Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
[Markone]
ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20182019
OR
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-14690
 
WERNER ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
 
NEBRASKANebraska 47-0648386
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
  
14507 FRONTIER ROAD
POST OFFICE BOXFrontier Road
Post Office Box 45308
OMAHA, NEBRASKA
Omaha,Nebraska 68145-0308
(Address of principal executive offices) (Zip Code)
(402) (402) 895-6640
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
 Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 Par ValueWERNThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated Filer ý  Accelerated filer 
o
Non-accelerated filer 
o  (Do not check if a smaller reporting company)
  Smaller reporting company 
o
Emerging growth company
o
    Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
As of July 31, 2018, 71,636,73529, 2019, 69,195,003 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.



Table of Contents


WERNER ENTERPRISES, INC.
INDEX
 
  PAGE
 
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
Item 1.
Item 2.
Item 6.

PART I
FINANCIAL INFORMATION
Cautionary Note Regarding Forward-Looking Statements:
This Quarterly Report on Form 10-Q contains historical information and forward-looking statements based on information currently available to our management. The forward-looking statements in this report, including those made in Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of Part I, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. These safe harbor provisions encourage reporting companies to provide prospective information to investors. Forward-looking statements can be identified by the use of certain words, such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project” and other similar terms and language. We believe the forward-looking statements are reasonable based on currently available information. However, forward-looking statements involve risks, uncertainties and assumptions, whether known or unknown, that could cause our actual results, business, financial condition and cash flows to differ materially from those anticipated in the forward-looking statements. A discussion of important factors relating to forward-looking statements is included in Item 1A (Risk Factors) of Part I of our Annual Report on Form 10-K for the year ended December 31, 20172018 (“20172018 Form 10-K”). Readers should not unduly rely on the forward-looking statements included in this Form 10-Q because such statements speak only to the date they were made. Unless otherwise required by applicable securities laws, we undertake no obligation or duty to update or revise any forward-looking statements contained herein to reflect subsequent events or circumstances or the occurrence of unanticipated events.


Item 1. Financial Statements.
The interim consolidated financial statements contained herein reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the financial condition, results of operations and cash flows for the periods presented. The interim consolidated financial statements have been prepared in accordance with the U.S. Securities and Exchange Commission (“SEC”) instructions to Form 10-Q and were also prepared without audit. The interim consolidated financial statements do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements; although in management’s opinion, the disclosures are adequate so that the information presented is not misleading.
Operating results for the three-month and six-month periods ended June 30, 2018,2019, are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.2019. 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 20172018 Form 10-K.

WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
June 30,
 Six Months Ended
June 30,
Three Months Ended
June 30,
 Six Months Ended
June 30,
(In thousands, except per share amounts)2018 2017 2018 20172019 2018 2019 2018
(Unaudited)(Unaudited)
Operating revenues$619,130
 $519,508
 $1,181,814
 $1,020,729
$627,533
 $619,130
 $1,223,650
 $1,181,814
Operating expenses:           
 
Salaries, wages and benefits196,115
 169,543
 378,909
 330,382
206,001
 196,115
 408,800
 378,909
Fuel65,665
 45,129
 124,697
 90,285
61,064
 65,665
 117,202
 124,697
Supplies and maintenance45,681
 40,058
 91,420
 78,290
44,371
 45,681
 90,056
 91,420
Taxes and licenses22,651
 21,638
 45,144
 42,424
23,643
 22,651
 46,544
 45,144
Insurance and claims30,689
 19,827
 51,847
 39,667
20,992
 30,689
 43,701
 51,847
Depreciation56,551
 53,705
 112,057
 109,041
61,437
 56,551
 122,196
 112,057
Rent and purchased transportation151,433
 124,634
 287,355
 251,059
146,176
 151,433
 279,012
 287,355
Communications and utilities3,928
 3,887
 8,035
 7,959
3,903
 3,928
 7,914
 8,035
Other(4,366) 4,174
 (3,548) 8,737
1,504
 (4,366) 1,764
 (3,548)
Total operating expenses568,347
 482,595
 1,095,916
 957,844
569,091
 568,347
 1,117,189
 1,095,916
Operating income50,783
 36,913
 85,898
 62,885
58,442
 50,783
 106,461
 85,898
Other expense (income):           
 
Interest expense490
 624
 972
 1,400
1,429
 490
 2,287
 972
Interest income(693) (876) (1,433) (1,790)(989) (693) (1,892) (1,433)
Other78
 152
 131
 205
58
 78
 (58) 131
Total other income(125) (100) (330) (185)
Total other expense (income)498
 (125) 337
 (330)
Income before income taxes50,908
 37,013
 86,228
 63,070
57,944
 50,908
 106,124
 86,228
Income taxes12,644
 13,794
 20,157
 23,832
14,626
 12,644
 26,720
 20,157
Net income$38,264
 $23,219
 $66,071
 $39,238
$43,318
 $38,264
 $79,404
 $66,071
Earnings per share:              
Basic$0.53
 $0.32
 $0.91
 $0.54
$0.62
 $0.53
 $1.14
 $0.91
Diluted$0.53
 $0.32
 $0.91
 $0.54
$0.62
 $0.53
 $1.13
 $0.91
Dividends declared per share$0.090
 $0.070
 $0.160
 $0.130
Weighted-average common shares outstanding:              
Basic72,144
 72,227
 72,289
 72,209
69,593
 72,144
 69,932
 72,289
Diluted72,376
 72,492
 72,522
 72,469
69,893
 72,376
 70,229
 72,522
See Notes to Consolidated Financial Statements (Unaudited).

WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended
June 30,
 Six Months Ended
June 30,
Three Months Ended
June 30,
 Six Months Ended
June 30,
(In thousands)2018 2017 2018 20172019 2018 2019 2018
(Unaudited)(Unaudited)
Net income$38,264
 $23,219
 $66,071
 $39,238
$43,318
 $38,264
 $79,404
 $66,071
Other comprehensive income (loss):    
 
    
 
Foreign currency translation adjustments(2,537) 1,385
 (212) 3,832
526
 (2,537) 1,144
 (212)
Change in fair value of interest rate swap94
 20
 372
 234
Other comprehensive income (loss)(2,443) 1,405
 160
 4,066
Change in fair value of interest rate swap, net of tax(106) 94
 (211) 372
Other comprehensive income420
 (2,443) 933
 160
Comprehensive income$35,821
 $24,624
 $66,231
 $43,304
$43,738
 $35,821
 $80,337
 $66,231
See Notes to Consolidated Financial Statements (Unaudited).

WERNER ENTERPRISES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
 
(In thousands, except share amounts)June 30,
2018
 December 31,
2017
June 30,
2019
 December 31,
2018
(Unaudited)  (Unaudited)  
ASSETS      
Current assets:      
Cash and cash equivalents$9,924
 $13,626
$46,420
 $33,930
Accounts receivable, trade, less allowance of $8,548 and $8,250, respectively333,134
 304,174
Accounts receivable, trade, less allowance of $8,409 and $8,613, respectively331,239
 337,927
Other receivables19,784
 26,491
23,635
 26,545
Inventories and supplies11,596
 11,694
10,282
 10,060
Prepaid taxes, licenses and permits7,698
 15,972
8,008
 16,619
Other current assets31,831
 28,272
33,717
 31,577
Total current assets413,967
 400,229
453,301
 456,658
Property and equipment2,187,896
 2,114,337
2,312,594
 2,247,577
Less – accumulated depreciation773,280
 767,474
787,214
 760,015
Property and equipment, net1,414,616
 1,346,863
1,525,380
 1,487,562
Other non-current assets142,671
 60,899
149,936
 139,284
Total assets$1,971,254
 $1,807,991
$2,128,617
 $2,083,504
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Checks issued in excess of cash balances$13,697
 $21,539
Accounts payable91,916
 73,802
$92,713
 $97,781
Current portion of long-term debt
 75,000
Insurance and claims accruals64,978
 79,674
70,483
 67,304
Accrued payroll35,995
 32,520
37,432
 40,271
Other current liabilities21,631
 24,642
27,942
 30,004
Total current liabilities228,217
 232,177
228,570
 310,360
Long-term debt, net of current portion95,000
 75,000
390,000
 50,000
Other long-term liabilities11,945
 12,575
17,424
 10,911
Insurance and claims accruals, net of current portion202,039
 108,270
225,997
 214,030
Deferred income taxes212,492
 195,187
234,282
 233,450
Commitments and contingencies
 
   
Stockholders’ equity:      
Common stock, $0.01 par value, 200,000,000 shares authorized; 80,533,536 shares      
issued; 71,831,485 and 72,409,222 shares outstanding, respectively805
 805
issued; 69,195,003 and 70,441,973 shares outstanding, respectively805
 805
Paid-in capital104,799
 102,563
110,102
 107,455
Retained earnings1,324,416
 1,267,871
1,219,529
 1,413,746
Accumulated other comprehensive loss(15,675) (15,835)(15,140) (16,073)
Treasury stock, at cost; 8,702,051 and 8,124,314 shares, respectively(192,784) (170,622)
Treasury stock, at cost; 11,338,533 and 10,091,563 shares, respectively(282,952) (241,180)
Total stockholders’ equity1,221,561
 1,184,782
1,032,344
 1,264,753
Total liabilities and stockholders’ equity$1,971,254
 $1,807,991
$2,128,617
 $2,083,504
See Notes to Consolidated Financial Statements (Unaudited).



WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
Six Months Ended
June 30,
(In thousands)2018 20172019 2018
(Unaudited)(Unaudited)
Cash flows from operating activities:      
Net income$66,071
 $39,238
$79,404
 $66,071
Adjustments to reconcile net income to net cash provided by operating activities:   ��  
Depreciation112,057
 109,041
122,196
 112,057
Deferred income taxes16,269
 6,252
1,088
 16,269
Gain on disposal of property and equipment(11,346) (3,854)(10,383) (11,346)
Non-cash equity compensation3,389
 2,031
4,365
 3,389
Insurance and claims accruals, net of current portion14,081
 (3,265)11,967
 14,081
Other(2,795) (8,206)(3,365) (2,795)
Changes in certain working capital items:      
Accounts receivable, net(28,960) 10,970
6,688
 (28,960)
Other current assets3,791
 24,209
7,028
 3,791
Accounts payable10,745
 1,759
5,554
 10,745
Other current liabilities(851) 318
(4,206) (851)
Net cash provided by operating activities182,451
 178,493
220,336
 182,451
Cash flows from investing activities:      
Additions to property and equipment(256,202) (126,051)(239,289) (256,202)
Proceeds from sales of property and equipment81,367
 60,076
76,936
 81,367
Issuance of notes receivable(3,300)


 (3,300)
Decrease in notes receivable11,727
 11,490
6,505
 11,727
Net cash used in investing activities(166,408) (54,485)(155,848) (166,408)
Cash flows from financing activities:      
Repayments of short-term debt
 (45,000)
Repayments of long-term debt
 (60,000)
Proceeds from issuance of long-term debt20,000
 
265,000
 20,000
Change in net checks issued in excess of cash balances(7,842) 

 (7,842)
Dividends on common stock(10,140) (8,663)(273,734) (10,140)
Repurchases of common stock(22,884) 
(42,301) (22,884)
Tax withholding related to net share settlements of restricted stock awards(679) (360)(1,189) (679)
Stock options exercised248
 988

 248
Net cash used in financing activities(21,297) (113,035)(52,224) (21,297)
Effect of exchange rate fluctuations on cash47
 707
226
 47
Net increase in cash, cash equivalents and restricted cash(5,207) 11,680
Net increase (decrease) in cash, cash equivalents and restricted cash12,490
 (5,207)
Cash, cash equivalents and restricted cash, beginning of period15,131
 17,477
33,930
 15,131
Cash, cash equivalents and restricted cash, end of period(1)
$9,924
 $29,157
Cash, cash equivalents and restricted cash, end of period$46,420
 $9,924
Supplemental disclosures of cash flow information:      
Interest paid$972
 $1,512
$1,830
 $972
Income taxes paid5,463
 4,468
36,805
 5,463
Supplemental schedule of non-cash investing activities:   
Supplemental schedule of non-cash investing and financing activities:   
Notes receivable issued upon sale of property and equipment$3,816
 $2,599
$3,732
 $3,816
Change in fair value of interest rate swap372
 234
(211) 372
Property and equipment acquired included in accounts payable7,697
 4,214
6,126
 7,697
Property and equipment disposed included in other receivables265
 103

 265
Dividends accrued but not yet paid at end of period6,227
 6,466
      
(1) The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the Consolidated Condensed Balance Sheets
Reconciliation of cash, cash equivalents and restricted cash:   
Cash and cash equivalents$9,924
 $22,610
Restricted cash included in Other current assets
 6,547
Total cash, cash equivalents and restricted cash$9,924
 $29,157
See Notes to Consolidated Financial Statements (Unaudited).

WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share and per share amounts)
Common
Stock
 
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury
Stock
 
Total
Stockholders’
Equity
 (Unaudited)
BALANCE, December 31, 2018$805
 $107,455
 $1,413,746
 $(16,073) $(241,180) $1,264,753
Comprehensive income
 
 36,086
 513
 
 36,599
Purchases of 600,000 shares of common stock
 
 
 
 (20,545) (20,545)
Dividends on common stock ($0.09 per share)
 
 (6,290) 
 
 (6,290)
Equity compensation activity, 46,129 shares
 (1,578) 
 
 399
 (1,179)
Non-cash equity compensation expense
 2,051
 
 
 
 2,051
BALANCE, March 31, 2019805
 107,928
 1,443,542
 (15,560) (261,326) 1,275,389
Comprehensive income
 
 43,318
 420
 
 43,738
Purchases of 700,000 shares of common stock
 
 
 
 (21,756) (21,756)
Dividends on common stock ($3.84 per share)
 
 (267,331) 
 
 (267,331)
Equity compensation activity, 6,901 shares
 (140) 
 
 130
 (10)
Non-cash equity compensation expense
 2,314
 
 
 
 2,314
BALANCE, June 30, 2019$805
 $110,102
 $1,219,529
 $(15,140) $(282,952) $1,032,344
            
BALANCE, December 31, 2017$805
 $102,563
 $1,267,871
 $(15,835) $(170,622) $1,184,782
Comprehensive income
 
 27,807
 2,603
 
 30,410
Dividends on common stock ($0.07 per share)
 
 (5,071) 
 
 (5,071)
Equity compensation activity, 44,980 shares
 (1,069) 
 
 631
 (438)
Non-cash equity compensation expense
 1,410
 
 
 
 1,410
Cumulative effect of accounting change
 
 2,011
 
 
 2,011
BALANCE, March 31, 2018805
 102,904
 1,292,618
 (13,232) (169,991) 1,213,104
Comprehensive income
 
 38,264
 (2,443) 
 35,821
Purchases of 627,652 shares of common stock
 
 
 
 (22,884) (22,884)
Dividends on common stock ($0.09 per share)
 
 (6,466) 
 
 (6,466)
Equity compensation activity, 4,935 shares
 (84) 
 
 91
 7
Non-cash equity compensation expense
 1,979
 
 
 
 1,979
BALANCE, June 30, 2018$805
 $104,799
 $1,324,416
 $(15,675) $(192,784) $1,221,561
See Notes to Consolidated Financial Statements (Unaudited).


WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
(1) Accounting Policies
New Accounting Pronouncements Adopted
In May 2014,February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 Company adopted ASU 2014-09 and related amendments, which is also know as Accounting Standards Codification (“ASC”) Topic 606, as of January 1, 2018 using the modified retrospective transition method. We expect the impact of the adoption of the new standard to be immaterial to our net income on an ongoing basis. See Note 2 - Revenue for additional adoption information, the updated accounting policy for revenue recognition, and disclosures required by ASC Topic 606.

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 Company adopted ASU No. 2016-15 as of January 1, 2018. Upon adoption, this update had no effect on our consolidated financial position, results of operations or 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 Company adopted ASU No. 2016-18 as of January 1, 2018, using the required retrospective adoption method. The adoption of this standard impacted the consolidated statements of cash flows by increasing beginning and ending cash to include the restricted balance of our like-kind exchange account and removing from operating activities the change in such balance, which resulted in a $6.0 million increase to cash flow from operations for the six months ended June 30, 2017.

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 Company adopted ASU No. 2017-09 as of January 1, 2018 on a prospective basis. Upon adoption, this update had no effect on our consolidated financial position, results of operations or cash flows.

Accounting Standards Updates Not Yet Effective
In February 2016, the FASB issued ASU No. 2016-02, “Leases,” to increase transparency and comparability by recognizing a right-of-use asset and a lease assets and lease liabilitiesliability on the balance sheet and disclosing key information about leasing arrangements. The provisions of this update and additional guidance in subsequent ASUs are effective for fiscal years beginning after December 15, 2018. We are evaluating the impact of adoptingCompany adopted ASU No. 2016-02 on our consolidated financial position, resultsand related amendments as of operationsJanuary 1, 2019, using the optional transition method. See Note 3 - Leases for additional adoption information and cash flows.

disclosures required by Accounting Standards Codification (“ASC”) Topic 842.
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 provisionsCompany adopted ASU 2017-12 as of January 1, 2019. Upon adoption, this update are effective for fiscal years beginning after December 15, 2018. We are evaluating the impact of adopting ASU No. 2017-12had no effect on our financial position, results of operations and cash flows.


In February 2018, the FASB issued ASU No. 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Comprehensive Income,” which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The provisionsCompany adopted ASU No. 2018-02 as of January 1, 2019. Upon adoption, this update are effective for fiscal years beginning after December 15, 2018. We are evaluating the impact of adopting ASU No. 2018-02had no effect on our financial position, results of operations and cash flows.


Accounting Standards Updates Not Yet Effective
In June 2018,2016, the FASB issued ASU No. 2018-07, “Compensation2016-13, “Financial Instruments - Stock CompensationCredit Losses (Topic 718)326): Improvements to Nonemployee Share-Based Payment Accounting,Measurement of Credit Losses on Financial Statements,with the objectivewhich requires measurement and recognition of simplifying several aspects of the accountingexpected versus incurred credit losses for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.financial assets. The provisions of this update are effective for fiscal years beginning after December 15, 2018.2019. We are evaluating the impact of adopting ASU No. 2016-13 on our financial position, results of operations and cash flows.
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement,” which modifies the disclosure requirements on fair value measurements. As part of its disclosure framework project, the FASB has eliminated, amended and added disclosure requirements for fair value measurements in Topic 820, Fair Value Measurement. The provisions of this update are effective for fiscal years beginning after December 15, 2019. Although we are evaluating the impact of adopting ASU No. 2018-072018-13 on our financial position, results of operations and cash flows, we currently do not expect a material effect upon adoption because we do not havecurrently disclose any nonemployee share-based payment transactions.fair value measurements subject to the amendments.


In August 2018, the FASB issued ASU No. 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force),” which updates the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract to align with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The provisions of this update are effective for fiscal years beginning after December 15, 2019. We are evaluating the impact of adopting ASU No. 2018-15 on our financial position, results of operations and cash flows.


(2) Revenue
Adoption of ASC Topic 606, “Revenue from Contracts with Customers”
On January 1, 2018, the Company adopted ASC Topic 606 using the modified retrospective method. Results for periods beginning January 1, 2018 and later are presented under ASC Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy for revenue recognition.

We recorded a $2.0 million net increase to the opening balance of retained earnings as of January 1, 2018, for the cumulative impact of adopting the new guidance. The impact primarily related to the change in accounting for shipments in transit as of December 31, 2017. ASC Topic 606 requires us to recognize revenue and related direct costs over time as the shipment is being delivered. Prior to adopting the new guidance, we recognized revenue and related direct costs when the shipment was delivered.

Under the modified retrospective method of adoption, we are required to disclose the impact to our financial statements had we continued to follow our accounting policies under the previous revenue recognition guidance. Had we continued to recognize revenues and direct costs upon delivery, our operating revenues and operating expenses for the three months ended June 30, 2018 would have been been lower by approximately $0.7 million and $0.3 million, respectively, and for the six months ended June 30, 2018 would have been lower by approximately $1.0 million and $0.4 million, respectively. Additionally, under ASC Topic 606, we recorded a $3.9 million and $7.1 million reduction of revenues for the three and six months ended June 30, 2018, respectively, related to our driver training schools that would have been reported as bad debt expense prior to the new standard.


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


The following table presents our revenues disaggregated by revenue source (in thousands):
 Three Months Ended
June 30,
 Six Months Ended
June 30,
 2019 2018 2019 2018
Truckload Transportation Services$479,959
 $470,277
 $942,850
 $901,833
Werner Logistics130,883
 134,012
 248,253
 251,432
Inter-segment eliminations(34) (212) (239) (670)
   Transportation services610,808
 604,077
 1,190,864
 1,152,595
Other revenues16,725
 15,053
 32,786
 29,219
Total revenues$627,533
 $619,130
 $1,223,650
 $1,181,814

 Three Months Ended
June 30,
 Six Months Ended
June 30,
 2018 2017 2018 2017
Truckload Transportation Services$470,277
 $403,502
 $901,833
 $788,505
Werner Logistics134,012
 100,804
 251,432
 200,657
Inter-segment eliminations(212) (449) (670) (616)
   Transportation services604,077
 503,857
 1,152,595
 988,546
Other revenues15,053
 15,651
 29,219
 32,183
Total revenues$619,130
 $519,508
 $1,181,814
 $1,020,729


The following table presents our revenues disaggregated by geographic areas in which we conduct business (in thousands). Operating revenues for foreign countries include revenues for (i) shipments with an origin or destination in that country and (ii) other services provided in that country. If both the origin and destination are in a foreign country, the revenues are attributed to the country of origin.
 Three Months Ended
June 30,
 Six Months Ended
June 30,
 2019 2018 2019 2018
United States$554,261
 $540,284
 $1,080,853
 $1,028,305
Mexico51,958
 59,741
 104,772
 116,151
Other21,314
 19,105
 38,025
 37,358
Total revenues$627,533
 $619,130
 $1,223,650
 $1,181,814

 Three Months Ended
June 30,
 Six Months Ended
June 30,
 2018 2017 2018 2017
United States$540,284
 $452,361
 $1,028,305
 $887,056
Mexico59,741
 51,077
 116,151
 101,316
Other19,105
 16,070
 37,358
 32,357
Total revenues$619,130
 $519,508
 $1,181,814
 $1,020,729

Transportation Services
We generate nearly all of our revenues by transporting truckload freight shipments for our customers. Transportation services are carried out by our Truckload Transportation Services (“Truckload”) segment and our Werner Logistics (“Logistics”) segment. The Truckload segment utilizes company-owned and independent contractor trucks to deliver shipments, while the Logistics segment uses third-party capacity providers.

The Company generates revenue from billings for transportation services under contracts with customers, generally on a rate per mile or per shipment, based on origin and destination of the shipment. The Company’s performance obligation arises when it

receives a shipment order to transport a customer’s freight and is satisfied upon delivery of the shipment. The transaction price may be defined in a transportation services agreement or negotiated with the customer prior to accepting the shipment order. A customer may submit several shipment orders for transportation services at various times throughout a service agreement term, but each shipment represents a distinct service that is a separately identified performance obligation. The Company often provides additional or ancillary services as part of the shipment (such as loading/unloading and stops in transit) which are not distinct or are not material in the context of the contract; therefore the revenue for these services is recognized with the freight transaction price. The average transit time to complete a shipment is approximately 3 days. Invoices for transportation services are typically generated soon after shipment delivery and, while payment terms and conditions vary by customer, are generally due within 30 days after the invoice date.

The Consolidated Statements of Income reflect recognition of transportation revenues (including fuel surcharge revenues) and related direct costs over time as the shipment is being delivered. The Company uses distance shipped (for the Truckload segment) and transit time (for the Logistics segment) to measure progress and the amount of revenue recognized over time, as the customer simultaneously receives and consumes the benefit. Determining a measure of progress requires us to make judgments that affect the timing of revenue recognized. The Company has determined that the methods described provide a faithful depiction of the transfer of services to the customer.

For shipments where a third-party capacity provider (including independent contractors under contract with us) is utilized to provide some or all of the service, we evaluate whether we are the principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis). Generally, we report such revenues on a gross basis, that is, we recognize both revenues for the service we bill to the customer and rent and purchased transportation expense for transportation costs we pay to the third-party provider. Where we are the principal, we control the transportation service before it is provided to our customers, which is supported by us being primarily responsible for fulfilling the shipment obligation to the customer and having a level of discretion in establishing pricing with the customer.

During the first half of 2018, revenue recognized from performance obligations related to prior periods (for example, due to changes in transaction price) was not material.

Other Revenues
Other revenues include revenues from our driver training schools, transportation-related activities such as third-party equipment maintenance and equipment leasing, and other business activities. These revenues are generally recognized over time and accounted for 2% of our total revenue in the first half of 2018. Revenues from our driver training schools require us to make judgments regarding price concessions in determining the amount of revenue to recognize.


Contract Balances and Accounts Receivable
A receivable is an unconditional right to consideration and is recognized when shipments have been completed and the related performance obligation has been fully satisfied. At June 30, 20182019 and December 31, 2017,2018, the accounts receivable, net, balance was $333.1$331.2 million and $304.2$337.9 million, respectively. Contract assets represent a conditional right to consideration in exchange for goods or services and are transferred to receivables when the rights become unconditional. At June 30, 2019 and December 31, 2018, the balance of contract assets was $8.8$9.4 million and the balance was $7.8$7.4 million, at January 1, 2018, after adopting ASC Topic 606.respectively. The Company has recognized contract assets within the other current assets financial statement caption on the balance sheet. These contract assets are considered current assets as they will be settled in less than 12 months.
    
Contract liabilities represent advance consideration received from customers and are recognized as revenuerevenues over time as the related performance obligation is satisfied. At June 30, 20182019 and December 31, 2017,2018, the balance of contract liabilities was $2.4$2.3 million and $2.1$1.7 million, respectively. The amount of revenuerevenues recognized in the first half of 2018six months ended June 30, 2019 that was included in the December 31, 20172018 contract liability balance was $2.1$1.7 million. The Company has recognized contract liabilities within the accounts payable and other current liabilities financial statement captions on the balance sheet. These contract liabilities are considered current liabilities as they will be settled in less than 12 months.


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

During the six months ended June 30, 2019 and June 30, 2018, revenues recognized from performance obligations related to prior periods (for example, due to changes in transaction price) were not material.


(3) Credit FacilitiesLeases
As
Adoption of ASC Topic 842, “Leases”
On January 1, 2019, the Company adopted ASC Topic 842, “Leases”, which requires lessees to recognize most leases in the consolidated balance sheet as a right-of-use asset and a lease obligation. Expenses are recognized in the consolidated statement of income in a manner similar to previous accounting guidance. The Company adopted the accounting standard using the optional transition approach, which applies the provisions of the new guidance at the effective date without adjusting the comparative periods presented.

The Company elected the following practical expedients upon adoption: not to reassess whether any existing contracts are or contain leases, not to reassess the lease classification for any existing leases, not to reassess initial direct costs for any existing leases and not to separately identify lease and non-lease components for all underlying classes of assets. Additionally, the Company made a short-term lease accounting policy election to not recognize right-of-use assets and liabilities for leases with a term of 12 months or less.

Adoption of the new standard resulted in recognition of right-of-use assets and corresponding lease liabilities of $8.7 million as of January 1, 2019. The new standard did not have a significant impact on the consolidated statement of income.

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

Operating leases are included in the other non-current assets, other current liabilities and other long-term liabilities on the consolidated condensed balance sheets. These assets and liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date, using the Company’s incremental borrowing rate because the rate implicit in each lease in not readily determinable. The Company has certain contracts for real estate that may contain lease and non-lease components which it has 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 purchase transportation on the consolidated statements of income.

The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s operating leases as of June 30, 2018, we had unsecured committed credit facilities with three banks as well2019.

(In thousands)June 30, 2019
Maturity of Lease Liabilities 
2019 (remaining)$1,619
20202,829
20212,005
20221,171
2023331
Thereafter749
Total undiscounted operating lease payments$8,704
Less: Imputed interest(523)
Present value of operating lease liabilities$8,181
  
Balance Sheet Classification 
Right-of-use assets (recorded in other non-current assets)$7,910
  
Current lease liabilities (recorded in other current liabilities)$2,892
Long-term lease liabilities (recorded in other long-term liabilities)5,289
Total operating lease liabilities$8,181
  
Other Information 
Weighted-average remaining lease term for operating leases3.55 years
Weighted-average discount rate for operating leases3.5%


Cash Flows
An initial right-of-use asset of $8.7 million was recognized as a non-cash asset addition with the adoption of the new lease accounting standard. Additional right-of-use assets of $0.8 million were recognized as non-cash asset additions that resulted from new operating lease liabilities during the six months ended June 30, 2019. Cash paid for amounts included in the present value of operating lease liabilities was $1.8 million during the six months ended June 30, 2019, and is included in operating cash flows.

Operating Lease Expense
Operating lease expense was $2.0 millionand $4.3 million during the three and six months ended June 30, 2019, respectively. This expense included $0.9 million and $1.8 million for the three and six months ended June 30, 2019, respectively, for long-term operating leases, with the remainder for variable and short-term lease expense.


Lessor Operating Leases
We are the lessor of tractors and trailers under operating leases with initial terms of 2 to 10 years. We recognize revenue for such leases on a straight-line basis over the term commitment with oneof the lease, and revenues for the three and six months ended June 30, 2019 were $3.5 million and $6.8 million, respectively. The following table presents information about the maturities of these banks. We hadoperating leases as of June 30, 2019.

(In thousands)June 30, 2019
2019 (remaining)$6,145
20205,162
2021248
202262
2023
Thereafter
Total$11,617


(4) Credit Facilities
On May 14, 2019, we entered into new five-year, unsecured revolving credit facilities with Wells Fargo Bank, N.A. and BMO Harris Bank N.A., replacing the previous credit facilities with both lenders. We replaced our previous $100.0 million credit facility and $75.0 million term commitment with Wells Fargo Bank, N.A. with a $100.0$300.0 million credit facility which will expire on July 12, 2020, and aMay 14, 2024. Also on May 14, 2019, we replaced our previous $75.0 million term commitmentcredit facility with principal due and payableBMO Harris Bank N.A. with a $200.0 million credit facility which will expire on September 15, 2019.May 14, 2024. We hadalso have an unsecured line of credit of $75.0 million with U.S. Bank, N.A., which will expire on July 13, 2020. We also had a $75.0 million credit facility with BMO Harris Bank, N.A., which will expire on March 5, 2020.2020. Borrowings under these credit facilities and term note bear variable interest based on the London Interbank Offered Rate (“LIBOR”).


As of June 30, 2018,2019 and December 31, 2017,2018, our outstanding debt totaled $95.0$390.0 million and $75.0$125.0 million, respectively. We had $315.0 million outstanding under the credit facilities at a weighted average variable interest rate of 3.07% as of June 30, 2019, and we had an additional $75.0 million outstanding under the term commitmentWells Fargo Bank, N.A. credit facility at a variable rate of 2.67%2.99% as of June 30, 2018,2019, which is effectively fixed at 2.5% with an interest rate swap agreement andthrough September 15, 2019. On July 2, 2019, we had an additional $20.0(i) terminated our previous $75.0 million outstanding under the credit facilities at a weighted average interest rate of 2.70%swap agreement with Wells Fargo Bank, N.A., (ii) entered into a $75.0 million interest rate swap agreement with Wells Fargo Bank, N.A., that effectively fixes our interest rate at 2.32% through May 14, 2024, and (iii) entered into a $75.0 million interest rate swap agreement with BMO Harris Bank N.A. that effectively fixes our interest rate at 2.36% through May 14, 2024. The $325.0$575.0 million of borrowing capacity under our credit facilities at June 30, 2018,2019, is further reduced by $28.8$30.0 million in stand-by letters of credit under which we are obligated. Subsequent to the end of the quarter, in July 2018, we borrowed an additional $20.0 million. Each of the debt agreements includes, among other things, financial covenants requiring us (i) not to exceed a maximumminimum ratio of total debtearnings before interest, income taxes, depreciation and amortization to total capitalizationinterest expense and/or (ii) not to exceed a maximum ratio of total funded debt to earnings before interest, income taxes, depreciation and amortization (as such terms are defined in each credit facility). At June 30, 2018,2019, we were in compliance with these covenants.


At June 30, 2018,2019, the aggregate future maturities of long-term debt by year are as follows (in thousands):
2019$
202075,000
2021
2022
2023
2024315,000
Total$390,000

2018$
201975,000
202020,000
2021
2022
Total$95,000


The carrying amounts of our long-term debt approximate fair value due to the duration of the notes and the variable interest rates.
 
(4) Income Taxes
We accrued interest expense of $30 thousand and $48 thousand during the three-month periods ended June 30, 2018 and June 30, 2017, respectively, and $53 thousand and $103 thousand during the six-month periods ended June 30, 2018 and June 30, 2017, 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 June 30, 2018, is $2.6 million. If recognized, $2.1 million of unrecognized tax benefits would impact our effective tax rate. Interest of $0.4 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.
The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was enacted on December 22, 2017, and lowered the federal corporate income tax rate to 21% from 35% effective January 1, 2018. The Company recognized the provisional tax impact related to the revaluation of deferred income tax assets and liabilities in accordance with SEC Staff Accounting Bulletin No. 118 and included the amount in its consolidated financial statements for the year ended December 31, 2017. The ultimate impact may differ from the provisional amount due to, among other things, additional analysis, change in interpretations and assumptions the Company has made, and additional regulatory guidance that may be issued. During the three and six months ended June 30, 2018, we did not make any adjustments to the provisional amounts recorded as of December 31, 2017. The accounting is expected to be completed when the Company’s 2017 income tax returns are filed later in 2018.
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 2017 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. 

(5) Commitments and Contingencies
As of June 30, 2018,2019, we have committed to property and equipment purchases of approximately $236.8$176.5 million.


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

the amount of the loss can be reasonably estimated. Based on the knowledge of the facts, management believes the resolution of claims and pending litigation, taking into account existing reserves, will not have a material adverse effect on our consolidated financial statements. Moreover, the results of complex legal proceedings are difficult to predict, and our view of these matters may change in the future as the litigation and related events unfold.


On May 17, 2018, in Harris County District Court in Houston, Texas, a jury rendered an adverse verdict against Werner Enterprises, Inc. (the “Company”) in a lawsuit arising from ana December 30, 2014 accident between a Werner tractor-trailer and a passenger vehicle. The accident happened on December 30, 2014, near Odessa, Texas. A Werner driver was westbound on Interstate 20. A pickup truck, driven by Zaragoza Salinas, was eastbound on Interstate 20. The Salinas pickup lost control in the eastbound lanes, traveled into and through the grassy interstate median, and directly into the path of the Werner unit. The pickup had spun prior to impact, so that the bed of the pickup first struck the front of the Werner tractor.

As a result of the accident, four passengers in the pickup sustained varying injuries. Tragically, a 7 year-old boy died, and his 12 year-old sister suffered catastrophic brain injuries. The children’s mother and their 14 year-old brother were also injured.

Werner’s driver did not receive a citation, and the investigating officers placed no blame on the Werner driver. The Werner driver was traveling well below the posted speed limit, did not lose control of his tractor-trailer, and even brought the unit to a controlled stop after the impact.

Despite these facts, the jury awarded a gross verdict of approximately $89.7 million to the family. The jury did not award any punitive damages. The jury verdict form contained varying answers regarding apportionment of fault to Mr. Salinas, Werner, and Werner’s driver. On July 30, 2018, the court entered thea final judgment withagainst Werner liable for the entire $89.7$92 million, verdict.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 accrued $11.3had recorded a liability of $17.1 million as of pre-tax insuranceJune 30, 2019, and claims expense (including interest$15.2 million as of $1.3 million) in its financial statements during second quarterDecember 31, 2018. Under the terms of the Company’s insurance policies, the Company is the primary obligor of the verdict, awarded to the family, and as such, the Company has also recorded a $79.7$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 unaudited consolidated condensed balance sheets as of June 30, 2018,2019 and such amounts are treated as non-cash operating activites in the unaudited consolidated statement of cash flows for the six months ended June 30,December 31, 2018.


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


We are involved in class action litigation in the U.S. District Court for the District of Nebraska, in which the plaintiffs allege that we owe drivers for unpaid wages under the Fair Labor Standards Act (FLSA)(“FLSA”) and the Nebraska Wage Payment and Collection Act and that we failed to pay minimum wage per hour for drivers in our student driver training program, related to short break time and sleeper berth time. The period covered by this class action suit is August 2008 through March 2014. The case was tried to a jury in May 2017, resulting in a verdict of $0.8 million in plaintiffs’ favor on the short break matter and a verdict in our favor on the sleeper berth matter. As a result of various post-trial motions, the court has awarded $0.5 million to the plaintiffs for attorney fees and costs. As of June 30, 2018,2019, we had accrued for the jury’s award, attorney fees and costs in the short break matter and had not accrued for the sleeper berth matter. Plaintiffs have appealed the post-verdict amounts awarded by the trial court for fees, costs and liquidated damages.


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. 

(6) Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and restricted stock awards. There are no differences in the numerators of our computations of basic and diluted earnings per share for any periodperiods presented.
The computation of basic and diluted earnings per share is shown below (in thousands, except per share amounts).
 Three Months Ended
June 30,
 Six Months Ended
June 30,
 
 2019 2018 2019 2018 
Net income$43,318
 $38,264
 $79,404
 $66,071
 
Weighted average common shares outstanding69,593
 72,144
 69,932
 72,289
 
Dilutive effect of stock-based awards300
 232
 297
 233
 
Shares used in computing diluted earnings per share69,893
 72,376
 70,229
 72,522
 
Basic earnings per share$0.62
 $0.53
 $1.14
 $0.91
 
Diluted earnings per share$0.62
 $0.53
 $1.13
 $0.91
 
 Three Months Ended
June 30,
 Six Months Ended
June 30,
 2018 2017 2018 2017
Net income$38,264
 $23,219
 $66,071
 $39,238
Weighted average common shares outstanding72,144
 72,227
 72,289
 72,209
Dilutive effect of stock-based awards232
 265
 233
 260
Shares used in computing diluted earnings per share72,376
 72,492
 72,522
 72,469
Basic earnings per share$0.53
 $0.32
 $0.91
 $0.54
Diluted earnings per share$0.53
 $0.32
 $0.91
 $0.54


There were no options to purchase shares of common stock that were outstanding during the periods indicated above that were excluded from the computation of diluted earnings per share because the option purchase price was greater than the average market price of the common shares during the period. Performance awards are excluded from the calculation of dilutive potential common shares until the threshold performance conditions have been satisfied.


(7) Equity Compensation
The Werner Enterprises, Inc. Amended and Restated Equity Plan (the “Equity Plan”), approved by the Company’s shareholders, provides for grants to employees and non-employee directors of the Company in the form of nonqualified stock options, restricted stock and units (“restricted awards”), performance awards, and stock appreciation rights. The Board of Directors or the Compensation Committee of our Board of Directors determines the terms of each award, including the type, recipients, number of shares subject to and vesting conditions of each award. No awards of stock appreciation rights have been issued under the Equity Plan to date. The maximum number of shares of common stock that may be awarded under the Equity Plan is 20,000,000 shares. The maximum aggregate number of shares that may be awarded to any one person in any one calendar year under the Equity Plan is 500,000. As of June 30, 2018,2019, there were 7,081,2176,777,546 shares available for granting additional awards.
Equity compensation expense is included in salaries, wages and benefits within the Consolidated Statements of Income. As of June 30, 2018,2019, the total unrecognized compensation cost related to non-vested equity compensation awards was approximately $12.0$13.8 million and is expected to be recognized over a weighted average period of 2.22.0 years. The following table summarizes the equity compensation expense and related income tax benefit recognized in the Consolidated Statements of Income (in thousands):


 Three Months Ended
June 30,
 Six Months Ended
June 30,
 2019 2018 2019 2018
Restricted awards:       
Pre-tax compensation expense$1,313
 $1,127
 $2,476
 $2,063
Tax benefit334
 287
 631
 526
Restricted stock expense, net of tax$979
 $840
 $1,845
 $1,537
Performance awards:    
 
Pre-tax compensation expense$1,001
 $842
 $1,897
 $1,327
Tax benefit256
 214
 484
 338
Performance award expense, net of tax$745
 $628
 $1,413
 $989

 Three Months Ended
June 30,
 Six Months Ended
June 30,
 2018 2017 2018 2017
Stock options:       
Pre-tax compensation expense$
 $1
 $
 $3
Tax benefit
 
 
 1
Stock option expense, net of tax$
 $1
 $
 $2
Restricted awards:    
 
Pre-tax compensation expense$1,127
 $866
 $2,063
 $1,499
Tax benefit287
 340
 526
 585
Restricted stock expense, net of tax$840
 $526
 $1,537
 $914
Performance awards:    
 
Pre-tax compensation expense$842
 $306
 $1,327
 $589
Tax benefit214
 120
 338
 230
Performance award expense, net of tax$628
 $186
 $989
 $359



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 2018.2019.


Stock Options
Stock options are granted at prices equal to the market value of the common stock on the date the option award is granted. Option awards currently outstanding become exercisable in installments from 24 to 72 months after the date of grant. The options are exercisable over a period not to exceed ten years, one day from the date of grant.

The following table summarizes stock option activity for the six months ended June 30, 2018:2019:


 
Number of
Options
(in thousands)
 
Weighted
Average
Exercise
Price ($)
 
Weighted
Average
Remaining
Contractual
Term
(Years)
 
Aggregate
Intrinsic Value
(in thousands)
Outstanding at beginning of period9
 $19.02
 
 
Granted
 
 
 
Exercised
 
 
 
Forfeited
 
 
 
Expired
 
 
 
Outstanding at end of period9
 19.02
 0.43 $109
Exercisable at end of period9
 19.02
 0.43 $109

 
Number of
Options
(in thousands)
 
Weighted
Average
Exercise
Price ($)
 
Weighted
Average
Remaining
Contractual
Term
(Years)
 
Aggregate
Intrinsic Value
(in thousands)
Outstanding at beginning of period33
 $19.69
 
 
Granted
 
 
 
Exercised(12) 20.68
 
 
Forfeited
 
 
 
Expired
 
 
 
Outstanding at end of period21
 19.12
 1.49 $385
Exercisable at end of period21
 19.12
 1.49 $385


We did not grant any stock options during the six-month periods ended June 30, 20182019 and June 30, 2017.2018. The fair value of stock option grants is estimated using a Black-Scholes valuation model. TheThere were no stock options exercised in the six-month period ended June 30, 2019, and the total intrinsic value of stock options exercised was $235 thousand and $636 thousand forin the six-month periodsperiod ended June 30, 2018 and June 30, 2017, respectively.was $235 thousand.

Restricted Awards
Restricted stock entitles the holder to shares of common stock when the award vests. Restricted stock units entitle the holder to a combination of cash or stock equal to the value of common stock when the unit vests. The value of these shares may fluctuate according to market conditions and other factors. Restricted awards currently outstanding vest over periods ranging from 12 to 60 months from the grant date of the award. The restricted awards do not confer any voting or dividend rights to recipients until such shares vest and do not have any post-vesting sales restrictions.
The following table summarizes restricted award activity for the six months ended June 30, 2018:2019:


 
Number of
Restricted
Awards (in
thousands)
 
Weighted
Average Grant
Date Fair
Value ($)
Nonvested at beginning of period326
 $31.93
Granted145
 32.54
Vested(52) 33.04
Forfeited(5) 30.94
Nonvested at end of period414
 32.02

 
Number of
Restricted
Awards (in
thousands)
 
Weighted
Average Grant
Date Fair
Value ($)
Nonvested at beginning of period273
 $27.69
Granted124
 37.43
Vested(21) 26.74
Forfeited(4) 28.72
Nonvested at end of period372
 30.98


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 six-month periodperiods ended June 30, 2019 and June 30, 2018 was $778 thousand,$1.8 million and for the six-month period ended June 30, 2017 was $107 thousand.$0.8 million, respectively. We withheld shares based on the closing stock price on the vesting date to settle the employees’ statutory obligation for the applicable income and other employment taxes. The shares withheld to satisfy the tax withholding obligations arewere recorded as treasury stock.


Performance Awards
Performance awards entitle the recipient to shares of common stock upon attainment of performance objectives as pre-established by the Compensation Committee. If the performance objectives are achieved, performance awards currently outstanding vest, subject to continued employment, over periods ranging from 12 to 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 six months ended June 30, 2018:2019:


 
Number of
Performance
Awards (in
thousands)
 
Weighted
Average Grant
Date Fair
Value ($)
Nonvested at beginning of period207
 $27.92
Granted97
 32.88
Vested(35) 27.07
Forfeited
 
Nonvested at end of period269
 29.83

 
Number of
Performance
Awards (in
thousands)
 
Weighted
Average Grant
Date Fair
Value ($)
Nonvested at beginning of period158
 $27.20
Granted84
 37.48
Vested(35) 27.07
Forfeited
 
Nonvested at end of period207
 30.31


The 20182019 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, 20182019 to December 31, 2019.2020. 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, 2020.2021. The 20182019 performance awards will vest in one installment on the third anniversary from the grant date.


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 six-month periods ended June 30, 20182019 and June 30, 20172018 was $1.3$1.2 million and $1.0$1.3 million, respectively. We withholdwithheld shares based on the closing stock price on the vesting date to settle the employees’ statutory obligation for the applicable income and other employment taxes. The shares withheld to satisfy the tax withholding obligations arewere recorded as treasury stock.


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


The TruckloadTTS segment consists of threetwo operating units, Dedicated and One-Way Truckload and Temperature Controlled.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.States; and (iv) the Temperature Controlled fleet provides truckload services for temperature sensitive products over irregular routes utilizing temperature-controlled trailers. Revenues for the TruckloadTTS segment include a small amount of non-trucking revenues which consist primarily of the intra-Mexico portion of cross-border shipments delivered to or from Mexico where we utilize a third-party capacity provider.


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



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

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


The following table summarizes our segment information (in thousands):
 Three Months Ended
June 30,
 Six Months Ended
June 30,
 2019 2018 2019 2018
Revenues       
Truckload Transportation Services$479,959
 $470,277
 $942,850
 $901,833
Werner Logistics130,883
 134,012
 248,253
 251,432
Other16,096
 14,422
 31,568
 27,681
Corporate629
 631
 1,218
 1,538
  Subtotal627,567
 619,342
 1,223,889
 1,182,484
Inter-segment eliminations(34) (212) (239) (670)
Total$627,533
 $619,130
 $1,223,650
 $1,181,814
        
Operating Income       
Truckload Transportation Services$51,665
 $43,432
 $94,618
 $76,854
Werner Logistics5,182
 5,602
 9,893
 8,359
Other2,293
 243
 3,472
 (143)
Corporate(698) 1,506
 (1,522) 828
Total$58,442
 $50,783
 $106,461
 $85,898

 Three Months Ended
June 30,
 Six Months Ended
June 30,
 2018 2017 2018 2017
Revenues       
Truckload Transportation Services$470,277
 $403,502
 $901,833
 $788,505
Werner Logistics134,012
 100,804
 251,432
 200,657
Other14,422
 15,127
 27,681
 31,237
Corporate631
 524
 1,538
 946
  Subtotal619,342
 519,957
 1,182,484
 1,021,345
Inter-segment eliminations(212) (449) (670) (616)
Total$619,130
 $519,508
 $1,181,814
 $1,020,729
        
Operating Income       
Truckload Transportation Services$43,432
 $36,036
 $76,854
 $59,502
Werner Logistics5,602
 2,285
 8,359
 5,334
Other243
 (541) (143) (396)
Corporate1,506
 (867) 828
 (1,555)
Total$50,783
 $36,913
 $85,898
 $62,885



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
Critical Accounting Policies and Estimates
The MD&A should be read in conjunction with our 20172018 Form 10-K.


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


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


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


The operating ratio is a common industry measure used to evaluate our profitability and that of our TruckloadTTS segment operating fleets. The operating ratio consists of operating expenses expressed as a percentage of operating revenues. The most significant variable expenses that impact the TruckloadTTS segment are driver salaries and benefits, fuel, fuel taxes (included in taxes and licenses expense), payments to independent contractors (included in rent and purchased transportation expense), supplies and maintenance and insurance and claims. As discussed further in the comparison of operating results for second quarter 20182019 to second quarter 2017,2018, several industry-wide issues have caused, and could continue to cause, costs to increase in future periods. These issues include shortages of drivers or independent contractors, changing fuel prices, higher new truck and trailer purchase prices and compliance with new or proposed regulations. Our main fixed costs include depreciation expense for tractors and trailers and equipment licensing fees (included in taxes and licenses expense). The TruckloadTTS segment requires substantial cash expenditures for tractor and trailer purchases. We fund these purchases with net cash from operations and financing available under our existing credit facilities, as management deems necessary.

We provide non-trucking services primarily through the fivefour operating units within our Werner Logistics segment (Brokerage, Freight Management,(Truckload Logistics, Intermodal, WGL and Final Mile). Unlike our TruckloadTTS segment, the Werner Logistics segment is less asset-intensive and is instead dependent upon qualified associates, information systems and qualified third-party capacity providers. The largest expense item related to the Werner Logistics segment is the cost of purchased transportation we pay to third-party capacity providers. This expense item is recorded as rent and purchased transportation expense. Other operating expenses consist primarily of salaries, wages and benefits. We evaluate the Werner Logistics segment’s financial performance by reviewing the gross margin percentage (revenues less rent and purchased transportation expenses expressed as a percentage of revenues) and the operating income percentage. The gross margin percentage can be impacted by the rates charged to customers and the costs of securing third-party capacity. We have a mix of contracted long-term rates and variable rates for the cost of third-party capacity, and we cannot assure that our operating results will not be adversely impacted in the future if our ability to obtain qualified third-party capacity providers changes or the rates of such providers increase.
 
Results of Operations:
The following table sets forth the Consolidated Statements of Income in dollars and as a percentage of total operating revenues and the percentage increase or decrease in the dollar amounts of those items compared to the prior year.
 
Three Months Ended (3ME)
June 30,
 Six Months Ended (6ME)
June 30,
 
Percentage Change
in Dollar Amounts
Three Months Ended (3ME)
June 30,
 Six Months Ended (6ME)
June 30,
 Percentage Change in Dollar Amounts
2018 2017 2018 2017 3ME6ME2019 2018 2019 2018 3ME6ME
(Amounts in thousands)$% $% $% $% %$% $% $% $% %
Operating revenues$619,130
100.0 % $519,508
100.0 % $1,181,814
100.0 % $1,020,729
100.0 % 19.2 %15.8 %$627,533
100.0 $619,130
100.0
 $1,223,650
100.0 $1,181,814
100.0
 1.4
3.5
            



           

Operating expenses:            



           

Salaries, wages and benefits196,115
31.7 % 169,543
32.6 % 378,909
32.1 % 330,382
32.3 % 15.7 %14.7 %206,001
32.8 196,115
31.7
 408,800
33.4 378,909
32.1
 5.0
7.9
Fuel65,665
10.6 % 45,129
8.7 % 124,697
10.5 % 90,285
8.8 % 45.5 %38.1 %61,064
9.7 65,665
10.6
 117,202
9.6 124,697
10.5
 (7.0)(6.0)
Supplies and maintenance45,681
7.4 % 40,058
7.7 % 91,420
7.7 % 78,290
7.7 % 14.0 %16.8 %44,371
7.1 45,681
7.4
 90,056
7.4 91,420
7.7
 (2.9)(1.5)
Taxes and licenses22,651
3.7 % 21,638
4.2 % 45,144
3.8 % 42,424
4.2 % 4.7 %6.4 %23,643
3.8 22,651
3.7
 46,544
3.8 45,144
3.8
 4.4
3.1
Insurance and claims30,689
4.9 % 19,827
3.8 % 51,847
4.4 % 39,667
3.9 % 54.8 %30.7 %20,992
3.4 30,689
4.9
 43,701
3.6 51,847
4.4
 (31.6)(15.7)
Depreciation56,551
9.1 % 53,705
10.3 % 112,057
9.5 % 109,041
10.7 % 5.3 %2.8 %61,437
9.8 56,551
9.1
 122,196
10.0 112,057
9.5
 8.6
9.0
Rent and purchased transportation151,433
24.5 % 124,634
24.0 % 287,355
24.3 % 251,059
24.6 % 21.5 %14.5 %146,176
23.3 151,433
24.5
 279,012
22.8 287,355
24.3
 (3.5)(2.9)
Communications and utilities3,928
0.6 % 3,887
0.8 % 8,035
0.7 % 7,959
0.8 % 1.1 %1.0 %3,903
0.6 3,928
0.6
 7,914
0.6 8,035
0.7
 (0.6)(1.5)
Other(4,366)(0.7)% 4,174
0.8 % (3,548)(0.3)% 8,737
0.8 % (204.6)%(140.6)%1,504
0.2 (4,366)(0.7) 1,764
0.1 (3,548)(0.3) (134.4)(149.7)
Total operating expenses568,347
91.8 % 482,595
92.9 % 1,095,916
92.7 % 957,844
93.8 % 17.8 %14.4 %569,091
90.7 568,347
91.8
 1,117,189
91.3 1,095,916
92.7
 0.1
1.9
            



      
  

 



Operating income50,783
8.2 % 36,913
7.1 % 85,898
7.3 % 62,885
6.2 % 37.6 %36.6 %58,442
9.3 50,783
8.2
 106,461
8.7 85,898
7.3
 15.1
23.9
Total other expense (income)(125) % (100) % (330) % (185) % (25.0)%(78.4)%498
0.1 (125)
 337
 (330)
 498.4
202.1
Income before income taxes50,908
8.2 % 37,013
7.1 % 86,228
7.3 % 63,070
6.2 % 37.5 %36.7 %57,944
9.2 50,908
8.2
 106,124
8.7 86,228
7.3
 13.8
23.1
Income taxes12,644
2.0 % 13,794
2.6 % 20,157
1.7 % 23,832
2.4 % (8.3)%(15.4)%14,626
2.3 12,644
2.0
 26,720
2.2 20,157
1.7
 15.7
32.6
Net income$38,264
6.2 % $23,219
4.5 % 66,071
5.6 % $39,238
3.8 % 64.8 %68.4 %$43,318
6.9 $38,264
6.2
 $79,404
6.5 $66,071
5.6
 13.2
20.2





The following tables set forth the operating revenues, operating expenses and operating income for the TruckloadTTS segment, as well as certain statistical data regarding our TruckloadTTS segment operations for the periods indicated.
Three Months Ended
June 30,
 Six Months Ended
June 30,
Three Months Ended
June 30,
 Six Months Ended
June 30,
2018 2017 2018 20172019 2018 2019 2018
Truckload Transportation Services (amounts in thousands)$ % $ % $ % $ %
Truckload Transportation Services segment (amounts in thousands)$ % $ % $ % $ %
Trucking revenues, net of fuel surcharge$395,094
   $347,433
   759,282
   677,922
  $411,460
   $395,094
   $809,151
   $759,282
  
Trucking fuel surcharge revenues68,042
 49,496
 128,792
 97,477
 62,533
 68,042
 120,710
 128,792
 
Non-trucking and other operating revenues7,141
 6,573
 13,759
 13,106
 5,966
 7,141
 12,989
 13,759
 
Operating revenues470,277
 100.0 403,502
 100.0 901,833
 100.0 788,505
 100.0479,959
 100.0 470,277
 100.0 942,850
 100.0 901,833
 100.0
Operating expenses426,845
 90.8 367,466
 91.1 824,979
 91.5 729,003
 92.5428,294
 89.2 426,845
 90.8 848,232
 90.0 824,979
 91.5
Operating income$43,432
 9.2 $36,036
 8.9 76,854
 8.5 59,502
 7.5$51,665
 10.8 $43,432
 9.2 $94,618
 10.0 $76,854
 8.5


Three Months Ended
June 30,
   Six Months Ended
June 30,
  Three Months Ended
June 30,
   Six Months Ended
June 30,
  
Truckload Transportation Services2018 2017 % Change 2018 2017 % Change
Operating ratio, net of fuel surcharge revenues (1)
89.2% 89.8%   90.1% 91.4%  
Average revenues per tractor per week (2)
$4,027
 $3,676
 9.5 % $3,900
 $3,604
 8.2 %
Average completed trip length in miles (loaded)447
 470
 (4.9)% 448
 469
 (4.5)%
Average percentage of empty miles (3)
12.36% 12.30% 0.5 % 12.46% 12.34% 1.0 %
Truckload Transportation Services segment2019 2018 % Change 2019 2018 % Change
Average tractors in service7,548
 7,270
 3.8 % 7,488
 7,235
 3.5 %7,937
 7,548
 5.2 % 7,912
 7,488
 5.7 %
Total trailers (at quarter end)22,870
 22,020
   22,870
 22,020
  
Total tractors (at quarter end):           
Average revenues per tractor per week (1)
$3,988
 $4,027
 (1.0)% $3,934
 $3,900
 0.9 %
Total tractors (at quarter end)    
     

Company7,075
 6,615
   7,075
 6,615
  7,350
 7,075
 3.9 % 7,350
 7,075
 3.9 %
Independent contractor625
 700
   625
 700
  585
 625
 (6.4)% 585
 625
 (6.4)%
Total tractors7,700
 7,315
   7,700
 7,315
  7,935
 7,700
 3.1 % 7,935
 7,700
 3.1 %
Total trailers (at quarter end)23,235
 22,870
 1.6 % 23,235
 22,870
 1.6 %
          

One-Way Truckload          

Trucking revenues, net of fuel surcharge (in 000’s)$184,279
 $193,080
 (4.6)% $364,413
 $371,046
 (1.8)%
Average tractors in service3,379
 3,329
 1.5 % 3,368
 3,369
  %
Total tractors (at quarter end)3,355
 3,320
 1.1 % 3,355
 3,320
 1.1 %
Average percentage of empty miles12.18 % 10.94% 11.3 % 11.90 % 11.08% 7.4 %
Average revenues per tractor per week (1)
$4,195
 $4,461
 (6.0)% $4,161
 $4,236
 (1.8)%
Average % change in revenues per total mile (1)
(2.7)% 15.6% 
 1.8 % 13.5% 

Average % change in total miles per tractor per week(3.4)% 0.4% 
 (3.4)% 0.3% 

Average completed trip length in miles (loaded)834
 828
 0.7 % 844
 824
 2.4 %
          

Dedicated          

Trucking revenues, net of fuel surcharge (in 000’s)$227,181
 $202,014
 12.5 % $444,738
 $388,236
 14.6 %
Average tractors in service4,558
 4,219
 8.0 % 4,544
 4,119
 10.3 %
Total tractors (at quarter end)4,580
 4,380
 4.6 % 4,580
 4,380
 4.6 %
Average revenues per tractor per week (1)
$3,833
 $3,683
 4.1 % $3,764
 $3,625
 3.8 %


(1)
Calculated as if fuel surcharge revenues are excluded from total revenues and instead reported as a reduction of operating expenses, which provides a more consistent basis for comparing results of operations from period to period.
(2)
Net of fuel surcharge revenues.
(3)

“Empty” refers to miles without trailer cargo.

The following tables set forth the Werner Logistics segment’s revenues, rent and purchased transportation expense, gross margin, other operating expenses (primarily salaries, wages and benefits expense) and operating income, as well as certain statistical data regarding the Werner Logistics segment.
Three Months Ended
June 30,
 Six Months Ended
June 30,
Three Months Ended
June 30,
 Six Months Ended
June 30,
2018 2017 2018 20172019 2018 2019 2018
Werner Logistics (amounts in thousands)$ % $ % $ % $ $
Werner Logistics segment (amounts in thousands)$ % $ % $ % $ %
Operating revenues$134,012
 100.0 $100,804
 100.0 $251,432
 100.0 $200,657
 100.0$130,883
 100.0 $134,012
 100.0 $248,253
 100.0 $251,432
 100.0
Rent and purchased transportation expense112,918
 84.3 85,453
 84.8 213,194
 84.8 169,770
 84.6109,836
 83.9 112,918
 84.3 206,856
 83.3 213,194
 84.8
Gross margin21,094
 15.7 15,351
 15.2 38,238
 15.2 30,887
 15.421,047
 16.1 21,094
 15.7 41,397
 16.7 38,238
 15.2
Other operating expenses15,492
 11.5 13,066
 12.9 29,879
 11.9 25,553
 12.715,865
 12.1 15,492
 11.5 31,504
 12.7 29,879
 11.9
Operating income$5,602
 4.2 $2,285
 2.3 8,359
 3.3 5,334
 2.7$5,182
 4.0 $5,602
 4.2 $9,893
 4.0 $8,359
 3.3
Three Months Ended
June 30,
   Six Months Ended
June 30,
  Three Months Ended
June 30,
   Six Months Ended
June 30,
  
Werner Logistics2018 2017 % Change 2018 2017 % Change
Werner Logistics segment2019 2018 % Change 2019 2018 % Change
Average tractors in service40
 48
 (16.7)% 42
 55
 (23.6)%37
 40
 (7.5)% 38
 42
 (9.5)%
Total tractors (at quarter end)35
 43
 (18.6)% 35
 43
 (18.6)%
Total trailers (at quarter end)1,620
 1,840
 (12.0)% 1,620
 1,840
 (12.0)%1,670
 1,620
 3.1 % 1,670
 1,620
 3.1 %
Total tractors (at quarter end)43
 48
 (10.4)% 43
 48
 (10.4)%

Three Months Ended June 30, 20182019 Compared to Three Months Ended June 30, 20172018
Operating Revenues
Operating revenues increased 19.2%1.4% for the three months ended June 30, 2018,2019, compared to the same period of the prior year. When comparing second quarter 20182019 to second quarter 2017, Truckload2018, TTS segment revenues increased $66.8$9.7 million or 16.5%2.1%, and Werner Logistics revenues increased $33.2decreased $3.1 million or 32.9%2.3%.
  
SecondDuring second quarter 20182019, freight demand in our One-Way Truckload fleet was much stronger than normal. Demand was consistentlyseasonally below average and well below the unusually strong each monthfreight demand of second quarter 2018, which was aided by two December 2017 mandates. Tax reform incentives strengthened second quarter 2018 freight volumes while the electronic hours of service requirement limited truck and was broad-based geographically. Freight volumesdriver capacity in July 2018 continuedsecond quarter 2018. In the first five weeks of third quarter 2019, freight demand in our One-Way Truckload unit has remained lower than average compared to be strong, one of the top two months of Julysame five-week periods in the last 10 years.prior third quarters.


Trucking revenues, net of fuel surcharge, increased 13.7%4.1% in second quarter 20182019 compared to second quarter 20172018 due to a 9.5%5.2% increase in average tractors in service, partially offset by a 1.0% decrease in average revenues per tractor per week, andnet of fuel surcharge, which was due primarily to a 3.8% increasedecrease in average tractorsmiles per tractor, partially offset by an increase in service. Our average revenues per total mile, net of fuel surcharge, increased by 13.3% in second quarter 2018 compared to second quarter 2017 and average miles per truck decreased by 3.3%.mile. The increase in average revenues per total mile was due primarily to higher contractual rates, more freight choices with higher rates, support for customer surge business,dedicated fleet expansion and lane mix changes with higher rates and growth in our Dedicated business.changes. We currently expect the percentage change in average revenues per total mile to increase between 9% and 12% for the full year 2018One-Way Truckload fleet for 2019 compared to 2017. The growth2018 to be in our Dedicated fleetthe range of 565 trucks year over yearflat to 3% lower. While year-to-date 2019 contract pricing increases are approximately 4% on average with recent contracts renewed in the flat-to-low single digit range, the lackluster 2019 freight market has provided few project and surge freight opportunities with premium rates, significantly lower spot rates and higher empty miles. As such, we are currently assuming the current freight trend will continue into third quarter, with an expectation that there will be a normal seasonal pickup in freight and rates during the fourth quarter holiday shipping season. Third and fourth quarter One-Way Truckload revenues per total mile is responsible forexpected to be lower than the decreasesame quarters in 2018, due to significant rate increases and project activity that occurred in the last two quarters of 2018.The following factors all contributed to lower average miles per truck as this business typicallytruck: (i) below average seasonal freight market in second quarter 2019 compared to an unusually strong seasonal freight market in second quarter 2018, (ii) growth in Dedicated which has shorterlower miles per trip attruck and a higher rate per mile. Changing industry dynamics are occurring as customers shift freight away from one-way fleets to shorter length of haul, dedicated fleets, which result in the need for more(iii) fewer team driver trucks to haul the same amountand (iv) southern U.S. border security crossing delays affecting about one quarter of freight. Our total miles increased 0.4% in second quarter 2018 compared to second quarter 2017, despite a 3.8% growth in average trucks in service.our One-Way Truckload revenues.


The average number of tractors in service in the TruckloadTTS segment increased 3.8%5.2% to 7,937 in second quarter 2019 from 7,548 in second quarter 2018 from 7,270 in second quarter 2017.2018. We ended second quarter 20182019 with 7,7007,935 trucks in the TruckloadTTS segment, a year-over-year increase of 385235 trucks compared to the end of second quarter 2017,2018, and a sequential increasedecrease of 31510 trucks compared to the end of first quarter 2018.2019. We currently expect growth in our truck fleet from year-end 2018 to be in the low end of the range of 3% to 5% in 2019, with growth primarily in Dedicated and occurring in the first three quarters of 2019. We currently expect approximately 100 truck growth in third quarter 2019 and no truck growth in fourth quarter 2019. We cannot predict whether future driver shortages, if any, will

adversely affect our ability to maintain our fleet size. If such a driver shortage were to occur, it could result in a fleet size reduction, and our results of operations could be adversely affected.


Trucking fuel surcharge revenues increased 37.5%decreased 8.1% to $62.5 million in second quarter 2019 from $68.0 million in second quarter 2018 from $49.5 million in second quarter 2017 due to higherlower average fuel prices in the 20182019 quarter. These revenues represent collections from customers for the increase in fuel and fuel-related expenses, including the fuel component of our independent contractor cost (recorded as rent and purchased transportation expense) and fuel taxes (recorded in taxes and licenses expense), when diesel fuel prices rise. Conversely, when fuel prices decrease, fuel surcharge revenues decrease. To lessen the effect of fluctuating fuel prices on our margins, we collect fuel surcharge revenues from our customers for the cost of diesel fuel and taxes in excess of specified base fuel price levels according to terms in our customer contracts. Fuel surcharge rates generally adjust weekly based on an independent U.S. Department of Energy fuel price survey which is released every Monday. Our fuel surcharge programs are designed to (i) recoup higher fuel costs from customers when fuel prices rise and (ii) provide customers with the benefit of lower fuel costs when fuel prices decline. These programs generally enable us to recover a majority, but not all, of the fuel price increases. The remaining portion is generally not recoverable because it results from empty and out-of-route miles (which are not billable to customers) and truck idle time. Fuel prices that change rapidly in short time periods also impact our recovery because the surcharge rate in most programs only changes once per week.


Werner Logistics revenues are generated by its fivefour operating units and exclude revenues for full truckload shipments transferred to the TruckloadTTS segment, which are recorded as trucking revenues by the TruckloadTTS segment. Werner Logistics also recorded revenue and brokered freight expense of $0.2 million$34 thousand in second quarter 20182019 and $0.4 million$212 thousand in second quarter 20172018 for Intermodal drayage movements performed by the TruckloadTTS segment (also recorded as trucking revenue by the TruckloadTTS segment), and these transactions between reporting segments are eliminated in consolidation. In second quarter 2018,2019, Werner Logistics revenues increased $33.2decreased $3.1 million, or 32.9%2.3%, due to fewer project freight opportunities, significantly lower year-over-year spot pricing trends and operating income dollars increased $3.3 million or 145.2%, compared tolower volumes in second quarter 2017.2019. The Werner Logistics gross margin percentage in second quarter 20182019 of 15.7%16.1% increased from 15.2%15.7% in second quarter 2017.2018 due primarily to contractual pricing and improved capacity procurement in Truckload Logistics (formerly our Brokerage and Freight Management units within Werner Logistics). The Werner Logistics operating income percentage in second quarter 20182019 of 4.2% increased4.0% decreased from second quarter 20172018 of 2.3%.

In4.2%, and operating income dollars decreased $0.4 million, or 7.5%, compared to second quarter 2018 all of the Werner Logistics service offerings achieved revenue growth year over year, with the largest being 51% in our truck brokerage solution which is also our largest offering in terms of total revenues. The Werner Logistics operating income percentage improved sequentially the last four quarters, from 1.3% in third quarter 2017 to 1.8% in fourth quarter 2017 to 2.3% in first quarter 2018 to 4.2% in second quarter 2018. 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..

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. On January 1, 2018, we adopted the new revenue recognition accounting standard using the modified retrospective transition method, under which comparative information is not required to be restated. Under the new standard, we recorded a $3.9 million reduction of revenues in second quarter 2018 related to our driver training schools that would have been reported as bad debt expense prior to the new standard, with no impact to operating income.


Operating Expenses
Our operating ratio (operating expenses expressed as a percentage of operating revenues) was 90.7% for the three months ended June 30, 2019, compared to 91.8% for the three months ended June 30, 2018, compared to 92.9% for the three months ended June 30, 2017.2018. Expense items that impacted the overall operating ratio are described on the following pages. The tables on pages 18 and 1920 through 22 show the Consolidated Statements of Income in dollars and as a percentage of total operating revenues and the percentage increase or decrease in the dollar amounts of those items compared to the same quarter of the prior year, as well as the operating ratios, operating margins, and certain statistical information for our two reportable segments, TruckloadTTS and Werner Logistics.
 
Salaries, wages and benefits increased $26.6$9.9 million or 15.7%5.0% in second quarter 20182019 compared to second quarter 20172018 and decreased 0.9%increased 1.1% as a percentage of operating revenues to 31.7%32.8%. The higher dollar amount of salaries, wages and benefits expense in the 20182019 second quarter was due primarily to higher driver and student pay rates approximately 5and 4.8 million more company truck miles, and higher non-driver pay, allboth of which also resulted in a higheran increased amount of payroll taxes and other payroll-related fringe benefits. When evaluated on a per-milethe basis of company truck miles, driver salaries, wages and benefits also increased, which we primarily attribute to 12%nearly 5% higher driver pay per company truck mile in second quarter 20182019 compared to second quarter 2017.2018. The rate of year-over-year percentage increases in driver pay began to moderate when compared to the larger driver pay increases from the first half of 2018. Non-driver salaries, wages and benefits in the non-trucking Werner Logistics segment increased 21.4% compared to the previously noted revenue increase of 32.9%decreased 0.5%.


We renewed our workers’ compensation insurance coverage for the policy year beginning April 1, 2018.2019. Our coverage levels are the same as the prior policy year. We continue to maintain a self-insurance retention of $1.0 million per claim. Our workers’ compensation insurance premium rate for the policy year beginning April 20182019 is 10% lower5% higher than the rate for the previous policy year.


TheThe driver recruiting market is increasingly difficult.extremely competitive. Several ongoing market factors 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 including the regulation changes for electronic logging devices. We continue to take significant actions to strengthen our driver recruiting and retention to make Werner a preferred choice for the best drivers, including raising driver pay, maintaining a new truck and trailer fleet, purchasing best-in-class safety and training features for all new trucks, investing in our driver training school network and collaborating with customers to improve or eliminate unproductive freight. These efforts continue to have positive results on our driver turnover, achieving the lowest second quarter driver turnover percentage in 20 years. retention. We are unable to predict whether we will experience

future driver shortages.shortages or continue to maintain our current driver retention rates. If such a driver shortage were to occur and additional driver pay rate increases became necessary to attract and retain drivers, our results of operations would be negatively impacted to the extent that we could not obtain corresponding freight rate increases.


Fuel increased $20.5decreased $4.6 million or 45.5%7.0% in second quarter 20182019 compared to second quarter 20172018 and increased 1.9%decreased 0.9% as a percentage of operating revenues due to higherlower average diesel fuel prices, and 5despite 4.8 million more company truck miles.miles in second quarter 2019. Average diesel fuel prices were 6517 cents per gallon higherlower in second quarter 2019 than in second quarter 2018 than in second quarter 2017 and were 1911 cents per gallon higher than in first quarter 2018.2019.


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


For July 2018,2019, the average diesel fuel price per gallon was approximately 6525 cents higherlower than the average diesel fuel price per gallon in July 20172018 and approximately 4928 cents higherlower than in third quarter 2017.2018.



Shortages of fuel, increases in fuel prices and petroleum product rationing can have a materially adverse effect on our operations and profitability. We are unable to predict whether fuel price levels will increase or decrease in the future or the extent to which fuel surcharges will be collected from customers. As of June 30, 2018,2019, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.


Supplies and maintenance increased $5.6decreased $1.3 million or 14.0%2.9% in second quarter 20182019 compared to second quarter 20172018 and decreased 0.3% as a percentage of operating revenues. The higherlower dollar amount of supplies and maintenance expense was due primarily to higher company truck miles drivenlower tractor maintenance costs resulting from more effective management of these costs in second quarter 20182019 compared to second quarter 2017 and increased tractor maintenance costs in the 2018, quarter. We also incurred higher driver recruiting and other driver-related costs in the 2018 quarter.despite 4.8 million more company truck miles.


Insurance and claims increased $10.9decreased $9.7 million or 54.8%31.6% in second quarter 20182019 compared to second quarter 20172018 and increased 1.1%decreased 1.5% as a percentage of operating revenues. InDuring second quarter 2018, we accrued $11.3 million (12 cents per diluted share) of pre-tax insurance and claims expense, (including pre-judgmentincluding interest, of $1.3 million) related to a previously disclosed excesspreviously-disclosed adverse jury verdict rendered on May 17, 2018 in a lawsuit arising from a December 2014 accident (see Note 5 in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I1 of this report). Under our insurance policies in effectDuring third quarter 2018, the court entered the final judgment on the apportionment of fault related to this verdict, which we are appealing. We incurred insurance and claims expense of $0.8 million in second quarter 2019 for accrued interest related to this matter. Interest is accrued at $0.4 million per month, until such time as the outcome of our appeal is finalized, excluding months where the plaintiffs have requested an extension of time to respond to our appeal. To date the plaintiffs have requested extensions for the months of this accident, our maximum liability for this accident is $10.0 million (plus pre-judgmentJune and post-judgment interest) with premium-based insurance coverage that exceeds the jury verdict amount. The Company is appealing this verdict.July 2019. The majority of our insurance and claims expense results from our claim experience and claim development under our self-insurance program; the remainder results from insurance premiums for claims in excess of our self-insured limits.


We renewed our liability insurance policies on August 1, 2019 with the same deductibles and aggregates as the August 1, 2018 and continuedrenewal. We continue to be responsible for the first $3.0 million per claim with an annual $6.0 million aggregate for claims between $3.0 million and $5.0 million. We also have an additional $5.0 million deductible per claim for each claim between $5.0 million and $10.0 million. As a result, we are responsible for the first $10.0 million per claim, until we meet the $6.0 million aggregate for claims between $3.0 million and $5.0 million. For the policy year that ended July 31, 2017, we were responsible for the first $2.0 million per claim with an annual $8.0 million aggregate for claims between $2.0 million and $5.0 million and an annual aggregate of $5.0 million for claims between $5.0 million and $10.0 million. We maintain liability insurance coverage with insurance carriers substantially in excess of the $10.0 million per claim. Our liability insurance premiums for the policy year that began August 1, 20182019 are similar to11% higher, or $0.7 million higher, than premiums for the previous policy year on a per-mile basis.year.


Depreciation expense increased $2.8$4.9 million or 5.3%8.6% in second quarter 20182019 compared to second quarter 20172018 and decreased 1.2%increased 0.7% as a percentage of operating revenues. The higher cost of new equipment,A larger company truck and trailer fleet, size,the higher cost of new truck and trailer equipment, and information technology and communications infrastructure upgrades resulted in higher depreciation expense in second quarter 2018. In second quarter 2017, we recognized higher expense from reducing the estimated life of certain trucks in fourth quarter 2016 to more rapidly depreciate the trucks to their residual values. This change resulted in additional depreciation expense in second quarter 2017 of $0.7 million but had no effect on second quarter 2018 as the trucks were sold in 2017.2019.


We are continuing to invest in newer trucks and trailers in 20182019 to improve our driver experience, raise operational efficiency and more effectively manage our maintenance, safety and fuel costs. We currently intend to maintain the average age of our truck and

trailer fleet at or near current levels. The average age of our truck fleet remains low by industry standards and was 1.91.8 years as of June 30, 2018.2019, and the average age of our trailers was 4.1 years.


Rent and purchased transportation expense increased $26.8decreased $5.3 million or 21.5%3.5% in second quarter 20182019 compared to second quarter 20172018 and increased 0.5%decreased 1.2% as a percentage of operating revenues. Rent and purchased transportation expense consists mostly of payments to third-party capacity providers in the Werner Logistics segment and other non-trucking operations and payments to independent contractors in the TruckloadTTS segment. The payments to third-party capacity providers generally vary depending on changes in the volume of services generated by the Werner Logistics segment. Werner Logistics rent and purchased transportation expense increased $27.5decreased $3.1 million as a result of lower logistics revenues, and as a percentage of Werner Logistics revenues decreased to 83.9% in second quarter 2019 from 84.3% in second quarter 2018 from 84.8% in second quarter 2017.due primarily to contractual pricing and improved capacity procurement.


Rent and purchased transportation expense for the TruckloadTTS segment decreased $1.0$2.3 million in second quarter 20182019 compared to second quarter 2017. This decrease is due primarily to lower payments to independent contractors during second quarter 2018 compared to second quarter 2017 resulting from a 15.7% decrease in independent2018. Independent contractor miles or approximately 4 million fewer miles, drivenwere slightly lower in second quarter 2018. This decrease was partially offset by higher average fuel reimbursement per mile in the 2018 quarter2019, and an increase to the per-mile settlement rate for certain owner operatorsindependent contractors increased in June 2018. Independent contractor miles as a percentage of total miles were 10.3%10.0% in second quarter 20182019 compared to 12.3%10.4% in second quarter 2017.2018. Because independent contractors supply their own tractors and drivers and are responsible for their operating expenses, the decrease in independent contractor miles as a percentage of total miles shifted costs from the rent and purchased transportation category to other expense categories, including (i) salaries, wages and benefits, (ii) fuel, (iii) depreciation, (iv) supplies and maintenance and (v) taxes and licenses.


Challenging operating conditions continue to make independent contractor recruitment and retention difficult. Such conditions include inflationary cost increases that are the responsibility of independent contractors and a shortage of financing available to independent contractors for equipment purchases. Historically we have been able to add company tractors and recruit additional company drivers to offset any decrease in the number of independent contractors. If a shortage of independent contractors and company drivers were to occur, 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 $8.5increased $5.9 million in second quarter 20182019 compared to second quarter 20172018 and decreased 1.5%increased 0.9% as a percentage of operating revenues. Gains on sales of assets (primarily used trucks and trailers) are reflected as a reduction of other operating expenses and are reported net of sales-related expenses (which include costs to prepare the equipment for sale). Gains on sales of assets were $4.5 million in second quarter 2019 compared to $8.6 million in second quarter 2018, which included a $3.5 million gain onfrom the sale of real estate of $3.5 million (four cents per diluted share) compared to $2.5 million in second quarter 2017. In second quarter 2018, we sold more trucks and fewer trailers than in second quarter 2017.estate. We realized higher average gains per truck and higherlower average gains per trailer in second quarter 20182019 compared to second quarter 2017. The used truck pricing2018 and sold 7% fewer trucks and 17% fewer trailers. Pricing in the market for our used trucks has improvedand trailers began to moderate in recent months, while we continuethe latter part of second quarter 2019. We currently expect gains on sales of equipment in 2019 to make progress increasingbe in the numberlow end of our late-model trucks sold via our retail network. Other operating expenses, primarily the provision for doubtful accounts relatedrange of $18 million to $20 million and to moderate in the second half of 2019. Increased costs associated with professional and software consulting services also contributed to the driver training schools, declined by $2.4 millionincrease in second quarter 2018 compared to second quarter 2017. Under the new revenue recognition accounting standard effective January 1, 2018, we recorded a $3.9 million reduction of revenues in second quarter 2018 related to our driver training schools that would have been reported as bad debt expense prior to the new standard.other operating expenses.


Other Expense (Income)
Other expense (income) remained flat fromincreased $0.6 million in second quarter 20172019 compared to second quarter 2018. Higher interest expense in second quarter 2019 compared to second quarter 2018 and also remained flat as a percentage of operating revenues. Interest expense decreased in second quarter 2018 when compared to second quarter 2017 due to lowerhigher average outstanding debt in the 20182019 quarter was partially offset by higher interest income in the 2019 quarter. This decrease inWe currently expect interest expense was nearly offset by lowerto increase in third quarter 2019 to approximately $2.7 million per quarter, based on our current debt level and interest income due primarily to lowerrates, including the $150 million of our debt for which we fixed the interest rate in early July 2019 at an average outstanding notes receivable.rate of 2.34% with two $75 million interest rate swap agreements.


Income Taxes
Our effective income tax rate (income taxes expressed as a percentage of income before income taxes) was 25.2% in second quarter 2019 and 24.8% in second quarter 2018 and 37.3% in second quarter 2017.2018. The 24.8%lower income tax rate in second quarter 2018 iswas attributed primarily to the 14% lower federal income tax rate related to the enactment of the Tax Cuts and Jobs Act of 2017 and the benefit offavorable discrete state income tax items. We currently expect our 2019 effective income tax rate to be in the range of 25% to 26% going forward..


Six Months Ended June 30, 20182019 Compared to Six Months Ended June 30, 20172018
Operating Revenues
Operating revenues increased 15.8%3.5% for the six months ended June 30, 2018,2019, compared to the same period of the prior year. In the TruckloadTTS segment, trucking revenues, net of fuel surcharge, increased 12.0%6.6% in the 20182019 year-to-date period compared to the 20172018 year-to-date period due primarily to an 8.2% increase in average revenues per tractor per week and a 3.5%5.7% increase in the average number of tractors in service.service and a 0.9% increase in average revenues per tractor per week. Average revenues per total mile, net of fuel surcharge, increased 11.7%4.3% in the first six months of 20182019 compared to the same period in 2017,2018, and average monthly miles per tractor decreased by 3.1%3.3%. TruckloadTTS segment fuel surcharge revenues for

the six months ended June 30, 2018 increased $31.32019 decreased $8.1 million or 32.1%6.3% when compared to the six months ended June 30, 20172018 due to higherlower average fuel prices in the 20182019 period. Werner Logistics revenues increaseddecreased 1.3% to $251.4$248.3 million in the first six months of 20182019 compared to $200.7$251.4 million in the same 20172018 period.


Operating Expenses

Our operating ratio (operating expenses expressed as a percentage of operating revenues) was 91.3% for the six months ended June 30, 2019, compared to 92.7% for the six months ended June 30, 2018, compared to 93.8% for the six months ended June 30, 2017.2018. Expense items that impacted the overall operating ratio are described on the following pages. The tables on pages 18 and 1920 through 22 show the Consolidated Statements of Income in dollars and as a percentage of total operating revenues and the percentage increase or decrease in the dollar amounts of those items compared to the same period of the prior year, as well as the operating ratios, operating margins, and certain statistical information for our two reportable segments, TruckloadTTS and Werner Logistics.
Salaries, wages and benefits increased $48.5$29.9 million or 14.7%7.9% in the first six months of 20182019 compared to the first six months of 20172018 and decreasedincreased as a percentage of operating revenues to 32.1%33.4%. The higher dollar amount of salaries, wages and benefits expense was due primarily to higher driver and student pay rates, approximately 109.5 million more company truck miles and higher non-driver pay, all of which resulted in higher payroll taxes and payroll-related fringe benefits, and increases in higher-cost medical claims, prescription

drugs and other health insurance costs in the 20182019 period. When evaluated on a per-company-truck-milethe basis of company truck miles, driver salariespay increased by about 10%7%. Non-driver salaries, wages and benefits in the non-trucking Werner Logistics segment increased 19.9%3.7% compared to 25.3% higher1.3% lower revenues.
Fuel increased $34.4decreased $7.5 million or 38.1%6.0% in the first six months of 20182019 compared to the same period in 20172018 and increased 1.7%decreased 0.9% as a percentage of operating revenues due primarily to higherlower average diesel fuel prices in 2018 and2019, partially offset by increased company truck miles. Average diesel fuel prices were 5212 cents per gallon higherlower in the first six months of 20182019 than in the same 20172018 period.
Supplies and maintenance increased $13.1decreased $1.4 million or 16.8% in the first six months of 2018 compared to the same period in 2017 and remained flat as a percentage of operating revenues due primarily to1.5% despite higher company truck miles driven in the first six months of 2019 compared to the same period in 2018 and decreased 0.3% as a percentage of operating revenues. The lower dollar amount was due primarily to lower tractor maintenance costs in the first six months of 2019 compared to the first six months of 2017 and higher equipment maintenance costs for towing, road calls, jump starts and other weather-related maintenance due to2018, partially the result of more severeeffective management of winter weather conditions in first quarter 2018 compared to first quarter 2017. We also incurred higher driver recruiting and other driver-relatedlower weather-related maintenance costs in the 2018 period.early 2019.
Insurance and claims expense increased $12.2decreased $8.1 million or 30.7%15.7% in the first six months of 20182019 compared to the same period in 20172018 and decreased 0.5%0.8% as a percentage of operating revenues. The higherlower expense in the 20182019 year-to-date period was due primarily to the aforementioned $11.3 million accrual in the 2018 period versus $2.0 million accrued in the 2019 period related to the aforementioned adverse jury verdict.
Depreciation expense increased $3.0$10.1 million or 2.8%9.0% in the first six months of 20182019 compared to the same 20172018 period and decreased 1.2%increased 0.5% as a percentage of operating revenues due primarily to the higher cost of new equipment, a larger company truck and trailer fleet, size, and information technology and communications infrastructure upgrades. In the first six months of 2017, we recognized higher expense from reducing the estimated life of certain trucks in fourth quarter 2016 to more rapidly depreciate the trucks to their residual values. This change resulted in additional depreciation expense of $3.3 million in the 2017 period but had no effect on 2018 as the trucks were sold in 2017.
Rent and purchased transportation expense increased $36.3decreased $8.3 million or 14.5%2.9% in the first six months of 20182019 compared to the same 20172018 period and decreased 0.3%1.5% as a percentage of operating revenues. Rent and purchased transportation for the TruckloadTTS segment decreased $7.3$2.4 million in the first six months of 20182019 compared to the same 20172018 period. This decrease is due primarily to 17.5%1.7% fewer independent contractor miles driven in the first six months of 20182019 compared to the same period in 2017.2018. Independent contractor miles as a percentage of total miles were 10.4%10.0% and 12.7%10.4% in the first six months of 20182019 and 2017,2018, respectively. Werner Logistics rent and purchased transportation expense increased $43.4decreased $6.3 million and as a percentage of Werner Logistics revenues increaseddecreased to 83.3% in the 2019 period from 84.8% in the 2018 period from 84.6% in the 2017 period.
Other operating expenses decreased $12.3increased $5.3 million in the first six months of 20182019 compared to the same period in 20172018 and decreased 1.1%increased 0.4% as a percentage of operating revenues. Gains on sales of assets (primarily used trucks and trailers) increaseddecreased to $10.4 million in the six months ended June 30, 2019, compared to $11.3 million in the six months ended June 30, 2018, which included a $3.5 million gain on the sale of real estate, in the six months ended June 30, 2018 from $3.9 million in the six months ended June 30, 2017.estate. In the 20182019 year-to-date period, we sold more9% fewer trucks and 8% fewer trailers and realized higher average gains per truck and slightly lower average gains per trailer when compared to same period of 2017. Provision2018. Increased costs associated with professional and software consulting services for doubtful accounts relatedthe six months ended June 30, 2019, compared to our driver schools was lower in the 2018same period resulting from adopting the new revenue recognition standard in 2018, under which we record a $7.1 million reduction of revenues that would have been reported as bad debt expense prioralso contributed to the new standard.increase of other operating expenses.
Other Expense (Income)
Other expense (income) decreased $0.1increased $0.7 million in the first six months of 20182019 compared to the same 2017 period and remained flat as a percentage of operating revenues. Interest2018 period. Higher interest expense was lower in the 2018 period due to lower average outstanding debt. Interest income decreased due to lower average outstanding notes receivable in the first six months of 20182019 compared to the first six months of 2017.same period in 2018 due to higher average outstanding debt in the 2019 period was partially offset by higher interest income in the 2019 period.

Income Taxes
Our effective income tax rate (income taxes expressed as a percentage of income before income taxes) decreasedincreased to 25.2% for the first six months of 2019 from 23.4% for the first six months of 2018 from 37.8% for the first six months of 2017.2018. The 23.4%lower income tax rate in the year-to-date 2018 period is attributed primarily to the 14% lower federal income tax rate related to the enactment of the Tax Cuts and Jobs Act of 2017 and the benefit of discrete federal and state income tax items.items in the 2018 period.


Liquidity and Capital Resources:
During the six months ended June 30, 2018,2019, we generated cash flow from operations of $182.5$220.3 million, a 2%20.8% or $4.0$37.9 million increase in cash flows compared to the same six-month period a year ago. The increase in net cash provided by operating activities resulted primarily from increased cash flows from working capital items, primarily accounts receivable, and higher net income. We were able to make net capital expenditures, pay dividends and repurchase company stock with the net cash provided by operating activities and existing cash balances, supplemented by net borrowings under our credit facilities.



Net cash used in investing activities increaseddecreased to $155.8 million for the six-month period ended June 30, 2019 from $166.4 million for the six-month period ended June 30, 2018 from $54.52018. Net property additions (primarily revenue equipment) were $162.4 million for the six-month period ended June 30, 2017. Net property additions (primarily revenue equipment) were $174.8 million for the six-month period ended June 30, 2018,2019, compared to $66.0$174.8 million during the same period of 2017.2018. As of June 30, 2018,2019, we were committed to property and equipment purchases of approximately $236.8$176.5 million. We currently estimate net capital expenditures (primarily revenue equipment) in 20182019 to be in the low end of the range of $325$275 million to $375$300 million, compared to net capital expenditures in 20172018 of $198.8$349.0 million. The 2018 range allows for increased investment in our tractor and trailer fleet as a result of the changes to federal income tax laws. We intend to fund these net capital expenditures through cash flow from operations and financing available under our existing credit facilities, if necessary.


Net financing activities used $21.3$52.2 million during the six months ended June 30, 2018,2019, and used $113.0$21.3 million during the same period in 2017.2018. We borrowed $20.0$265.0 million of long-term debt during the six months ended June 30, 2018,2019, bringing our outstanding debt at June 30, 20182019 to $95.0 million. In$390.0 million, and borrowed $20.0 million in the same 2017 period, we repaid short-term and long-term debt of $105.0 million.six months ended June 30, 2018. The proceeds from the additional borrowings in 2019 were used to pay the $261.1 million special dividend. We paid dividends of $273.7 million in the six-month period ended June 30, 2019 and $10.1 million in the six-month period ended June 30, 2018 and $8.7 million in the six-month period ended June 30, 2017. We increased our quarterly2018. In May 2019, we declared a special dividend rate by $0.01of $3.75 per share, or 17%, beginning$261.1 million, which was paid on June 7, 2019. Beginning with the quarterly dividend paid in July 2017.2018, we increased our quarterly dividend rate by $0.02 per share, or 29%, to the current rate of $0.09. Financing activities for the six months ended June 30, 2018,2019, also included common stock repurchases of 627,6521,300,000 shares at a cost of $22.9$42.3 million. No repurchases627,652 shares were maderepurchased in the six months ended June 30, 2017.2018 at a cost of $22.9 million. From time to time, 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 stock market conditions and other factors. As of June 30, 2018,On May 14, 2019, the Company had purchased 3,914,943 shares pursuant to our current Board of Directors approved a new stock repurchase program under which the Company is authorized to repurchase up to 5,000,000 shares of its common stock. On the same day, the Board of Directors withdrew the previous stock repurchase authorization, andwhich had 4,085,0572,035,608 shares remaining available for repurchase. As of June 30, 2019, the Company had purchased 700,000 shares pursuant to the new authorization and had 4,300,000 shares remaining available for repurchase. We also had financing net outflows of $7.8 million in the six months ended June 30, 2018 related to the change in net checks issued in excess of cash balances.


Management believes our financial position at June 30, 20182019 is strong. As of June 30, 2018,2019, we had $9.9$46.4 million of cash and cash equivalents and over $1.2$1 billion of stockholders’ equity. Cash is invested primarily in government portfolio money market funds. As of June 30, 2018,2019, we had a total of $325.0$575.0 million of credit pursuant toborrowing capacity under three credit facilities (see Note 34 in the Notes to Consolidated Financial Statements (Unaudited) under Item 1 of Part I of this Form 10-Q), of which we had borrowed $95.0$390.0 million. The remaining $230.0$185.0 million of credit available under these facilities at June 30, 20182019 is reduced by the $28.8$30.0 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:
Item 7 of Part II of our 20172018 Form 10-K includes our disclosure of contractual obligations and commercial commitments as of December 31, 2017. There were no material changes2018. Except for entering into new debt agreements with additional borrowings under such agreements, and the associated future interest expense, as disclosed in the nature of these items during the six-months ended June 30, 2018. SeeNote 4 in the Notes to Consolidated Financial Statements (Unaudited) under Item I of Part I of this Form 10-Q.10-Q, there were no material changes in the nature of these items during the six months ended June 30, 2019.
 
Regulations:
Item 1 of Part I of our 20172018 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. There have been no material changes in the status of these proposed regulations previously disclosed in the 20172018 Form 10-K.



Critical Accounting Policies and Estimates:
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the (i) reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and (ii) reported amounts of revenues and expenses during the reporting period. We evaluate these estimates on an ongoing basis as events and circumstances change, utilizing historical experience, consultation with experts and other methods considered reasonable in the particular circumstances. Actual results could differ from those estimates and may significantly impact our results of operations from period to period. It is also possible that materially different amounts would be reported if we used different estimates or assumptions.


Information regarding our Critical Accounting Policies and Estimates can be found in our 20172018 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 damage losses and workers’ compensation.compensation is a critical accounting estimate that requires us to make significant judgments and estimates and affects our financial statements.
Accounting for income taxes.



There have been no material changes to thesethis critical accounting policies and estimatesestimate from thosethat discussed in our 20172018 Form 10-K.


Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risk from changes in commodity prices, foreign currency exchange rates and interest rates.


Commodity Price Risk
The price and availability of diesel fuel are subject to fluctuations attributed to changes in the level of global oil production, refining capacity, seasonality, weather and other market factors. Historically, we have recovered a majority, but not all, of fuel price increases from customers in the form of fuel surcharges. We implemented customer fuel surcharge programs with most of our customers to offset much of the higher fuel cost per gallon. However, we do not recover all of the fuel cost increase through these surcharge programs. We cannot predict the extent to which fuel prices will increase or decrease in the future or the extent to which fuel surcharges could be collected. As of June 30, 2018,2019, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.


Foreign Currency Exchange Rate Risk
We conduct business in several foreign countries, including Mexico, Canada, China and Australia.China. To date, most foreign revenues are denominated in U.S. Dollars, and we receive payment for foreign freight services primarily in U.S. Dollars to reduce direct foreign currency risk. Assets and liabilities maintained by a foreign subsidiary company in the local currency are subject to foreign exchange gains or losses. Foreign currency translation gains and losses primarily relate to changes in the value of revenue equipment owned by a subsidiary in Mexico, whose functional currency is the Peso. Foreign currency translation gains were $0.5 million for second quarter 2019 and losses were $2.5 million for second quarter 2018 and gains were $1.4 million for second quarter 2017.2018. These were recorded in accumulated other comprehensive loss within stockholders’ equity in the Consolidated Balance Sheets.


Interest Rate Risk
We manage interest rate exposure through a mix of variable rate debt and interest rate swap agreements. We had $75 million of debt outstanding at June 30, 2018,2019, for which the interest rate is effectively fixed at 2.5% through September 2019 with an interest rate swap agreement to reduce our exposure to interest rate increases. We had $20$315 million of variable rate debt outstanding at June 30, 2018.2019. Interest rates on the variable rate debt and our unused credit facilities are based on the LIBOR (see Contractual Obligations and Commercial Commitments).LIBOR. Assuming this level of borrowing, a hypothetical one-percentage point increase in the LIBOR interest rate would increase our annual interest expense by $200,000.approximately $3.2 million. In early July 2019, we entered into two interest rate swap agreements to fix the interest rate on $150 million of our debt that was outstanding as of June 30, 2019 at an average interest rate of 2.34% through May 2024, and we terminated the $75 million interest rate swap agreement that would have ended in September 2019.
 
Item 4. Controls and Procedures.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). Our disclosure controls and procedures are designed to provide reasonable assurance of achieving the desired control objectives. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at a reasonable assurance level in enabling us to record, process, summarize and report information required to be included in our periodic filings with the SEC within the required time period and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

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


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

PART II
OTHER INFORMATION


Item 1. Legal Proceedings.


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


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On October 15, 2007, we announced that on October 11, 2007May 14, 2019, our Board of Directors approved an increase in the number of shares of our commonand announced a new stock thatrepurchase program under which the Company is authorized to repurchase. Under thisrepurchase up to 5,000,000 shares of its common stock. On the same day, the Board of Directors withdrew the previous stock repurchase authorization the Company is permitted to repurchase an additional 8,000,000 shares.that was approved in October 2007, which had 2,035,608 shares remaining available for repurchase. As of June 30, 2018,2019, the Company had purchased 3,914,943700,000 shares pursuant to thisthe new authorization and had 4,085,0574,300,000 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.
  
The following table summarizes our stock repurchases during second quarter 2018 made pursuant to this authorization.2019. The Company did not purchase any shares during second quarter 20182019 other than pursuant to this authorization.the new authorization approved in May 2019. All stock repurchases were made by the Company or on its behalf and not by any “affiliated purchaser,” as defined by Rule 10b-18 of the Exchange Act.
Issuer Purchases of Equity Securities
  
Period
Total Number of Shares
(or Units) Purchased
Average Price Paid per
Share (or Unit)
Total Number of Shares
(or Units) Purchased as
Part of Publicly
Announced Plans or
Programs
Maximum Number (or
Approximate Dollar
 Value) of Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs
April 1-30, 2018153,426
$34.91
153,426
4,559,283
May 1-31, 2018192,163
$34.98
192,163
4,367,120
June 1-30, 2018282,063
$38.31
282,063
4,085,057
Total627,652
$36.46
627,652
4,085,057
Period
Total Number of Shares
(or Units) Purchased
Average Price Paid per
Share (or Unit)
Total Number of Shares
(or Units) Purchased as
Part of Publicly
Announced Plans or
Programs
Maximum Number (or
Approximate Dollar
 Value) of Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs
April 1-30, 2019
$

2,035,608
May 1-31, 2019700,000
$31.08
700,000
4,300,000
June 1-30, 2019
$

4,300,000
Total700,000
$31.08
700,000
4,300,000



Item 6. Exhibits.
 
Exhibit No.  Exhibit  Incorporated by Reference to:
    
   
    
     
 




 
     
    
   
    
   
    
   
    
   
101.INS101  XBRL Instance DocumentFiled herewith
The following unaudited financial information from Werner Enterprises’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in iXBRL (Inline Extensible Business Reporting Language) includes: (i) Consolidated Statements of Income for the three and six months ended June 30, 2019 and June 30, 2018, (ii) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and June 30, 2018, (iii) Consolidated Condensed Balance Sheets as of June 30, 2019 and December 31, 2018, (iv) Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and June 30, 2018, (v) Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2019 and June 30, 2018, and (vi) the Notes to Consolidated Financial Statements (Unaudited) as of June 30, 2019.   
101.SCHXBRL Taxonomy Extension Schema DocumentFiled herewith
101.CALXBRL Taxonomy Extension Calculation Linkbase DocumentFiled herewith
101.LABXBRL Taxonomy Extension Label Linkbase DocumentFiled herewith
101.PREXBRL Taxonomy Extension Presentation Linkbase DocumentFiled herewith
101.DEFXBRL Taxonomy Extension Definition Linkbase DocumentFiled herewith
 



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: August 3, 20187, 2019
By: /s/ John J. Steele
   John J. Steele
   
Executive Vice President, Treasurer and
Chief Financial Officer
   
Date: August 3, 20187, 2019
By: /s/ James L. Johnson
   James L. Johnson
   
Executive Vice President, Chief Accounting
Officer and Corporate Secretary


2932