

31.2

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

Filed herewith

32.1

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

Furnished herewith

32.2

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

Furnished herewith

~~101.INS~~101

~~XBRL Instance Document~~The following unaudited financial information from Werner Enterprises’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in iXBRL (Inline Extensible Business Reporting Language) includes: (i) Consolidated Statements of Income for the three months ended March 31, 2023 and 2022, (ii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2023 and 2022, (iii) Consolidated Condensed Balance Sheets as of March 31, 2023 and December 31, 2022, (iv) Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022, (v) Consolidated Statements of Stockholders’ Equity and Temporary Equity - Redeemable Noncontrolling Interest for the three months ended March 31, 2023 and 2022, and (vi) the Notes to Consolidated Financial Statements (Unaudited) as of March 31, 2023.

~~Filed herewith~~

~~101.SCH~~104

The cover page from this Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, 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~~

Table of Contents

SIGNATURES

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



	WERNER ENTERPRISES, INC.

Date: ~~November 2, 2017~~May 9, 2023	By:	/s/ ~~John J. Steele~~Christopher D. Wikoff
		~~John J. Steele~~Christopher D. Wikoff
		Executive Vice President, Treasurer and Chief Financial Officer

Date: ~~November 2, 2017~~May 9, 2023	By:	/s/ James L. Johnson
		James L. Johnson
		Executive Vice President, Chief Accounting Officer and Corporate Secretary

2931



(In thousands, except share amounts)	September 30, 2017			December 31, 2016
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	10,733		$	16,962
Accounts receivable, trade, less allowance of $8,410 and $9,183, respectively	279,716			261,372
Other receivables	27,028			15,168
Inventories and supplies	11,624			12,768
Prepaid taxes, licenses and permits	6,935			15,374
Income taxes receivable	6,538			21,497
Other current assets	38,898			29,987
Total current assets	381,472			373,128
Property and equipment	2,078,229			2,109,991
Less – accumulated depreciation	758,331			747,353
Property and equipment, net	1,319,898			1,362,638
Other non-current assets	61,571			57,237
Total assets	$	1,762,941		$	1,793,003
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Checks issued in excess of cash balances	$	3,538		$	—
Accounts payable	72,343			66,618
Current portion of long-term debt	—			20,000
Insurance and claims accruals	84,436			83,404
Accrued payroll	31,029			26,189
Other current liabilities	22,938			18,650
Total current liabilities	214,284			214,861
Long-term debt, net of current portion	75,000			160,000
Other long-term liabilities	14,321			16,711
Insurance and claims accruals, net of current portion	107,230			113,875
Deferred income taxes	301,199			292,769
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value, 200,000,000 shares authorized; 80,533,536 shares
issued; 72,334,476 and 72,166,969 shares outstanding, respectively	805			805
Paid-in capital	103,296			101,035
Retained earnings	1,131,805			1,084,796
Accumulated other comprehensive loss	(13,378		)	(16,917		)
Treasury stock, at cost; 8,199,060 and 8,366,567 shares, respectively	(171,621		)	(174,932		)
Total stockholders’ equity	1,050,907			994,787
Total liabilities and stockholders’ equity	$	1,762,941		$	1,793,003



	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



	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



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



		PAGE
PART I – FINANCIAL INFORMATION
	Cautionary Note Regarding Forward-Looking Statements	3
Item 1.	Financial Statements:	34
	Consolidated Statements of Income for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 3 1 , 202 3 and ~~2016~~202 2	4
	Consolidated Statements of Comprehensive Income for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 3 1 , 202 3 and ~~2016~~202 2	5
	Consolidated Condensed Balance Sheets as of ~~September 30, 2017~~March 3 1 , 202 3 and December 31, ~~2016~~202 2	6
	Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 3 1 , 202 3 and ~~2016~~202 2	7
	Consolidated Statements of Stockholders’ Equity and Temporary Equity - Redeemable Noncontrolling Interest for the Three Months Ended March 3 1 , 202 3 and 202 2	8
	Notes to Consolidated Financial Statements (Unaudited) as of ~~September 30, 2017~~March 3 1 , 202 3	89
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1520
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2628
Item 4.	Controls and Procedures	2628
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2729
Item 6.	Exhibits	2830



	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



	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	%



(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



~~NEBRASKA~~