SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


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

Nebraska

47-0648386

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

14507 Frontier Road

Post Office Box 45308

Omaha

Nebraska

68145-0308

(Address of principal executive offices)

(Zip Code)

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 Par Value

WERN

The ~~NASDAQ~~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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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

Large Accelerated Filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

As of ~~November 1, 2021, 66,884,251~~April 29, 2022, 65,057,763 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.

WERNER ENTERPRISES, INC.

FINANCIAL INFORMATION

Cautionary Note Regarding Forward-Looking Statements:

This Quarterly Report on Form 10-Q contains historical information and forward-looking statements based on information currently available to our management. The forward-looking statements in this report, including those made in Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of Part I, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. These safe harbor provisions encourage reporting companies to provide prospective information to investors. Forward-looking statements can be identified by the use of certain words, such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project” and other similar terms and language. We believe the forward-looking statements are reasonable based on currently available information. However, forward-looking statements involve risks, uncertainties and assumptions, whether known or unknown, that could cause our actual results, business, financial condition and cash flows to differ materially from those anticipated in the forward-looking statements. A discussion of important factors relating to forward-looking statements is included in Part ~~II, Item 1A (Risk Factors) of this Quarterly Report and in Part~~ I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 (“~~2020~~2021 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.

Table of Contents

Item 1. Financial Statements.

WERNER ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF INCOME


	Three Months Ended March 31,
(In thousands, except per share amounts)	2022		2021
	(Unaudited)
Operating revenues	$	764,605	$	616,446
Operating expenses:
Salaries, wages and benefits	241,996		204,853
Fuel	88,421		50,838
Supplies and maintenance	57,025		46,147
Taxes and licenses	23,833		23,233
Insurance and claims	27,492		22,056
Depreciation and amortization	67,229		63,951
Rent and purchased transportation	185,237		146,493
Communications and utilities	3,926		3,022
Other	(14,065)		(6,618)
Total operating expenses	681,094		553,975
Operating income	83,511		62,471
Other expense (income):
Interest expense	1,439		838
Interest income	(275)		(297)
Loss on investments in equity securities	9,806		—
Other	73		42
Total other expense (income)	11,043		583
Income before income taxes	72,468		61,888
Income tax expense	17,433		15,396
Net income	55,035		46,492
Net income attributable to noncontrolling interest	(1,286)		—
Net income attributable to Werner	$	53,749	$	46,492
Earnings per share:
Basic	$	0.82	$	0.68
Diluted	$	0.82	$	0.68

Weighted-average common shares outstanding:
Basic	65,543		67,932
Diluted	65,878		68,223

See Notes to Consolidated Financial Statements (Unaudited).

Table of Contents

WERNER ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three Months Ended March 31,
(In thousands)	2022		2021
	(Unaudited)
Net income	$	55,035	$	46,492
Other comprehensive income (loss):
Foreign currency translation adjustments	1,153		(1,568)
Change in fair value of interest rate swaps, net of tax	3,631		1,303
Other comprehensive income (loss)	4,784		(265)
Comprehensive income	59,819		46,227
Comprehensive income attributable to noncontrolling interest	(1,286)		—
Comprehensive income attributable to Werner	$	58,533	$	46,227

See Notes to Consolidated Financial Statements (Unaudited).

Table of Contents

WERNER ENTERPRISES, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS


(In thousands, except share amounts)	March 31, 2022		December 31, 2021
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	125,949	$	54,196
Accounts receivable, trade, less allowance of $9,539 and $9,169, respectively	449,602		460,518
Other receivables	25,907		24,449
Inventories and supplies	12,105		11,140
Prepaid taxes, licenses and permits	13,716		17,549
Other current assets	51,075		63,361
Total current assets	678,354		631,213
Property and equipment	2,600,896		2,557,825
Less – accumulated depreciation	991,296��		944,582
Property and equipment, net	1,609,600		1,613,243
Goodwill	74,404		74,618
Intangible assets, net	53,956		55,315
Other non-current assets	232,712		229,324
Total assets	$	2,649,026	$	2,603,713
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	113,657	$	93,987
Current portion of long-term debt	5,000		5,000
Insurance and claims accruals	66,818		72,594
Accrued payroll	50,367		44,333

Accrued expenses	30,061		28,758
Other current liabilities	24,368		24,011
Total current liabilities	290,271		268,683
Long-term debt, net of current portion	421,250		422,500
Other long-term liabilities	47,757		43,314
Insurance and claims accruals, net of current portion	241,690		237,220

Deferred income taxes	269,361		268,499
Total liabilities	1,270,329		1,240,216
Commitments and contingencies	0		0
Temporary equity - redeemable noncontrolling interest	37,233		35,947
Stockholders’ equity:
Common stock, $0.01 par value, 200,000,000 shares authorized; 80,533,536 shares
issued; 65,057,763 and 65,790,112 shares outstanding, respectively	805		805
Paid-in capital	121,157		121,904
Retained earnings	1,713,046		1,667,104
Accumulated other comprehensive loss	(15,820)		(20,604)
Treasury stock, at cost; 15,475,773 and 14,743,424 shares, respectively	(477,724)		(441,659)
Total stockholders’ equity	1,341,464		1,327,550
Total liabilities, temporary equity and stockholders’ equity	$	2,649,026	$	2,603,713

See Notes to Consolidated Financial Statements (Unaudited).

Table of Contents

WERNER ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended March 31,
(In thousands)	2022		2021
	(Unaudited)
Cash flows from operating activities:
Net income	$	55,035	$	46,492
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	67,229		63,951
Deferred income taxes	(254)		3,487
Gain on disposal of property and equipment	(20,458)		(10,520)
Non-cash equity compensation	3,026		2,502
Insurance and claims accruals, net of current portion	4,470		4,212
Other	(2,080)		1,285
Loss on investments in equity securities	9,806		—
Changes in certain working capital items:
Accounts receivable, net	11,279		(6,798)
Other current assets	13,152		551
Accounts payable	12,330		18,481
Other current liabilities	1,422		12,224
Net cash provided by operating activities	154,957		135,867
Cash flows from investing activities:
Additions to property and equipment	(73,629)		(82,555)
Proceeds from sales of property and equipment	36,555		44,689
Net cash invested in acquisition	705		—
Investment in equity securities	—		(5,000)
Decrease in notes receivable	1,831		1,575
Net cash used in investing activities	(34,538)		(41,291)
Cash flows from financing activities:
Repayments of short-term debt	(1,250)		(25,000)

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

Dividends on common stock	(7,895)		(6,114)
Repurchases of common stock	(36,180)		(5,507)
Tax withholding related to net share settlements of restricted stock awards	(3,658)		(3,740)



Net cash used in financing activities	(48,983)		(40,361)
Effect of exchange rate fluctuations on cash	317		(419)
Net increase in cash and cash equivalents	71,753		53,796
Cash and cash equivalents, beginning of period	54,196		29,334
Cash and cash equivalents, end of period	$	125,949	$	83,130
Supplemental disclosures of cash flow information:
Interest paid	$	1,536	$	878
Income taxes paid	837		536
Supplemental schedule of non-cash investing and financing activities:
Notes receivable issued upon sale of property and equipment	$	1,613	$	988
Change in fair value of interest rate swaps	3,631		1,303
Property and equipment acquired included in accounts payable	13,671		23,570
Property and equipment disposed included in other receivables	154		17
Dividends accrued but not yet paid at end of period	7,807		6,792

See Notes to Consolidated Financial Statements (Unaudited).

Table of Contents

WERNER ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND

TEMPORARY EQUITY - REDEEMABLE NONCONTROLLING INTEREST


(In thousands, except share and per share amounts)	Common Stock		Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Stockholders’ Equity		Temporary Equity - Redeemable Noncontrolling Interest
	(Unaudited)
BALANCE, December 31, 2021	$	805	$	121,904	$	1,667,104	$	(20,604)	$	(441,659)	$	1,327,550	$	35,947
Net income attributable to Werner	—		—		53,749		—		—		53,749		—
Net income attributable to noncontrolling interest	—		—		—		—		—		—		1,286
Other comprehensive income	—		—		—		4,784		—		4,784		—
Purchases of 845,100 shares of common stock	—		—		—		—		(36,180)		(36,180)		—
Dividends on common stock ($0.12 per share)	—		—		(7,807)		—		—		(7,807)		—
Equity compensation activity, 112,751 shares	—		(3,773)		—		—		115		(3,658)		—
Non-cash equity compensation expense	—		3,026		—		—		—		3,026		—
BALANCE, March 31, 2022	$	805	$	121,157	$	1,713,046	$	(15,820)	$	(477,724)	$	1,341,464	$	37,233


BALANCE, December 31, 2020	$	805	$	116,039	$	1,438,916	$	(22,833)	$	(337,887)	$	1,195,040	$	—
Net income attributable to Werner	—		—		46,492		—		—		46,492		—
Other comprehensive loss	—		—		—		(265)		—		(265)		—
Purchases of 130,446 shares of common stock	—		—		—		—		(5,507)		(5,507)		—
Dividends on common stock ($0.10 per share)	—		—		(6,792)		—		—		(6,792)		—
Equity compensation activity, 116,868 shares	—		(3,953)		—		—		213		(3,740)		—
Non-cash equity compensation expense	—		2,502		—		—		—		2,502		—
BALANCE, March 31, 2021	$	805	$	114,588	$	1,478,616	$	(23,098)	$	(343,181)	$	1,227,730	$	—

See Notes to Consolidated Financial Statements (Unaudited).

Table of Contents

WERNER ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1) Basis of Presentation and Recent Accounting Pronouncements

Basis of Presentation

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

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

Operating results for the three-month ~~and nine-month periods~~period ended ~~September 30, 2021~~March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2021.~~2022. 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 ~~2020~~2021 Form 10-K.

~~Table of Contents~~

~~WERNER ENTERPRISES, INC.~~

~~CONSOLIDATED STATEMENTS OF INCOME~~

Three Months Ended
September 30, Nine Months Ended
September 30,
(In thousands, except per share amounts) 2021 2020 2021 2020
(Unaudited)
Operating revenues $ 702,891 $ 590,214 $ 1,969,151 $ 1,751,876
Operating expenses:
Salaries, wages and benefits 234,250 197,151 649,198 598,129
Fuel 64,692 37,933 174,033 117,381
Supplies and maintenance 57,067 44,015 152,628 133,079
Taxes and licenses 24,419 24,032 71,396 70,835
Insurance and claims 27,702 23,307 70,497 85,160
Depreciation and amortization 68,615 62,980 196,431 199,487
Rent and purchased transportation 161,061 131,843 458,474 378,989
Communications and utilities 3,598 3,797 9,953 11,141
Other (9,837) 3,053 (24,117) 11,688
Total operating expenses 631,567 528,111 1,758,493 1,605,889
Operating income 71,324 62,103 210,658 145,987
Other expense (income):
Interest expense 1,284 887 2,823 3,639
Interest income (287) (323) (918) (1,326)
Gain on investments in equity securities, net (16,090) �� (36,281) —
Other 50 55 146 123
Total other expense (income) (15,043) 619 (34,230) 2,436
Income before income taxes 86,367 61,484 244,888 143,551
Income taxes 21,278 15,152 61,275 35,029
Net income 65,089 46,332 183,613 108,522
Net income attributable to noncontrolling interest (1,328) — (1,328) —
Net income attributable to Werner $ 63,761 $ 46,332 $ 182,285 $ 108,522
Earnings per share:
Basic $ 0.94 $ 0.67 $ 2.69 $ 1.57
Diluted $ 0.94 $ 0.67 $ 2.68 $ 1.56
Weighted-average common shares outstanding:
Basic 67,475 69,097 67,776 69,148
Diluted 67,834 69,449 68,136 69,500

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

~~Table of Contents~~

~~WERNER ENTERPRISES, INC.~~

~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

Three Months Ended
September 30, Nine Months Ended
September 30,
(In thousands) 2021 2020 2021 2020
(Unaudited)
Net income $ 65,089 $ 46,332 $ 183,613 $ 108,522
Other comprehensive income (loss):
Foreign currency translation adjustments (1,119) 782 (822) (8,182)
Change in fair value of interest rate swaps, net of tax 400 401 2,063 (5,819)
Other comprehensive income (loss) (719) 1,183 1,241 (14,001)
Comprehensive income 64,370 47,515 184,854 94,521
Comprehensive income attributable to noncontrolling interest 1,328 — 1,328 —
Comprehensive income attributable to Werner $ 63,042 $ 47,515 $ 183,526 $ 94,521

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

~~Table of Contents~~

~~WERNER ENTERPRISES, INC.~~

~~CONSOLIDATED CONDENSED BALANCE SHEETS~~

(In thousands, except share amounts) September 30,
2021 December 31,
2020
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 45,428 $ 29,334
Accounts receivable, trade, less allowance of $9,233 and $8,686, respectively 426,346 341,104
Other receivables 26,524 23,491
Inventories and supplies 11,787 12,062
Prepaid taxes, licenses and permits 8,140 17,231
Other current assets 51,566 33,694
Total current assets 569,791 456,916
Property and equipment 2,515,378 2,405,335
Less – accumulated depreciation 908,852 862,077
Property and equipment, net 1,606,526 1,543,258
Goodwill 44,710 —
Intangible assets, net 50,974 —
Other non-current assets 207,140 156,502
Total assets $ 2,479,141 $ 2,156,676
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 92,425 $ 83,263
Current portion of long-term debt 6,250 25,000
Insurance and claims accruals 70,073 76,917
Accrued payroll 43,397 35,594
Accrued expenses 27,574 25,032
Other current liabilities 21,509 28,208
Total current liabilities 261,228 274,014
Long-term debt, net of current portion 343,750 175,000
Other long-term liabilities 43,656 43,114
Insurance and claims accruals, net of current portion 234,000 231,638
Deferred income taxes 253,335 237,870
Total liabilities 1,135,969 961,636
Commitments and contingencies 0 0
Temporary equity - redeemable noncontrolling interest 36,615 —
Stockholders’ equity:
Common stock, $0.01 par value, 200,000,000 shares authorized; 80,533,536 shares
issued; 66,884,251 and 67,931,726 shares outstanding, respectively 805 805
Paid-in capital 119,776 116,039
Retained earnings 1,598,232 1,438,916
Accumulated other comprehensive loss (21,592) (22,833)
Treasury stock, at cost; 13,649,285 and 12,601,810 shares, respectively (390,664) (337,887)
Total stockholders’ equity 1,306,557 1,195,040
Total liabilities, temporary equity and stockholders’ equity $ 2,479,141 $ 2,156,676

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

~~Table of Contents~~

~~WERNER ENTERPRISES, INC.~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

Nine Months Ended
September 30,
(In thousands) 2021 2020
(Unaudited)
Cash flows from operating activities:
Net income $ 183,613 $ 108,522
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 196,431 199,487
Deferred income taxes 14,756 (2,358)
Gain on disposal of property and equipment (39,292) (7,293)
Non-cash equity compensation 7,999 6,003
Insurance and claims accruals, net of current portion 2,362 6,579
Other (1,422) 21,771
Gain on investments in equity securities, net (36,281) —
Changes in certain working capital items:
Accounts receivable, net (69,072) (15,051)
Other current assets (10,319) (1,335)
Accounts payable 17,236 6,477
Other current liabilities (12,667) 23,594
Net cash provided by operating activities 253,344 346,396
Cash flows from investing activities:
Additions to property and equipment (295,485) (294,448)
Proceeds from sales of property and equipment 132,755 107,185
Net cash invested in acquisition (141,291) —
Investment in equity securities (10,000) —
Decrease in notes receivable 5,114 6,277
Net cash used in investing activities (308,907) (180,986)
Cash flows from financing activities:
Repayments of short-term debt (25,000) (75,000)
Proceeds from issuance of short-term debt 5,000 —
Repayments of long-term debt — (50,000)
Proceeds from issuance of long-term debt 170,000 —
Dividends on common stock (21,057) (18,669)
Repurchases of common stock (53,266) (8,798)
Tax withholding related to net share settlements of restricted stock awards (3,773) (3,941)
Other cash flows from financing activities (35) —
Net cash provided by (used in) financing activities 71,869 (156,408)
Effect of exchange rate fluctuations on cash (212) (1,968)
Net increase in cash, cash equivalents and restricted cash 16,094 7,034
Cash, cash equivalents and restricted cash, beginning of period 29,334 33,442
Cash, cash equivalents and restricted cash, end of period $ 45,428 $ 40,476
Supplemental disclosures of cash flow information:
Interest paid $ 2,517 $ 3,882
Income taxes paid 56,350 36,880
Supplemental schedule of non-cash investing and financing activities:
Notes receivable issued upon sale of property and equipment $ 4,252 $ 2,283
Change in fair value of interest rate swaps 2,063 (5,819)
Property and equipment acquired included in accounts payable 3,666 24,068
Property and equipment disposed included in other receivables — 5,183
Dividends accrued but not yet paid at end of period 8,026 6,219
Redeemable noncontrolling interest associated with acquisition 35,322 —
~~See Notes to Consolidated Financial Statements (Unaudited).~~

~~Table of Contents~~

~~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
Loss Treasury
Stock Total
Stockholders’
Equity
(Unaudited)
BALANCE, December 31, 2020 $ 805 $ 116,039 $ 1,438,916 $ (22,833) $ (337,887) $ 1,195,040
Net income — — 46,492 — — 46,492
Other comprehensive loss — — — (265) — (265)
Purchases of 130,446 shares of common stock — — — — (5,507) (5,507)
Dividends on common stock ($0.10 per share) — — (6,792) — — (6,792)
Equity compensation activity, 116,868 shares — (3,953) — — 213 (3,740)
Non-cash equity compensation expense — 2,502 — — — 2,502
BALANCE, March 31, 2021 805 114,588 1,478,616 (23,098) (343,181) 1,227,730
Net income — — 72,032 — — 72,032
Other comprehensive income — — — 2,225 — 2,225
Dividends on common stock ($0.12 per share) — — (8,151) — — (8,151)
Equity compensation activity, 13,725 shares — (266) — — 266 —
Non-cash equity compensation expense — 2,747 — — — 2,747
BALANCE, June 30, 2021 805 117,069 1,542,497 (20,873) (342,915) 1,296,583
Net income — — 63,761 — — 63,761
Other comprehensive loss — �� — (719) — (719)
Purchases of 1,049,120 shares of common stock — — — — (47,759) (47,759)
Dividends on common stock ($0.12 per share) — — (8,026) — — (8,026)
Equity compensation activity, 1,498 shares — (43) — — 10 (33)
Non-cash equity compensation expense — 2,750 — — — 2,750
BALANCE, September 30, 2021 $ 805 $ 119,776 $ 1,598,232 $ (21,592) $ (390,664) $ 1,306,557

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

~~Table of Contents~~

~~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
Loss Treasury
Stock Total
Stockholders’
Equity
(Unaudited)
BALANCE, December 31, 2019 $ 805 $ 112,649 $ 1,294,608 $ (14,728) $ (282,326) $ 1,111,008
Net income — — 23,058 — — 23,058
Other comprehensive loss — — — (15,490) — (15,490)
Purchases of 282,992 shares of common stock — — — — (8,798) (8,798)
Dividends on common stock ($0.09 per share) — — (6,218) — — (6,218)
Equity compensation activity, 125,203 shares — (4,360) — — 430 (3,930)
Non-cash equity compensation expense — 2,406 — — — 2,406
BALANCE, March 31, 2020 805 110,695 1,311,448 (30,218) (290,694) 1,102,036
Net income — — 39,132 — — 39,132
Other comprehensive income — — — 306 — 306
Dividends on common stock ($0.09 per share) — — (6,219) — — (6,219)
Equity compensation activity, 10,297 shares — (199) — — 194 (5)
Non-cash equity compensation expense — 1,138 — — — 1,138
BALANCE, June 30, 2020 805 111,634 1,344,361 (29,912) (290,500) 1,136,388
Net income — — 46,332 — — 46,332
Other comprehensive income — — — 1,183 — 1,183
Dividends on common stock ($0.09 per share) — — (6,219) — — (6,219)
Equity compensation activity, 893 shares — (19) — — 13 (6)
Non-cash equity compensation expense — 2,459 — — — 2,459
BALANCE, September 30, 2020 $ 805 $ 114,074 $ 1,384,474 $ (28,729) $ (290,487) $ 1,180,137

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

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~~WERNER ENTERPRISES, INC.~~

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

~~(1) Accounting Policies~~

New Accounting Pronouncements Adopted

In ~~December 2019,~~ the ~~Financial Accounting Standards Board (“FASB”) issued~~first quarter 2022, we adopted Accounting Standards Update (“ASU”) No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which reduces complexity in accounting for income taxes by removing certain exceptions to the general principles stated in Topic 740 and by clarifying and amending existing guidance to improve consistent application of and simplify other areas of Topic 740. The Company adopted ASU 2019-12 as of January 1, 2021. Upon adoption, this update had no effect on our financial position, results of operations and cash flows.

~~Accounting Standards Updates Not Yet Effective~~

~~In March 2020, the FASB issued ASU No.~~ 2020-04, ~~“Reference~~Reference Rate Reform (Topic 848)”, which provides optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting. The provisions of this update are effective for all entities as of March 12, 2020 through December 31, 2022 and apply only to contracts, hedging relationships, and other transactions that reference ~~LIBOR~~the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. ~~We are evaluating the impact~~The adoption of the ~~optional expedients in this update and their applicability to modifications of~~new guidance did not have a material impact on our ~~existing credit facilities and hedging relationships that reference LIBOR.~~

consolidated financial statements.

(2) Business ~~Acquisition~~

~~ECM Acquisition~~Acquisitions

On July 1, 2021, ~~pursuant to a Unit Purchase Agreement,~~ we acquired an 80% ownership interest in ECM Associated, LLC ("ECM”) for a final purchase price of $141.3 million after net working capital changes and net of cash acquired. We have an exclusive option to purchase the remaining 20% ownership interest in ECM upon the occurrence of certain events or after a period of five years following transaction close, based on a fixed multiple of ECM’s average annual adjusted earnings before interest, taxes, depreciation and amortization. The noncontrolling interest holder also has an option to put the remaining 20% ownership interest to us on the same terms. We record the 20% remaining interest in temporary equity – redeemable noncontrolling interest in the consolidated condensed balance sheets. We recorded net income attributable to noncontrolling interest of $1.3 million and a distribution to the noncontrolling interest holder of $35 thousand for the three months ended September 30, 2021.

ECM, through its ECM Transport, LLC (“ECM Transport”) and Motor Carrier Service, LLC (“MCS”) subsidiaries, provides regional truckload carrier services in the Mid-Atlantic, Ohio, and Northeast regions of the United States and operates nearly 500 trucks and 2,000 trailers in its network of eight terminals and 18 drop yard facilities. The primary reason for this acquisition was to expand our fleet size, terminal network, geographic market presence, and short-haul expertise in a segment in which consumer demand and supply chain needs are growing.

We financed the cash transaction through a combination of cash on hand, existing credit facilities, and the addition of a $100.0 million unsecured fixed-rate term loan commitment with BMO Harris Bank N.A. on June 30, 2021. For more information regarding our debt, see Note 7 – Credit Facilities.

States. The results of operations for ECM are included in our consolidated financial statements beginning July 1, ~~2021. We incurred transaction costs related to~~2021, and the ~~acquisition, such~~noncontrolling interest is presented as ~~legal~~a separate component of the consolidated financial statements.

On November 22, 2021, we acquired 100% of the equity interests in NEHDS Logistics, LLC (“NEHDS”) for a final purchase price of $62.3 million after including the impacts of contingent consideration and ~~professional fees,~~net working capital changes. The purchase price allocation for NEHDS is considered final as of ~~$1.0~~March 31, 2022. NEHDS is a final mile residential delivery provider serving customers primarily in the Northeast and Midwest U.S. markets. NEHDS delivers primarily big and bulky products (primarily furniture and appliances) using 2-person delivery teams performing residential and commercial deliveries. The results of operations for NEHDS are included in our consolidated financial statements beginning November 22, 2021.

Amortization expense on intangible assets was $1.4 million for the ~~nine~~three months ended ~~September 30, 2021, which is included in other operating expenses on the consolidated statements of income.~~

~~Provisional Purchase Price Allocation~~

We accounted for the purchase of ECM using the acquisition method of accounting under U.S. generally accepted accounting principles (GAAP). The purchase price has been allocated to the assets acquired and liabilities assumed using market data and valuation techniques. The estimated fair values of the assets acquired and liabilities assumed are considered provisional, pending the completion of the valuation of acquired tangible assets, an independent valuation of certain acquired intangible assets, and the calculation of deferred taxes based upon the underlying tax basis of assets acquired and liabilities assumed. The determination of estimated fair values requires management to make significant estimates and assumptions. We believe that the information available provides a reasonable basis for estimating the values of assets acquired and liabilities assumed; however, these provisional estimates may be adjusted upon the availability of new information regarding facts and circumstances which existed at the acquisition date, and such adjustments may impact future earnings. We expect to finalize the valuation of assets and liabilities as soon as practicable, but not later than one year from the acquisition date. Any adjustments to the initialMarch 31, 2022.

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~~estimates of the fair value of the acquired assets and liabilities assumed will be recorded as adjustments to the respective assets and liabilities, with the residual amounts allocated to goodwill.~~

~~The provisional purchase price allocation for ECM is summarized as follows (in thousands):~~


~~Purchase Price~~
~~Cash consideration paid~~ ~~(1)~~	$	~~155,686~~
~~Cash and cash equivalents acquired~~	~~(13,327)~~
~~Working capital surplus (deficiency)~~	~~(1,068)~~
~~Total purchase price (fair value of consideration)~~	~~141,291~~

~~Provisional Purchase Price Allocation~~
~~Accounts receivable, trade~~	~~16,170~~
~~Other receivables~~	43
~~Inventories and supplies~~	~~204~~
~~Prepaid taxes, licenses and permits~~	~~700~~
~~Other current assets~~	~~351~~
~~Property and equipment~~	~~68,772~~
~~Intangible assets~~	~~52,200~~
~~Other non-current assets~~	~~3,644~~
~~Total assets acquired~~	~~142,084~~

~~Accounts payable~~	~~(510)~~
~~Insurance and claims accruals~~	~~(890)~~
~~Accrued payroll~~	~~(2,130)~~
~~Accrued expenses~~	~~(3,006)~~
~~Other current liabilities~~	~~(1,185)~~
~~Other long-term liabilities~~	~~(2,460)~~
~~Total liabilities assumed~~	~~(10,181)~~
~~Temporary equity - redeemable noncontrolling interest in ECM~~	~~(35,322)~~
~~Goodwill~~	$	~~44,710~~
~~(1)~~ At closing, $0.8 million and $0.7 million of the cash consideration was placed in escrow to cover post-closing adjustments and to secure certain indemnification obligations of the sellers, respectively. As of September 30, 2021, the indemnification escrow payment remains subject to adjustment.

~~Goodwill and Intangible Assets~~

Goodwill represents the excess of cost over the fair value of net identifiable tangible and intangible assets acquired in a business combination. Goodwill and intangible assets with indefinite lives are not amortized. Goodwill is reviewed for potential impairment on an annual basis or more frequently if indicators of a potential impairment exist. Goodwill associated with the acquisition was primarily attributable to acquiring and retaining the existing ECM network and the anticipated synergies from combining the operations of the Company and ECM. The goodwill associated with the acquisition is expected to be deductible for income tax purposes. All goodwill is assigned to our Truckload Transportation Services (“TTS”) segment.

We have allocated $52.2 million of the purchase price to finite-lived intangible assets, consisting of customer relationships and trade names. The estimated fair values of the intangible assets were determined, with the assistance of an independent third-party valuation firm, using the multi-period excess earnings method for customer relationships and the relief-from-royalty method for trade names. All methods are forms of the income approach, which require a forecast of all the expected future cash flows.

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Intangible assets with finite lives are amortized on the straight-line method. Amortization expense on acquired intangible assets was $1.2 million for three and nine months ended September 30, 2021. The following table summarizes the major classes of intangible assets and the respective weighted-average estimated amortization periods:

Estimated Fair Value
(in thousands) Weighted-Average Estimated Amortization Period
(Years)
Customer relationships $ 33,200 10
Trade names 19,000 12
Total intangible assets $ 52,200

(3) Revenue

Revenue Recognition

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

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
Truckload Transportation Services $ 527,697 $ 458,256 $ 1,481,846 $ 1,368,172
Werner Logistics 157,968 117,351 437,494 339,678
Inter-segment eliminations (212) (30) (539) (55)
Transportation services 685,453 575,577 1,918,801 1,707,795
Other revenues 17,438 14,637 50,350 44,081
Total revenues $ 702,891 $ 590,214 $ 1,969,151 $ 1,751,876


	Three Months Ended March 31,
	2022		2021
Truckload Transportation Services	$	558,417	$	462,949
Werner Logistics	189,008		137,853
Inter-segment eliminations	(722)		(134)
Transportation services	746,703		600,668
Other revenues	17,902		15,778
Total revenues	$	764,605	$	616,446

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
United States $ 657,795 $ 534,978 $ 1,815,180 $ 1,581,474
Mexico 38,187 36,708 116,268 111,174
Other 6,909 18,528 37,703 59,228
Total revenues $ 702,891 $ 590,214 $ 1,969,151 $ 1,751,876

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	Three Months Ended March 31,
	2022		2021
United States	$	710,904	$	555,239
Mexico	43,291		38,756
Other	10,410		22,451
Total revenues	$	764,605	$	616,446

Contract Balances and Accounts Receivable

A receivable is an unconditional right to consideration and is recognized when shipments have been completed and the related performance obligation has been fully satisfied. At ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the accounts receivable, trade, net, balance was $~~426.3~~449.6 million and ~~$341.1~~$460.5 million, respectively. Contract assets represent a conditional right to consideration in exchange for goods or services and are transferred to receivables when the rights become unconditional. At ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the balance of contract assets was $~~9.2~~10.9 million and ~~$6.9~~$9.0 million, respectively. We have recognized contract assets within the other current assets financial statement caption on the consolidated condensed balance sheets. These contract assets are considered current assets as they will be settled in less than 12 months.

Contract liabilities represent advance consideration received from customers and are recognized as revenues over time as the related performance obligation is satisfied. The balance of contract liabilities was $1.2 million at both March 31, 2022 and ~~$1.2 million~~ ~~as of September 30, 2021 and $1.5 million as of~~ December 31, ~~2020.~~2021. The amount of revenues recognized in the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 that was included in the December 31, ~~2020~~2021 contract liability balance was $~~1.5~~1.2 million. We have recognized contract liabilities within the accounts payable and other current liabilities financial statement captions on the consolidated condensed balance sheets. These contract liabilities are considered current liabilities as they will be settled in less than 12 months.

Performance Obligations

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

During the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and September 30, 2020,~~ revenues recognized from performance obligations related to prior periods (for example, due to changes in transaction price) were not material.

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(4) Leases

We have entered into operating leases primarily for real estate. The leases have terms which range from 1 year to 1318 years, and some include options to renew. Renewal terms are included in the lease term when it is reasonably certain that we will exercise the option to renew.

Operating leases are included in other non-current assets, other current liabilities and other long-term liabilities on the consolidated 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 our incremental borrowing rate because the rate implicit in each lease is not readily determinable. We have certain contracts for real estate that may contain lease and non-lease components which we have elected to treat as a single lease component. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Variable lease expense is recognized in the period in which the obligation for those payments is incurred. Lease expense is reported in rent and purchased transportation on the consolidated statements of income.

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


	March 31, 2022			December 31, 2021
Balance Sheet Classification
Right-of-use assets (recorded in other non-current assets)	$	36,649		$	28,458

Current lease liabilities (recorded in other current liabilities)	$	7,231		$	6,380
Long-term lease liabilities (recorded in other long-term liabilities)	30,291			22,634
Total operating lease liabilities	$	37,522		$	29,014

Other Information
Weighted-average remaining lease term for operating leases	7.45 years			7.63 years
Weighted-average discount rate for operating leases	2.6		%	2.7		%

The following table presents ~~information about~~ the ~~amount, timing and uncertainty~~maturities of ~~cash flows arising from our~~ operating ~~leases~~lease liabilities as of ~~September 30, 2021.~~March 31, 2022 (in thousands):

(In thousands) September 30, 2021
Maturity of Lease Liabilities
2021 (remaining) $ 1,240
2022 4,384
2023 2,959
2024 2,144
2025 1,617
Thereafter 2,711
Total undiscounted operating lease payments $ 15,055
Less: Imputed interest (1,010)
Present value of operating lease liabilities $ 14,045
Balance Sheet Classification
Right-of-use assets (recorded in other non-current assets) $ 13,580
Current lease liabilities (recorded in other current liabilities) $ 4,305
Long-term lease liabilities (recorded in other long-term liabilities) 9,740
Total operating lease liabilities $ 14,045
Other Information
Weighted-average remaining lease term for operating leases 4.90 years
Weighted-average discount rate for operating leases 2.91 %


Maturity of Lease Liabilities
2022 (remaining)	$	6,074
2023	7,055
2024	6,279
2025	5,578
2026	4,485
Thereafter	11,883
Total undiscounted operating lease payments	$	41,354
Less: Imputed interest	(3,832)
Present value of operating lease liabilities	$	37,522

Cash Flows

During the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and September 30, 2020,~~ right-of-use assets of ~~$3.9~~$10.2 million and ~~$2.4~~$0.5 million, respectively, were recognized as non-cash asset additions that resulted from new operating lease liabilities. Cash paid for amounts included in the present value of operating lease liabilities was ~~$3.2~~$1.8 million and ~~$3.0~~$0.9 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and September 30, 2020,~~ respectively, and isare included in operating cash flows.

Operating Lease Expense

Operating lease expense was ~~$4.2~~$5.1 million and ~~$11.3~~$3.6 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~respectively, and $2.7~~respectively. This expense included $2.1 million and ~~$6.8~~$1.0 million for the three ~~and nine~~ months ended ~~September 30, 2020, respectively. This expense included $1.3 million~~March 31, 2022 and ~~$3.3 million for the three and nine months ended September 30,~~ 2021, ~~respectively, and $0.9 million and $2.8 million for the three and nine months ended September 30, 2020,~~ respectively, for long-term operating leases, with the remainder for variable and short-term lease expense.

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Lessor Operating Leases

We are the lessor of tractors and trailers under operating leases with initial terms of 21 to 10 years. We recognize revenue for such leases on a straight-line basis over the term of the lease. Revenues were ~~$2.9~~$3.2 million and ~~$9.0~~$3.1 million for the three months

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ended March 31, 2022 and ~~nine months ended September 30,~~ 2021, ~~respectively, and~~ ~~$3.0 million~~ ~~and $9.4 million for the three and nine months ended September 30, 2020,~~ respectively. The following table presents information about the maturities of these operating leases as of ~~September 30, 2021.~~March 31, 2022 (in thousands):

(In thousands) September 30, 2021
2021 (remaining) $ 2,483
2022 5,688
2023 —
2024 —
2025 —
Thereafter —
Total $ 8,171


2022 (remaining)	$	6,124
2023	1,637
2024	—
2025	—
2026	—
Thereafter	—
Total	$	7,761

(5) Fair Value

Fair Value Measurement — Definition and Hierarchy

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

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

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

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

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

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

~~The following table presents the Company's fair value hierarchy for assets measured at fair value on a recurring basis (in thousands):~~

Level in Fair Fair Value
Value Hierarchy September 30, 2021 December 31, 2020
Other non-current assets:
Equity securities (1)
1 $ 13,129 N/A

~~(1)~~ ~~Represents our investment in TuSimple Class A common stock. For additional information regarding the valuation of our investment in TuSimple, see Note 6 – Investments.~~

Our investment in Mastery Logistics Systems, Inc. (“MLSI”) is estimated at fair value on a nonrecurring basis, as MLSI does not have a readily determinable fair value. MLSI is accounted for using the measurement alternative under ASC 321,

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~~“Investments - Equity Securities” (categorized as Level 3 of the fair value hierarchy). For additional information regarding the valuation of our investment in MLSI, see Note 6 – Investments.~~

~~Valuation Techniques~~

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

The following table presents the Company's fair value hierarchy for assets measured at fair value on a recurring basis (in thousands):


	Level in Fair Value Hierarchy	Fair Value
		March 31, 2022		December 31, 2021
Other non-current assets:
Equity securities (1)	1	$	7,360	$	17,166

(1) Represents our investments in autonomous technology companies. For additional information regarding the valuation of these equity securities, see Note 6 – Investments.

We have no material liabilities measured at fair value on a recurring basis for the periods presented.

Our ownership interest in Mastery Logistics Systems, Inc. (“MLSI”) does not have a readily determinable fair value and is accounted for using the measurement alternative in ASC 321, Investments - Equity Securities. For additional information regarding the valuation of our investment in MLSI, see Note 6 – Investments.

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Fair Value of Financial Instruments Not Recorded at Fair Value

Cash, accounts receivable trade, and accounts payable are short-term in nature and accordingly are carried at amounts that approximate fair value. These financial instruments are recorded at or near their respective transaction prices and historically have been settled or converted to cash at approximately that value (categorized as Level 2 of the fair value hierarchy).

The carrying amounts of our long-term debt approximate fair value due to the duration of our credit ~~facilities~~arrangements and the variable interest rates (categorized as Level 2 of the fair value hierarchy).

(6) Investments

Equity Investments without Readily Determinable Fair Values

In 2020, we entered into a strategic partnership with MLSI, a transportation management systems company. We are collaborating with MLSI to develop a cloud-based transportation management system using MLSI's SaaS technology which we have agreed to license. ~~In both November 2020 and September 2021, we paid MLSI $5.0 million for shares of its preferred stock. As of September 30, 2021, our ownership percentage in MLSI was approximately 9.8%.~~ This minority equity investment is being accounted for under ASC 321 ~~“Investments - Equity Securities,”~~ using the measurement alternative, and is recorded in other noncurrent assets on the consolidated condensed balance sheets. As of March 31, 2022 and December 31, 2021, the value of our investment was $38.2 million. We record changes in the value of ~~our~~this investment, based on events that occur that would indicate the value of our investment in MLSI has changed, in ~~other expense (income)~~gain or loss on investments in equity securities on the consolidated statements of income. ~~During third quarter 2021, an investment by a third-party resulted~~No gains or losses were recorded in the ~~remeasurement of~~three months ended March 31, 2022 and 2021. At March 31, 2022, cumulative unrealized gains on our investment in MLSI ~~and in the three and nine months ended September 30, 2021, we recognized a~~totaled $28.2 million unrealized gain on our investment based upon the price paid by the third party. As of September 30, 2021 and December 31, 2020, the fair value of our investment was $38.2 million and $5.0 million, respectively.

million.

Equity Investments with Readily Determinable Fair Values

~~On January 8, 2021, we made a $5.0 million~~We own strategic minority equity ~~investment~~investments in ~~TuSimple, an~~ autonomous technology ~~company. Upon completion of TuSimple’s initial public offering in April 2021, our equity investment was converted to Class A common shares. Our interest,~~companies, which ~~represents an ownership percentage of less than 1%, is~~are being accounted for under ASC 321 ~~“Investments - Equity Securities”~~ and isare recorded in other noncurrent assets on the consolidated condensed balance sheets. We record changes in the value of ~~our investment,~~these investments, based on the share ~~price~~prices reported by Nasdaq, in ~~other expense (income)~~gain or loss on investments in equity securities on the consolidated statements of income. In the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, we recognized a ~~$12.1~~$9.8 million unrealized loss ~~and $8.1 million unrealized gain~~ on ~~our investment. As of September 30, 2021,~~these investments. No gains or losses were recorded in the three months ended March 31, 2021. For additional information regarding the fair value of ~~our investment was $13.1 million. For additional information on the fair value of our investment in TuSimple,~~these equity investments, see Note 5 – Fair Value.

(7) Debt and Credit Facilities

On ~~June 30, 2021,~~March 25, 2022, we ~~amended~~entered into a new credit agreement (the “Wells Credit Agreement”) with Wells Fargo Bank, National Association ("Wells Fargo"), replacing our ~~existing~~previous credit agreement with Wells Fargo dated May 14, 2019, as amended. The Wells Credit Agreement provides for a $300.0 million unsecured revolving line of credit ("Wells Line of Credit"), with ~~BMO Harris Bank N.A.~~a $75.0 million maximum limit for the aggregate amount of letters of credit issued, and expires on May 14, 2024. The ~~amendment added~~Wells Credit Agreement also provides for an unsecured ~~fixed-rate~~ term loan commitment not to exceed a principal amount of $100.0 million ("Wells Term Loan"), with the outstanding principal balance due and ~~increased~~payable in full on May 14, 2024. The proceeds of the Wells Line of Credit and Wells Term Loan may be used for the Company's general corporate purposes.

Amounts drawn under the Wells Line of Credit and the outstanding principal balance of the Wells Term Loan bear interest either, at our ~~borrowing capacity~~option, (i) at a variable rate based on the daily Secured Overnight Financing Rate ("SOFR") plus 0.10% and a margin ranging between 0.675% and 0.925%, or (ii) at a fixed rate based on the Term SOFR in effect on the first day of an applicable interest period designated by us plus 0.10% in the case of one month Term SOFR, 0.15% in the case of three month Term SOFR, 0.25% in the case of six month Term SOFR, and plus, in each case, a margin ranging between 0.675% and 0.925%, payable monthly. The margin rates are based on our ratio of total funded debt to earnings before interest, income taxes, depreciation and amortization (“EBITDA”). The Wells Credit Agreement also requires us to pay Wells Fargo (i) an annualized letter of credit fee based on the face amount of each letter of credit outstanding at rates ranging between 0.55% and 0.80% per annum and (ii) a nonrefundable commitment fee on the average daily unused amount of the Wells Line of Credit (after deducting undrawn letters of credit) at rates ranging between 0.11% and 0.15% per annum. The rates for the letter of credit and nonrefundable commitment fees are based on our ratio of total funded debt to EBITDA.

On March 25, 2022, we also entered into a second amendment to our existing unsecured revolving line of credit agreement, dated May 14, 2019, with BMO Harris Bank N.A. (��BMO Harris”), expiring May 14, 2024 (“BMO Line of Credit”). The second amendment increased our BMO Line of Credit from $200.0 million to $300.0 ~~million. The outstanding principal balance~~million and changed the variable interest rate calculation by replacing the LIBOR with the SOFR. Amounts drawn under the BMO Line of ~~the term loan bears~~Credit bear interest, for a selected interest period, at a ~~fixed~~variable rate ~~of 1.28%.~~

As of September 30, 2021, we had a $300.0 million and a $200.0 million unsecured committed credit facility with Wells Fargo Bank, N.A. and BMO Harris Bank N.A., respectively, which will expire on May 14, 2024. Borrowings under these credit facilities bear variable interest based on the ~~London Interbank Offered Rate (“LIBOR”).~~SOFR plus 0.10% and a margin ranging between 0.70% and 1.50%, based on our ratio of total funded debt to EBITDA, payable at the end of the applicable interest period. No changes were made to the annualized letter of credit fee, nonrefundable commitment fee, and financial covenants as a result of the second amendment. We also ~~had~~have a ~~new~~ $100.0 million unsecured fixed-rate term loan commitment with BMO Harris, ~~Bank N.A., as described above,~~ with quarterly principal payments of $1.25 million, ~~beginning~~which began on September 30, 2021, and a final payment of principal and interest due and ~~payable on May 14, 2024.~~

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payable on May 14, 2024 ("BMO Term Loan"). The outstanding principal balance of the BMO Term Loan bears interest at a fixed rate of 1.28%, payable quarterly in arrears.

As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, our outstanding debt totaled ~~$350.0~~$426.3 million and ~~$200.0~~$427.5 million, respectively. ~~Under the credit facilities as~~As of ~~September 30, 2021,~~March 31, 2022, we had ~~$100.0~~a total of $230.0 million outstanding under our revolving lines of credit, including (i) $80.0 million at a weighted average variable interest rate of 1.02%; (ii) $75.0 million at a variable interest rate of 0.76% and $100.0 million outstanding at a fixed interest rate of 1.28%. We had (i) an additional $75.0 million outstanding under the Wells Fargo Bank, N.A. credit facility at a variable interest rate of 0.76% as of September 30, 2021,0.99%, which is effectively fixed at 2.32% with an interest rate swap agreement through May 14, ~~2024~~2024; and ~~(ii) an additional~~(iii) $75.0 million ~~outstanding under the BMO Harris Bank N.A. credit facility~~ at a variable interest rate of ~~0.78% as of September 30, 2021,~~0.93%, which is effectively fixed at 2.36% with an interest rate swap agreement through May 14, 2024. ~~Subsequent to the end~~The total borrowing capacity of ~~the quarter, in October 2021, we borrowed an additional $50.0~~$600.0 million under our ~~BMO Harris Bank N.A.~~revolving lines of credit ~~facility, which will be classified as long-term in the consolidated condensed balance sheets. The $600.0 million of borrowing capacity under our credit arrangements~~ at ~~September 30, 2021,~~March 31, 2022, is further reduced by ~~$50.9~~by $53.9 million in stand-by letters of credit under which we are obligated. ~~Each~~In addition, as of March 31, 2022, we had $100.0 million outstanding under the Wells Term Loan at a variable interest rate of 1.05% and $96.3 million outstanding under the BMO Term Loan at a fixed interest rate of 1.28%. Availability of such funds under the debt agreements ~~includes,~~is conditional upon various customary terms and covenants. Such covenants include, among other things, financial covenants requiring us (i) to exceed a minimum ratio of earnings before interest, income taxes, depreciation and amortization to interest expense and/or (ii) not to exceed a maximum ratio of total funded debt to earnings before interest, income taxes, depreciation and amortization (as such terms are defined in each credit facility). ~~At September 30, 2021,~~As of March 31, 2022 we were in compliance with these covenants.

At ~~September 30, 2021,~~March 31, 2022, the aggregate future maturities of long-term debt by year are as follows (in thousands):

2021 (remaining) $ 2,500
2022 5,000
2023 5,000
2024 337,500
2025 —
Total $ 350,000


2022 (remaining)	$	3,750
2023	5,000
2024	417,500
2025	—
2026	—
Total	$	426,250

(8) Commitments and Contingencies

~~As of September 30, 2021, we~~We have committed to property and equipment purchases of approximately $~~109.7~~182.3 million at March 31, 2022.

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”)~~the Company in a lawsuit arising from a December 30, 2014 accident between a Werner tractor-trailer and a passenger vehicle. On July 30, 2018, the court entered a final judgment against Werner for $92.0 million, including pre-judgment interest.

The Company has premium-based liability insurance to cover the potential outcome from this jury verdict. Under the Company’s insurance policies in effect on the date of this accident, the Company’s maximum liability for this accident is $10.0 million (plus pre-judgment and post-judgment interest) with premium-based coverage that exceeds the jury verdict amount. As a result of this jury verdict, the Company had recorded a liability of ~~$27.5~~$30.1 million as of ~~September 30, 2021,~~March 31, 2022, and ~~$23.6~~$28.8 million as of December 31, ~~2020.~~2021. Under the terms of the Company’s insurance policies, the Company is the primary obligor of the verdict, and as such, the Company has also recorded a $79.2 million receivable from its third-party insurance providers in other non-current assets and a corresponding liability of the same amount in the long-term portion of insurance and claims accruals in the consolidated condensed balance sheets as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020.~~

2021.

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

We have been involved in class action litigation in the U.S. District Court for the District of Nebraska, in which the plaintiffs allege that we owe drivers for unpaid wages under the Fair Labor Standards Act (“FLSA”) and the Nebraska Wage Payment and Collection Act and that we failed to pay minimum wage per hour for drivers in our Career Track Program, related to short break time and sleeper berth time. The period covered by this class action suit is August 2008 through March 2014. The case was tried to a jury in May 2017, resulting in a verdict of $0.8 million in plaintiffs’ favor on the short break matter and a verdict

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in our favor on the sleeper berth matter. As a result of various post-trial motions, the court awarded $0.5 million to the plaintiffs

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for attorney fees and costs. Plaintiffs appealed the post-verdict amounts awarded by the trial court for fees, costs and liquidated damages, and the Company filed a cross appeal on the verdict that was in plaintiffs’ favor. The United States Court of Appeals for the Eighth Circuit denied Plaintiffs’ appeal and granted Werner’s appeal, vacating the judgment in favor of the plaintiffs. The appellate court sent the case back to the trial court for proceedings consistent with the appellate court’s opinion. On June 22, 2020, the trial court denied Plaintiffs’ request for a new trial and entered judgment in favor of the Company, dismissing the case with prejudice. On July 21, 2020, Plaintiffs’ counsel filed a notice of appeal of that ~~dismissal.~~dismissal, and that appeal remains pending. As of ~~September 30, 2021,~~March 31, 2022, we have an accrual for the jury’s award, attorney fees and costs in the short break matter and had not accrued for the sleeper berth matter.

We are also involved in certain class action litigation in which the plaintiffs allege claims for failure to provide meal and rest breaks, unpaid wages, unauthorized deductions and other items. Based on the knowledge of the facts, management does not currently believe the outcome of these class actions is likely to have a material adverse effect on our financial position or results of operations. However, the final disposition of these matters and the impact of such final dispositions cannot be determined at this time.

(9) Earnings Per Share

Basic earnings per share is computed by dividing net income attributable to Werner by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income attributable to Werner by the weighted average number of common shares outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding restricted stock awards. Performance awards are excluded from the calculation of dilutive potential common shares until the threshold performance conditions have been satisfied. There are no differences in the numerators of our computations of basic and diluted earnings per share for any periods presented.

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
Net income attributable to Werner $ 63,761 $ 46,332 $ 182,285 $ 108,522
Weighted average common shares outstanding 67,475 69,097 67,776 69,148
Dilutive effect of stock-based awards 359 352 360 352
Shares used in computing diluted earnings per share 67,834 69,449 68,136 69,500
Basic earnings per share $ 0.94 $ 0.67 $ 2.69 $ 1.57
Diluted earnings per share $ 0.94 $ 0.67 $ 2.68 $ 1.56


	Three Months Ended March 31,
	2022		2021
Net income attributable to Werner	$	53,749	$	46,492
Weighted average common shares outstanding	65,543		67,932
Dilutive effect of stock-based awards	335		291
Shares used in computing diluted earnings per share	65,878		68,223
Basic earnings per share	$	0.82	$	0.68
Diluted earnings per share	$	0.82	$	0.68

(10) ~~Equity Compensation~~

The Werner Enterprises, Inc. Amended and Restated Equity Plan (the “Equity Plan”), approved by the Company’s shareholders in 2013, provides for grants to employees and non-employee directors of the Company in the form of nonqualified stock options, restricted stock and units (“restricted awards”), performance awards, and stock appreciation rights. The Board of Directors or the Compensation Committee of our Board of Directors determines the terms of each award, including the type, recipients, number of shares subject to and vesting conditions of each award. No awards of stock appreciation rights have been issued under the Equity Plan to date, and no stock option awards are outstanding. The maximum number of shares of common stock that may be awarded under the Equity Plan is 20,000,000 shares. The maximum aggregate number of shares that may be awarded to any one person in any one calendar year under the Equity Plan is 500,000. As of September 30, 2021, there were 6,527,854 shares available for granting additional awards.

Equity compensation expense is included in salaries, wages and benefits within the consolidated statements of income. As of September 30, 2021, the total unrecognized compensation cost related to non-vested equity compensation awards was approximately $13.3 million and is expected to be recognized over a weighted average period of 1.7 years.

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~~The following table summarizes the equity compensation expense and related income tax benefit recognized in the consolidated statements of income (in thousands):~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
Restricted awards:
Pre-tax compensation expense $ 1,606 $ 1,375 $ 4,693 $ 3,863
Tax benefit 410 351 1,197 985
Restricted stock expense, net of tax $ 1,196 $ 1,024 $ 3,496 $ 2,878
Performance awards:
Pre-tax compensation expense $ 1,144 $ 1,086 $ 3,299 $ 2,149
Tax benefit 291 277 841 548
Performance award expense, net of tax $ 853 $ 809 $ 2,458 $ 1,601

We do not have a formal policy for issuing shares upon 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 2021.

~~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 nine months ended September 30, 2021:~~

Number of
Restricted
Awards (in
thousands) Weighted
Average Grant
Date Fair
Value ($)
Nonvested at beginning of period 367 $ 35.78
Granted 130 41.96
Vested (123) 35.09
Forfeited (13) 36.88
Nonvested at end of period 361 38.20

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 condensed balance sheets and are adjusted to fair value each reporting period.

~~The total fair value of previously granted restricted awards vested during the nine-month periods ended September 30, 2021 and September 30, 2020 was $5.2 million and~~ ~~$3.4 million~~, respectively. We withheld shares based on the closing stock price on the vesting date to settle the employees’ statutory obligation for the applicable income and other employment taxes. The shares withheld to satisfy the tax withholding obligations were recorded as treasury stock.

~~Performance Awards~~

Performance awards entitle the recipient to shares of common stock upon attainment of performance objectives as pre-established by the Compensation Committee. If the performance objectives are achieved, performance awards currently outstanding vest, subject to continued employment, 36 months after the grant date of the award. The performance awards do not confer any voting or dividend rights to recipients until such shares vest and do not have any post-vesting sales restrictions.

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~~The following table summarizes performance award activity for the nine months ended September 30, 2021:~~

Number of
Performance
Awards (in
thousands) Weighted
Average Grant
Date Fair
Value ($)
Nonvested at beginning of period 262 $ 32.96
Granted 77 38.48
Vested (100) 33.04
Forfeited — —
Nonvested at end of period 239 34.70

The 2021 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, 2021 to December 31, 2022. Shares earned based on cumulative diluted earnings per share may be capped based on the Company’s total shareholder return during the three-year period ended December 31, 2023, relative to the total shareholder return of a peer group of companies for the same period. The 2021 performance awards will vest in one installment on the third anniversary from the grant date. In January 2021, the Compensation Committee determined the 2018 fiscal year performance objectives were achieved at a level above the target level; the additional shares earned above the target level were included in 2020 shares granted.

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

The vesting date fair value of performance awards that vested during the nine-month periods ended September 30, 2021 and September 30, 2020 was $4.1 million and $5.8 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 were recorded as treasury stock.

~~(11)~~ Segment Information

We have 2 reportable segments – Truckload Transportation Services (“TTS”) and Werner Logistics.

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

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

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first quarter 2021, we completed the ~~previously-announced~~ sale of the Werner Global Logistics (“WGL”) freight forwarding services for international ocean and air shipments to Scan Global Logistics Group, and we realized a $1.0 million gain when the transaction closed on February 26, 2021. Werner Logistics ~~will continue~~continues to provide North American truck brokerage, freight management, intermodal and final mile services.

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

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

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Revenues
Revenues by Segment										Revenues by Segment
Truckload Transportation Services	Truckload Transportation Services	$	527,697	$	458,256	$	1,481,846	$	1,368,172	Truckload Transportation Services	$	558,417	$	462,949
Werner Logistics	Werner Logistics	157,968		117,351		437,494		339,678		Werner Logistics	189,008		137,853
Other	Other	17,004		14,156		49,128		42,539		Other	17,513		15,399
Corporate	Corporate	434		481		1,222		1,542		Corporate	389		379
Subtotal	Subtotal	703,103		590,244		1,969,690		1,751,931		Subtotal	765,327		616,580
Inter-segment eliminations	Inter-segment eliminations	(212)		(30)		(539)		(55)		Inter-segment eliminations	(722)		(134)
Total	Total	$	702,891	$	590,214	$	1,969,151	$	1,751,876	Total	$	764,605	$	616,446

Operating Income
Truckload Transportation Services		$	62,856	$	63,080	$	193,592	$	143,394
Werner Logistics		7,650		(852)		16,151		3,372
Other		1,406		566		3,935		2,932
Corporate		(588)		(691)		(3,020)		(3,711)
Total		$	71,324	$	62,103	$	210,658	$	145,987


	Three Months Ended March 31,
	2022		2021
Operating Income (loss) by Segment
Truckload Transportation Services	$	76,093	$	57,628
Werner Logistics	8,681		4,574
Other	445		866
Corporate	(1,708)		(597)
Total	$	83,511	$	62,471


	Three Months Ended March 31,
	2022		2021
Depreciation and Amortization by Segment
Truckload Transportation Services	61,837		58,525
Werner Logistics	2,268		2,221
Other	2,681		2,729
Corporate	443		476
Total	$	67,229	$	63,951

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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:

•~~ECM Acquisition~~

•Overview

•COVID-19

•Results of Operations

•Liquidity and Capital Resources

•~~Contractual Obligations and Commercial Commitments~~

•Regulations

•Critical Accounting Estimates

The MD&A should be read in conjunction with our ~~2020~~2021 Form 10-K.

~~ECM Acquisition:~~

On July 1, 2021, Werner acquired an 80% equity ownership interest in ECM Transport Group (“ECM”) for a cash purchase price of $141.3 million after net working capital changes and net of cash acquired. ECM achieved revenues of $108 million in 2020 with an operating margin of 19.8%. ECM consists of ECM Transport and Motor Carrier Service (MCS), which are regional truckload carriers that together operate nearly 500 trucks and 2,000 trailers in the Mid-Atlantic, Ohio and Northeast regions of the U.S. with low driver turnover. Revenues generated by ECM and MCS are reported in One-Way Truckload within our TTS segment.

Werner financed the transaction through a combination of cash on hand, existing credit facilities and a new $100.0 million unsecured fixed-rate term loan maturing in May 2024 with BMO Harris Bank N.A., one of Werner’s two lead banks. The remaining 20% ownership interest in ECM is retained by Ed Meier, founder and President of ECM.

Overview:

We have two reportable segments, Truckload Transportation Services (“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 North American delivery network and systems analysis to optimize transportation needs. Our success depends on our ability to efficiently and effectively manage our resources in the delivery of truckload transportation and logistics services to our customers. Resource requirements vary with customer demand, which may be subject to seasonal or general economic conditions. Our ability to adapt to changes in customer transportation requirements is essential to efficiently deploy resources and make capital investments in tractors and trailers (with respect to our TTS segment) or obtain qualified third-party capacity at a reasonable price (with respect to our Werner Logistics segment). We may also be affected by our customers’ financial failures or loss of customer business.

Revenues for our TTS segment operating units (Dedicated and One-Way Truckload) are typically generated on a per-mile basis and also include revenues such as stop charges, loading and unloading charges, equipment detention charges and equipment repositioning charges. To mitigate our risk to fuel price increases, we recover additional fuel surcharge revenues from our customers 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 TTS segment also generates a small amount of revenues categorized as non-trucking revenues, which consist primarily of the intra-Mexico portion of cross-border shipments delivered to or from Mexico where the TTS segment utilizes a third-party capacity provider. We exclude such revenues from the statistical calculations.

Our most significant resource requirements are company drivers, independent contractors, tractors and trailers. Independent contractors supply their own tractors and drivers and are responsible for their operating expenses. Our financial results are affected by company driver and independent contractor availability and the markets for new and used revenue equipment. We are self-insured for a significant portion of bodily injury, property damage and cargo claims; workers’ compensation claims;

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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 TTS segment operating fleets. The operating ratio consists of operating expenses expressed as a percentage of operating revenues. The most significant variable expenses that impact the TTS segment are driver salaries and benefits, fuel, fuel taxes (included in taxes and licenses expense), payments to independent contractors (included in rent and purchased transportation expense), supplies and maintenance and insurance and claims. As discussed further in the comparison of operating results for ~~third~~first quarter ~~2021~~2022 to ~~third~~first quarter ~~2020,~~2021, 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, compliance with new or proposed regulations and tightening of the commercial truck liability insurance market. Our main fixed costs include depreciation expense for tractors and trailers and equipment licensing fees (included in taxes and licenses expense). The TTS segment requires substantial cash expenditures for tractor and trailer purchases. We fund these purchases with net cash from operations and financing available under our existing credit facilities, as management deems necessary.

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We provide non-trucking services primarily through the three operating units within our Werner Logistics segment (Truckload Logistics, Intermodal, and Final Mile). In first quarter 2021, we completed the ~~previously-announced~~ sale of the Werner Global Logistics (“WGL”) freight forwarding services for international ocean and air shipments to Scan Global Logistics Group. WGL had annual revenues of $53 million in 2020, and we realized a $1.0 million gain from the sale in first quarter 2021. At the end of the twelve month period, the full earnout was achieved. Unlike our TTS segment, the Werner Logistics segment is less asset-intensive and is instead dependent upon qualified associates, information systems and qualified third-party capacity providers. The largest expense item related to the Werner Logistics segment is the cost of purchased transportation we pay to third-party capacity providers. This expense item is recorded as rent and purchased transportation expense. Other operating expenses consist primarily of salaries, wages and benefits, as well as depreciation and amortization, supplies and maintenance, and other general expenses. We evaluate the Werner Logistics segment’s financial performance by reviewing operating expenses and operating income expressed as a percentage of revenues. ~~Rent and purchased~~Purchased transportation expenses as a percentage of revenues can be impacted by the rates charged to customers and the costs of securing third-party capacity. We have a mix of contracted long-term rates and variable rates for the cost of third-party capacity, and we cannot assure that our operating results will not be adversely impacted in the future if our ability to obtain qualified third-party capacity providers changes or the rates of such providers increase.

COVID-19:

The COVID-19 pandemic ~~declared March 11, 2020, has profoundly impacted~~continues to impact the U.S. ~~economy.~~and global economies and has resulted in ongoing supply chain challenges. During the pandemic, the transportation industry has been designated by the U.S. government as an essential industry for keeping the U.S. supply chain moving. We are monitoring and reacting to the evolving nature of the pandemic, governmental responses, and their impacts on our business, including employee availability. We are working hard to stay healthy while safely delivering our customers’ freight on time. Throughout our offices and terminal network, we are closely following the safety guidelines set forth by the Centers for Disease Control and Prevention (CDC) and World Health Organization (WHO). ~~Over half of our office associates continue working from home.~~

Over the past several years, we have repositioned Werner to increase our ability to execute through different macroeconomic environments. We believe our freight base, which is heavily weighted toward customers delivering essential products that are continually being restocked in today’s economy, enabled us to more effectively manage through the difficult economic environment created by the pandemic. While there remain significant uncertainties related to COVID-19 and its effect on the economy, we believe that demand for our services will continue to be strong during the remainder of ~~2021 and into~~ 2022.

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Results of Operations:

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


		Three Months Ended (3ME) September 30,						Nine Months Ended (9ME) September 30,						Percentage Change in Dollar Amounts			Three Months Ended (3ME) March 31,						Percentage Change in Dollar Amounts
		2021			2020			2021			2020			3ME	9ME		2022			2021			3ME
(Amounts in thousands)		$		%	$		%	$		%	$		%	%
(in thousands)																(in thousands)	$		%	$		%	%
Operating revenues	Operating revenues	$	702,891	100.0	$	590,214	100.0	$	1,969,151	100.0	$	1,751,876	100.0	19.1	12.4	Operating revenues	$	764,605	100.0	$	616,446	100.0	24.0

Operating expenses:	Operating expenses:															Operating expenses:
Salaries, wages and benefits	Salaries, wages and benefits	234,250		33.3	197,151		33.4	649,198		33.0	598,129		34.1	18.8	8.5	Salaries, wages and benefits	241,996		31.6	204,853		33.2	18.1
Fuel	Fuel	64,692		9.2	37,933		6.4	174,033		8.8	117,381		6.7	70.5	48.3	Fuel	88,421		11.6	50,838		8.2	73.9
Supplies and maintenance	Supplies and maintenance	57,067		8.1	44,015		7.5	152,628		7.7	133,079		7.6	29.7	14.7	Supplies and maintenance	57,025		7.5	46,147		7.5	23.6
Taxes and licenses	Taxes and licenses	24,419		3.5	24,032		4.1	71,396		3.6	70,835		4.1	1.6	0.8	Taxes and licenses	23,833		3.1	23,233		3.8	2.6
Insurance and claims	Insurance and claims	27,702		4.0	23,307		4.0	70,497		3.6	85,160		4.9	18.9	(17.2)	Insurance and claims	27,492		3.6	22,056		3.6	24.6
Depreciation and amortization	Depreciation and amortization	68,615		9.8	62,980		10.7	196,431		10.0	199,487		11.4	8.9	(1.5)	Depreciation and amortization	67,229		8.8	63,951		10.4	5.1
Rent and purchased transportation	Rent and purchased transportation	161,061		22.9	131,843		22.3	458,474		23.3	378,989		21.6	22.2	21.0	Rent and purchased transportation	185,237		24.2	146,493		23.8	26.4
Communications and utilities	Communications and utilities	3,598		0.5	3,797		0.6	9,953		0.5	11,141		0.6	(5.2)	(10.7)	Communications and utilities	3,926		0.5	3,022		0.5	29.9
Other	Other	(9,837)		(1.4)	3,053		0.5	(24,117)		(1.2)	11,688		0.7	(422.2)	(306.3)	Other	(14,065)		(1.8)	(6,618)		(1.1)	112.5
Total operating expenses	Total operating expenses	631,567		89.9	528,111		89.5	1,758,493		89.3	1,605,889		91.7	19.6	9.5	Total operating expenses	681,094		89.1	553,975		89.9	22.9

Operating income	Operating income	71,324		10.1	62,103		10.5	210,658		10.7	145,987		8.3	14.8	44.3	Operating income	83,511		10.9	62,471		10.1	33.7
Total other expense (income)		(15,043)		(2.2)	619		0.1	(34,230)		(1.7)	2,436		0.1	(2,530.2)	(1,505.2)
Total other expense, net																Total other expense, net	11,043		1.4	583		0.1	1,794.2
Income before income taxes	Income before income taxes	86,367		12.3	61,484		10.4	244,888		12.4	143,551		8.2	40.5	70.6	Income before income taxes	72,468		9.5	61,888		10.0	17.1
Income taxes		21,278		3.0	15,152		2.5	61,275		3.1	35,029		2.0	40.4	74.9
Income tax expense																Income tax expense	17,433		2.3	15,396		2.5	13.2
Net income	Net income	65,089		9.3	46,332		7.9	183,613		9.3	108,522		6.2	40.5	69.2	Net income	55,035		7.2	46,492		7.5	18.4
Net income attributable to noncontrolling interest	Net income attributable to noncontrolling interest	(1,328)		(0.2)	—		—	(1,328)		—	—		—	N/A		Net income attributable to noncontrolling interest	(1,286)		(0.2)	—		N/A	N/A
Net income attributable to Werner	Net income attributable to Werner	$	63,761	9.1	$	46,332	7.9	$	182,285	9.3	$	108,522	6.2	37.6	68.0	Net income attributable to Werner	$	53,749	7.0	$	46,492	7.5	15.6

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

Three Months Ended
September 30, Nine Months Ended
September 30,
Truckload Transportation Services segment 2021 2020 % Change 2021 2020 % Change
Average tractors in service 8,161 7,615 7.2 % 7,872 7,746 1.6 %
Average revenues per tractor per week (1)
$ 4,349 $ 4,216 3.2 % $ 4,236 $ 4,082 3.8 %
Total tractors (at quarter end)
  Company 7,905 7,245 9.1 % 7,905 7,245 9.1 %
  Independent contractor 315 465 (32.3) % 315 465 (32.3) %
  Total tractors 8,220 7,710 6.6 % 8,220 7,710 6.6 %
Total trailers (at quarter end) 25,245 22,350 13.0 % 25,245 22,350 13.0 %
One-Way Truckload
Trucking revenues, net of fuel surcharge (in 000’s) $ 190,314 $ 173,021 10.0 % $ 513,324 $ 518,854 (1.1) %
Average tractors in service 3,110 3,048 2.0 % 2,894 3,156 (8.3) %
Total tractors (at quarter end) 3,100 2,995 3.5 % 3,100 2,995 3.5 %
Average percentage of empty miles 11.17 % 11.70 % (4.5) % 11.08 % 12.18 % (9.0) %
Average revenues per tractor per week (1)
$ 4,708 $ 4,366 7.8 % $ 4,549 $ 4,215 7.9 %
Average % change in revenues per total mile (1)
21.8 % 2.9 % 16.2 % (0.9) %
Average % change in total miles per tractor per week (11.4) % 1.4 % (7.2) % 2.0 %
Average completed trip length in miles (loaded) 731 866 (15.6) % 814 847 (3.9) %
Dedicated
Trucking revenues, net of fuel surcharge (in 000’s) $ 271,066 $ 244,314 10.9 % $ 787,231 $ 714,413 10.2 %
Average tractors in service 5,051 4,567 10.6 % 4,978 4,590 8.5 %
Total tractors (at quarter end) 5,120 4,715 8.6 % 5,120 4,715 8.6 %
Average revenues per tractor per week (1)
$ 4,129 $ 4,115 0.3 % $ 4,055 $ 3,990 1.6 %


	Three Months Ended March 31,
TTS segment	2022			2021			% Change
Average tractors in service	8,238			7,790			5.8	%
Average revenues per tractor per week (1)	$	4,411		$	4,055		8.8	%
Total tractors (at quarter end)
Company	7,960			7,360			8.2	%
Independent contractor	265			375			(29.3)	%
Total tractors	8,225			7,735			6.3	%
Total trailers (at quarter end)	26,185			22,710			15.3	%

One-Way Truckload
Trucking revenues, net of fuel surcharge (in 000’s)	$	186,760		$	156,839		19.1	%
Average tractors in service	3,064			2,856			7.3	%
Total tractors (at quarter end)	3,040			2,815			8.0	%
Average percentage of empty miles	11.75		%	11.35		%	3.5	%
Average revenues per tractor per week (1)	$	4,690		$	4,224		11.0	%
Average % change in revenues per total mile (1)	20.8		%	9.5		%
Average % change in total miles per tractor per week	(8.1)		%	(7.7)		%
Average completed trip length in miles (loaded)	716			853			(16.1)	%

Dedicated
Trucking revenues, net of fuel surcharge (in 000’s)	$	285,601		$	253,813		12.5	%
Average tractors in service	5,174			4,934			4.9	%
Total tractors (at quarter end)	5,185			4,920			5.4	%
Average revenues per tractor per week (1)	$	4,247		$	3,957		7.3	%

(1)Net of fuel surcharge revenues.

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

Three Months Ended
September 30, Nine Months Ended
September 30,
Werner Logistics segment 2021 2020 % Change 2021 2020 % Change
Average tractors in service 41 31 32.3 % 38 31 22.6 %
Total tractors (at quarter end) 50 32 56.3 % 50 32 56.3 %
Total trailers (at quarter end) 1,515 1,325 14.3 % 1,515 1,325 14.3 %


	Three Months Ended March 31,
Werner Logistics segment	2022	2021	% Change
Average tractors in service	53	39	35.9	%
Total tractors (at quarter end)	54	39	38.5	%
Total trailers (at quarter end)	1,605	1,440	11.5	%

Three Months Ended ~~September 30, 2021~~March 31, 2022 Compared to Three Months Ended ~~September 30, 2020~~March 31, 2021

Operating revenues increased ~~19.1%~~24.0% for the three months ended ~~September 30, 2021,~~March 31, 2022, compared to the same period of the prior year. When comparing ~~third~~first quarter ~~2021~~2022 to ~~third~~first quarter ~~2020,~~2021, TTS segment revenues increased ~~$69.4~~$95.5 million, or ~~15.2%~~20.6%, and Werner Logistics revenues increased ~~$40.6~~$51.2 million, or ~~34.6%~~37.1%.

Our results in ~~third~~first quarter ~~2021~~2022 reflect strong freight market conditions in a very challenging driver market. ~~Freight demand in our~~Our One-Way Truckload fleet ~~was strong. This trend has continued during fourth quarter to-date.~~experienced strong freight demand in January and February, which then moderated in March from strong to very good, relative to March freight demand over the last five years. In our Dedicated fleet, freight demand remained strong in ~~third~~first quarter ~~2021.~~2022. Strong consumer demand, combined with several factors that are limiting industry capacity, including ~~an extremely~~a very competitive driver market and ~~shortfalls in~~ongoing new ~~truck builds,~~tractor production delays, resulted in a robust ~~third~~first quarter freight market.

During April, Dedicated freight demand remained strong and One-Way Truckload demand remained very good.

Trucking revenues, net of fuel surcharge, increased ~~10.6%~~15.0% in ~~third~~first quarter ~~2021~~2022 compared to ~~third~~first quarter ~~2020~~2021 due to a ~~7.2%~~5.8% increase in the average number of tractors in service and ~~a 3.2%~~an 8.8% increase in average revenues per tractor per week, net of fuel surcharge. The increase in average revenues per tractor was due primarily to improved pricing in both Dedicated and One-Way Truckload, offset by a decline in miles per ~~truck~~tractor caused by fleet mix changes, ~~trucks~~tractors down due to equipment parts shortages, more drivers unavailable to work due to COVID quarantine protocols and other factors. We currently expect average revenues per total mile, net of fuel surcharge, for the One-Way Truckload fleet for the ~~fourth~~second quarter ~~2021~~2022 to increase in a range of ~~17%~~14% to ~~19%~~17% when compared to ~~fourth~~second quarter ~~2020,~~2021, and we currently expect Dedicated average revenues per ~~truck~~tractor per week, net of fuel surcharge, to increase in a range of 1%4% to 2%6% in ~~fourth quarter 2021~~2022 compared to ~~fourth quarter 2020.~~

The average number of tractors in service in the TTS segment increased ~~7.2%~~5.8% to ~~8,161~~8,238 in ~~third~~first quarter ~~2021~~2022 from ~~7,615~~7,790 in ~~third~~first quarter ~~2020,~~2021, primarily resulting from the nearly 500 ~~trucks~~tractors acquired in the ECM Associated, LLC (“ECM”) acquisition. We ended ~~third~~first quarter ~~2021~~2022 with ~~8,220 trucks~~8,225 tractors in the TTS segment, a year-over-year increase of ~~510 trucks~~490 tractors compared to the end of ~~third~~first quarter ~~2020,~~2021, and a sequential ~~increase~~decrease of ~~575 trucks~~115 tractors compared to the end of ~~second~~fourth quarter 2021. Within TTS, our Dedicated unit ended ~~third~~first quarter ~~2021~~2022 with ~~5,120 trucks~~5,185 tractors (or ~~62%~~63% of our total TTS segment ~~trucks)~~tractors) compared to ~~4,715 trucks~~4,920 tractors (or ~~61%~~64%) a year ago. ~~While we currently expect a flat to slightly lower truck count in fourth quarter 2021, we~~We expect our ~~truck~~tractor count at the end of ~~2021~~2022 to be in a range of 3%2% to 5% higher when compared to the fleet size at year end ~~2020.~~2021. We cannot predict whether future driver shortages, if any, will adversely affect our ability to ~~maintain~~grow 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 ~~65.1%~~68.2% to ~~$60.8~~$79.8 million in ~~third~~first quarter ~~2021~~2022 from ~~$36.8~~$47.5 million in ~~third~~first quarter ~~2020~~2021 due primarily to higher average diesel fuel prices ~~partially offset by fewer miles~~ in ~~third~~first quarter ~~2021.~~2022. These revenues represent collections from customers for the increase in fuel and fuel-related expenses, including the fuel component of our independent contractor cost (recorded as rent and purchased transportation expense) and fuel taxes (recorded in taxes and licenses expense), when diesel fuel prices rise.

Conversely, when fuel prices decrease, fuel surcharge revenues decrease. To lessen the effect of fluctuating fuel prices on our margins, we collect fuel surcharge revenues from our customers for the cost of

diesel fuel and taxes in excess of specified base fuel price levels according to terms in our customer contracts. Fuel surcharge rates generally adjust weekly based on an independent U.S. Department of Energy fuel price survey which is released every Monday. Our fuel surcharge programs are designed to (i) recoup higher fuel costs from customers when fuel prices rise and (ii) provide customers with the benefit of lower fuel costs when fuel prices decline. These programs generally enable us to recover a majority, but not all, of the fuel price increases. The remaining portion is generally not recoverable because it results from empty and out-of-route miles (which are not billable to customers) and ~~truck~~tractor idle time. Fuel prices that change rapidly in short time periods also impact our recovery because the surcharge rate in most programs only changes once per week.

Werner Logistics revenues are generated by its three operating units, following the sale of its WGL freight forwarding services for international ocean and air shipments in first quarter 2021. Werner Logistics revenues exclude revenues for full truckload shipments transferred to the TTS segment, which are recorded as trucking revenues by the TTS segment. Werner Logistics also recorded revenue and brokered freight expense of ~~$212~~$722 thousand in ~~third~~first quarter ~~2021~~2022 and ~~$30~~$134 thousand in ~~third~~first quarter ~~2020~~2021 for Intermodal drayage movements performed by the TTS segment (also recorded as trucking revenue by the TTS segment), and these transactions between reporting segments are eliminated in consolidation. In ~~third~~first quarter ~~2021,~~2022, Werner Logistics revenues increased ~~$40.6~~$51.2 million, or ~~34.6%, due to higher pricing and volume growth~~37.1%. Excluding WGL revenues from first quarter 2021, Logistics revenues in ~~Truckload Logistics and higher pricing in Intermodal, partially offset by a decrease in Intermodal volume.~~first quarter 2022 increased 55%. Truckload Logistics revenues ~~(73%~~(67% of total Logistics revenues) increased by ~~63%~~46% in ~~third~~first quarter ~~2021.~~2022. Truckload Logistics volume increased ~~23%~~19% in ~~third~~first quarter ~~2021,~~2022, and revenues per shipment increased ~~33%~~24%. Intermodal revenues ~~(25%~~(23% of Logistics revenues) increased ~~19%~~29% in ~~third~~first quarter ~~2021,~~2022, due to ~~25%~~37% higher revenues per shipment, partially offset by a decrease in volume of 5%6% due primarily to a decline in rail velocity, chassis shortages and increased dwell throughout the rail and customer networks. Final Mile revenues (10% of total Logistics revenues) increased $18.1 million in first quarter 2022, primarily due to growth from the November 2021 acquisition of NEHDS Logistics, LLC (“NEHDS”). The Werner Logistics operating margin percentage of ~~4.8%~~4.6% in ~~third~~first quarter ~~2021~~2022 increased from ~~(0.7)%~~3.3%, while operating income increased to ~~$7.7~~$8.7 million. We continue to expect our Werner Logistics segment to achieve inflated growth through this capacity-constrained period.

Our operating ratio (operating expenses expressed as a percentage of operating revenues) was 89.1% for the three months ended March 31, 2022 and 89.9% for the three months ended ~~September 30, 2021 and 89.5% for the three months ended September 30, 2020.~~March 31, 2021. Expense items that impacted the overall operating ratio are described on the following pages. The tables on pages 2419 through 2621 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, TTS and Werner Logistics.

Salaries, wages and benefits increased $37.1 million or ~~18.8%~~18.1% in ~~third~~first quarter 2022 compared to first quarter 2021 ~~compared to third quarter 2020~~ and decreased ~~0.1%~~1.6% as a percentage of operating revenues to ~~33.3%~~31.6%. The higher dollar amount of salaries, wages and benefits expense in the ~~third~~first quarter of ~~2021~~2022 was due primarily to increased driver pay, including: (i) driver pay rate increases, (ii) incentive recruiting bonuses, ~~and~~ (iii) minimum pay guarantees, and ~~higher benefits expense, including group health insurance. These increases were partially offset by 2.3~~(iv) the impact of 4.0 million ~~fewer~~more company ~~truck~~tractor miles in ~~third~~the first quarter ~~2021.~~of 2022. In January 2021, we implemented driver pay increases of approximately $10 million annually in our One-Way Truckload fleet, and another ~~driver~~ pay increase in August 2021 of approximately $11 million annually. ~~Within Dedicated, we~~We continue to implement driver pay increases as needed. ~~As a result, driver pay per company driver mile increased nearly 20%~~The increase in ~~third quarter 2021.~~salaries, wages and benefits was also due to an increase in the number of non-driver employees and higher benefits. Non-driver salaries, wages and benefits in ~~the~~our non-trucking Werner Logistics segment increased ~~10.3%.~~

47.3% as a result of increased employees to support the 37% growth of Logistics revenues and higher pay rates per employee.

We renewed our workers’ compensation insurance coverage on April 1, ~~2021.~~2022. Our coverage levels are the same as the prior policy year. We continue to maintain a self-insurance retention of $2.0 million per claim. Our workers’ compensation insurance premiums for the policy year beginning April ~~2021~~2022 are ~~$0.3~~$0.4 million higher than the premiums for the previous policy year.

Strong consumer demand combined with a severely constrained driver market is presenting labor challenges for customers and carriers alike and ~~became more~~remained challenging in ~~third~~first quarter ~~2021,~~2022, as the strong freight market caused increased competition for the finite number of experienced drivers that meet our hiring standards. Several ongoing market factors persisted including a declining number of, and increased competition for, driver training school graduates, aging truck driver demographics and increased truck safety regulations. We continue to take significant actions to strengthen our driver recruiting and retention as we strive to be the truckload employer of choice, including raising driver pay, providing a modern ~~truck~~tractor and trailer fleet with the latest safety equipment and technology, investing inand expanding our driver training school network and offering a wide variety of driving positions including daily and weekly home time opportunities. We are unable to predict whether we will experience future driver shortages or maintain our current driver retention rates. If such a driver shortage were to occur and additional

driver pay rate increases became necessary to attract and retain drivers, our results of operations would be negatively impacted to the extent that we could not obtain corresponding freight rate increases.

Fuel increased ~~$26.8~~$37.6 million or ~~70.5%~~73.9% in ~~third~~first quarter 2022 compared to first quarter 2021 ~~compared to third quarter 2020~~ and increased ~~2.8%~~3.4% as a percentage of operating revenues to ~~9.2%~~11.6% due to higher average diesel fuel prices ~~partially offset by approximately 2.3~~and 4.0 million ~~fewer~~

more company ~~truck~~tractor miles in ~~third~~first quarter ~~2021.~~2022. Average diesel fuel prices were ~~96 cents~~$1.27 per gallon higher in ~~third~~first quarter 2022 than in first quarter 2021 ~~than in third quarter 2020~~ and were 1264 cents per gallon higher than in ~~second~~fourth quarter 2021.

We continue to employ measures to improve our fuel mpg such as (i) limiting ~~truck~~tractor 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,~~tractors, more aerodynamic ~~truck~~tractor features, idle reduction systems, trailer tire inflation systems, trailer skirts and automated manual transmissions to reduce our fuel gallons purchased. However, fuel savings from mpg improvement is partially offset by higher depreciation expense and the additional cost of diesel exhaust fluid. Although our fuel management programs require significant capital investment and research and development, we intend to continue these and other environmentally conscious initiatives, including our active participation as an EPA SmartWay Transport Partner. The SmartWay Transport Partnership is a national voluntary program developed by the EPA and freight industry representatives to reduce greenhouse gases and air pollution and promote cleaner, more efficient ground freight transportation.

For ~~October 2021,~~April 2022, the average diesel fuel price per gallon was approximately $~~1.34 highe~~r$1.98 higher than the average diesel fuel price per gallon in ~~October 2020~~April 2021 and approximately ~~$1.21 higher~~$1.85 higher than in ~~fourth~~second quarter ~~2020.~~

Shortages of fuel, increases in fuel prices and petroleum product rationing can have a ~~materially~~material adverse effect on our operations and profitability. We are unable to predict whether fuel price levels will increase or decrease in the future or the extent to which fuel surcharges will be collected from customers. As of ~~September 30, 2021,~~March 31, 2022, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.

Supplies and maintenance increased ~~$13.1~~$10.9 million or ~~29.7%~~23.6% in ~~third~~first quarter 2022 compared to first quarter 2021 ~~compared to third quarter 2020~~ and ~~increased 0.6%~~remained flat as a percentage of operating revenues. ~~The higher dollar amount of supplies~~Supplies and maintenance expense ~~was~~increased due ~~primarily~~ to ~~higher maintenance~~increases in tractor and trailer parts and labor, tires, tolls, driving school costs, ~~driver lodging expenses~~travel, and driver ~~sourcing costs. Our driver sourcing costs were higher due to startup costs for our new and planned driving school location additions.~~

Insurance and claims increased ~~$4.4~~$5.4 million or ~~18.9%~~24.6% in ~~third~~first quarter ~~2021~~2022 compared to ~~third~~first quarter ~~2020~~2021 and remained flat as a percentage of operating revenues due primarily to a higher amount of unfavorable reserve development on ~~large~~small dollar claims, ~~and~~ higher liability insurance premiums of $1.9 ~~million.~~million, and increased claims. We also incurred insurance and claims expense of $1.3 million in ~~third~~both first quarter ~~2021~~2022 and ~~$1.2 million in third~~first quarter ~~2020~~2021 for accrued interest related to a previously-disclosed adverse jury verdict rendered May 17, 2018, which we are appealing (see Note 8 in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report). Interest is accrued at $0.4 million per month, until such time as the outcome of our appeal is finalized. The majority of our insurance and claims expense results from our claim experience and claim development under our self-insurance program; the remainder results from insurance premiums for claims in excess of our self-insured limits.

We renewed our liability insurance policies on August 1, 2021 and are responsible for the first $10.0 million per claim on all claims with an annual $10.0 million aggregate for claims between $10.0 million and $15.0 million. For the policy year that began August 1, 2020, we were responsible for the first $10.0 million per claim with no aggregates. We maintain liability insurance coverage with insurance carriers in excess of the $10.0 million per claim. Our liability insurance premiums for the policy year that began August 1, 2021 are $7.0 million higher than premiums for the previous policy year.

Depreciation and amortization expense increased ~~$5.6~~$3.3 million or ~~8.9%~~5.1% in ~~third~~first quarter 2022 compared to first quarter 2021 ~~compared to third quarter 2020~~ and decreased ~~0.9%~~1.6% as a percentage of operating revenues due primarily to depreciation and amortization on tangible and intangible assets recorded in the ECM ~~acquisition,~~and NEHDS acquisitions, partially offset by the impact of a change in accounting estimate ~~that was made~~effective January 1, 2022, which decreased depreciation expense by $3.1 million in first quarter 2022. During the first quarter ~~2020, which~~of 2022, we increased ~~third quarter 2020 depreciation expense by $0.9 million. During first quarter 2020, we changed~~ the estimated ~~life~~salvage value of ~~certain trucks to be sold in 2020 to more rapidly depreciate these truck to their estimated residual values~~our trailers by $5,000 per trailer due to the ~~weak~~ongoing stronger used ~~truck market. These trucks continued to depreciate at~~trailer market and the ~~same higher rate per truck until all were sold in 2020. This change in accounting estimate had no effect on third quarter 2021.~~

increasing cost of new trailers.

The average age of our ~~truck~~tractor fleet ~~remains low by industry standards and~~ was ~~2.1~~2.3 years as of ~~September 30, 2021,~~March 31, 2022, and the average age of our trailers was ~~4.4~~4.6 years. We are continuing to invest in new ~~trucks~~tractors and trailers and our terminals in ~~2021~~2022 to improve our driver experience, increase operational efficiency and more effectively manage our maintenance, safety and fuel costs. During the remainder of ~~2021,~~2022, we expect the average age of our ~~truck~~tractor and trailer fleet to remain at or near current levels, subject to potential delays in receiving new equipment.

Rent and purchased transportation expense increased ~~$29.2~~$38.7 million or ~~22.2%~~26.4% in ~~third~~first quarter 2022 compared to first quarter 2021 ~~compared to third quarter 2020~~ and increased ~~0.6%~~0.4% 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 TTS segment. The payments to third-party capacity providers generally vary depending on

changes in the volume of services generated by the Werner Logistics segment. Werner Logistics rent and purchased transportation expense increased ~~$30.3~~$37.0 million, and as a percentage of Werner Logistics revenues decreased to ~~85.5%~~83.3% in ~~third~~first quarter ~~2021~~2022 from ~~89.2%~~87.4% in ~~third~~first quarter ~~2020.~~

Rent and purchased transportation expense for the TTS segment ~~decreased $1.4~~increased $1.5 million in ~~third~~first quarter 2022 compared to first quarter 2021 ~~compared~~due primarily to third quarter 2020. Independent contractor miles decreased approximately 5.9 million miles in third quarter 2021 and as a percentage of total miles were 5.5% in third quarter 2021 compared to 8.2% in third quarter 2020. The lower expense resulting from fewer independent contractor miles was partially offset by an increase in the per-mile settlement rate for certain independent contractors ~~effective in first quarter 2021 and~~due to higher average diesel fuel prices. The higher expense was mostly offset by fewer independent contractor miles in first quarter 2022. Independent contractor miles decreased approximately 4.1 million miles in first quarter 2022 and as a percentage of total miles were 4.5% in first quarter 2022 compared to 6.7% in first quarter 2021. Because independent contractors supply their own tractors and drivers and are responsible for their operating expenses, the decrease in independent contractor miles as a percentage of total miles shifted costs from the rent and purchased transportation category to other expense categories, including (i) salaries, wages and benefits, (ii) fuel, (iii) depreciation, (iv) supplies and maintenance and (v) taxes and licenses.

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

Other operating expenses decreased ~~$12.9~~$7.4 million in ~~third~~first quarter 2022 compared to first quarter 2021 ~~compared to third quarter 2020~~ and decreased ~~1.9%~~0.7% as a percentage of operating revenues. Gains on sales of assets (primarily used ~~trucks~~tractors and trailers) are reflected as a reduction of other operating expenses and are reported net of sales-related expenses (which include costs to prepare the equipment for sale). Gains on sales of assets were ~~$15.3~~$20.5 million in ~~third~~first quarter ~~2021,~~2022, compared to ~~$3.9~~$10.5 million in ~~third~~first quarter ~~2020.~~2021. We realized substantially higher average gains per ~~truck~~tractor and trailer due to significantly improved pricing in the market for our used equipment, which we believe is a temporary result of increased demand for previously used equipment because of production delays limiting availability of new equipment in the industry. We sold fewer ~~trucks~~tractors and trailers in ~~third~~first quarter ~~2021~~2022 than in ~~third~~first quarter 2020. We expect gains on sales of assets to decrease to a range of $10 million to $12 million in fourth quarter 2021, as we anticipate selling fewer used trucks and trailers due to continued production delays lowering our new truck and trailer deliveries.

Other Expense (Income)

Other ~~expense (income) decreased $15.7~~net expenses increased $10.5 million in ~~third~~first quarter ~~2021~~2022 compared to ~~third~~first quarter ~~2020~~2021 due primarily to a ~~$16.1~~$9.8 million ~~net~~ unrealized ~~gain~~loss recognized on our investments in ~~Mastery Logistics Systems, Inc. (“MLSI”), a transportation management systems company, and TuSimple, an autonomous technology company, in third quarter 2021~~equity securities (see Note 6 in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report). and a $0.6 million increase in interest expense. Interest expense increased ~~$0.4 million in third quarter 2021 compared to third quarter 2020~~ due to higher average debt outstanding, ~~debt~~partially offset by a decrease in the ~~2021 period.~~

average effective interest rate incurred on our debt.

Income ~~Taxes~~Tax Expense

Our effective income tax rate (income taxes expressed as a percentage of income before income taxes) was ~~24.6%~~24.1% in ~~both third~~first quarter ~~2021 and third quarter 2020.~~

~~Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020~~

~~Operating Revenues~~

~~Operating revenues increased 12.4% for the nine months ended September 30, 2021,~~2022 compared to ~~the same period of the prior year. When comparing the~~24.9% in first ~~nine months of 2021 to the~~quarter 2021. The lower income tax rate in first nine months of 2020, TTS segment revenues increased $113.7 million, or 8.3%, and Werner Logistics revenues increased $97.8 million, or 28.8%. In the TTS segment, trucking revenues, net of fuel surcharge, increased $67.3 million, or 5.5%, duequarter 2022 was attributed primarily to a ~~3.8% increase~~higher amount of favorable discrete income tax items in ~~average revenues per tractor per week~~the first quarter 2022 and the income tax effect of the noncontrolling interest.

Liquidity and Capital Resources:

We closely manage our liquidity and capital resources. Our liquidity requirements depend on key variables, including the level of investment needed to support business strategies, the performance of the business, capital expenditures, borrowing arrangements, and working capital management. Capital expenditures, stock repurchases, and dividend payments are components of our cash flow and capital management strategy, which to a ~~1.6% increase~~large extent, can be adjusted in ~~average tractors~~response to economic and other changes in ~~service. TTS segment fuel surcharge revenues~~the business environment. Management’s approach to capital allocation focuses on investing in key priorities that support our business and growth strategies and providing shareholder returns, while funding ongoing operations.

Management believes our financial position at March 31, 2022 is strong. As of March 31, 2022, we had $125.9 million of cash and cash equivalents and over $1.3 billion of stockholders’ equity. Cash is invested primarily in government portfolio money market funds. In addition, we have two $300.0 million revolving credit facilities, for which our total available borrowing capacity was $316.1 million as of March 31, 2022 (see Note 7 in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report for information regarding our credit agreements). We believe our liquid assets, cash generated from operating activities, and borrowing capacity under our existing credit facilities will provide sufficient funds to meet our cash requirements and our planned shareholder returns for the ~~nine months ended September 30, 2021 increased $43.6 million or 35.7% when compared to the nine months ended September 30, 2020 due to higher average diesel fuel prices in the 2021 period.~~

~~Operating Expenses~~

Our operating ratio (operating expenses expressed as a percentage of operating revenues) was 89.3% for the nine months ended September 30, 2021 and 91.7% for the nine months ended September 30, 2020. Expense items that impacted the overall operating ratio are described on the following pages. The tables on pages 24 through 26 show the consolidated statements offoreseeable future.

~~income~~Item 7 of Part II of our 2021 Form 10-K includes our disclosure of material cash requirements as of December 31, 2021. On March 25, 2022, we entered into a new credit agreement, replacing a previous credit agreement, and we amended an existing credit agreement. These changes increased our borrowing capacity by $200.0 million. See Note 7 in ~~dollars and as a percentage~~the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of ~~total operating revenues~~this report for further details regarding our debt and the ~~percentage increase or decrease~~timing of expected future principal payments. Except for the changes related to our credit agreements, there were no other material changes in the ~~dollar amounts~~nature of ~~those~~these items ~~compared to~~during the ~~same quarter of the prior year, as well as the operating ratios, operating margins, and certain statistical information for our two reportable segments, TTS and Werner Logistics.~~

Salaries, wages and benefits increased $51.1 million or 8.5% in the first nine months of 2021 compared to first nine months of 2020 and decreased 1.1% as a percentage of operating revenues to 33.0%. The higher dollar amount of salaries, wages and benefits expense was due primarily to increased driver pay rates and higher benefits expense, partially offset by 21.1 million fewer company truck miles in the first nine months of 2021. As a result, driver pay per company driver mile increased 12% in the first nine months of 2021. Non-driver salaries, wages and benefits in the non-trucking Werner Logistics segment decreased 3.4%.

Fuel increased $56.7 million or 48.3% in the first nine months of 2021 compared to the same period in 2020 and increased 2.1% as a percentage of operating revenues due to higher average diesel fuel prices, partially offset by approximately 21.1 million fewer company truck miles in the first nine months of 2021. Average diesel fuel prices were 76 cents per gallon higher in the first nine months of 2021 than in the same 2020 period.

Supplies and maintenance increased $19.5 million or 14.7% in the first nine months of 2021 compared to same period in 2020 and increased 0.1% as a percentage of operating revenues. The higher dollar amount of supplies and maintenance expense was due primarily to higher driver and placement driver-related costs such as driver lodging and advertising.

Insurance and claims decreased $14.7 million or 17.2% in the first nine months of 2021 compared to the same period in 2020 and decreased 1.3% as a percentage of operating revenues due primarily to lower expense for new large dollar claims and a lower amount of unfavorable development on large dollar claims, partially offset by higher liability insurance premiums of $5.9 million. In January 2020, one of our trucks was involved in a serious accident. We self-insure for the first $10.0 million of liability coverage for this policy period and have appropriate excess liability coverage with insurance carriers above that amount. As a result, we recorded $10.0 million of insurance and claims expense in first quarter 2020 for this accident.

Depreciation and amortization expense decreased $3.1 million or 1.5% in the first nine months of 2021 compared to the same period in 2020 and decreased 1.4% as a percentage of operating revenues due primarily to the impact of a change in accounting estimate that was made in the first quarter 2020, which increased depreciation expense for the first nine months of 2020 by $9.6 million. The impact of the prior year increase in depreciation was partially offset by depreciation and amortization on assets recorded in the ECM acquisition. During first quarter 2020, we changed the estimated life of certain trucks to be sold in 2020 to more rapidly depreciate these truck to their estimated residual values due to the weak used truck market. These trucks continued to depreciate at the same higher rate per truck until all were sold in 2020. This change in accounting estimate had no effect on the first nine months of 2021.

Rent and purchased transportation expense for the TTS segment decreased $6.8 million in the first nine months of 2021 compared to the same period in 2020. Independent contractor miles decreased approximately 17.2 million miles in the ninethree months ended September 30, 2021. The lower expense resulting from fewer independent contractor miles was partially offset by an increase in the per-mile settlement rate for certain independent contractors effective in first quarter 2021 and higher average diesel fuel prices. Werner Logistics rent and purchased transportation expense increased $86.5 million as a result of higher logistics revenues and higher spot truckload and dray rates and increased to 86.8% as a percentage of Werner Logistics revenues in the 2021 period from 86.4% in the 2020 period.March 31, 2022.

Other operating expenses decreased $35.8 million in the first nine months of 2021 compared to the same period in 2020 and decreased 1.9% as a percentage of operating revenues. Gains on sales of assets were $40.3 million in the nine months ended September 30, 2021, compared to $7.3 million in the nine months ended September 30, 2020. We realized substantially higher average gains per truck and trailer due to improved pricing in the market for our used equipment, which we believe is a temporary result of increased demand for previously used equipment because of production delays limiting availability of new equipment in the industry. We sold more trucks and fewer trailers in the first nine months of 2021 than in the same period in 2020. We also realized a $1.0 million gain from the sale of WGL in first quarter 2021.

~~Other Expense (Income)~~

Other expense (income) decreased $36.7 million in the first nine months of 2021 compared to the same 2020 period due primarily to $36.3 million net unrealized gains recognized on our investments in MLSI and TuSimple in the first nine months of 2021. Interest expense decreased $0.8 million in the first nine months of 2021 compared to the first nine months of 2020 due to a decrease in the average effective interest rate on our variable-rate debt in the 2021 period.

Our effective income tax rate (income taxes expressed as a percentage of income before income taxes) was 25.0% for the first nine months of 2021 compared to 24.4% for the first nine months of 2020. The higher income tax rate in the year-to-date 2021 period was attributed primarily to a lower amount of favorable discrete income tax items in the 2021 period.

~~Liquidity and Capital Resources:~~Cash Flows

During the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, we generated cash flow from operations of ~~$253.3~~$155.0 million, a ~~26.9%~~14.1% or ~~$93.1~~$19.1 million ~~decrease~~increase in cash flows compared to the same ~~nine-month~~three-month period a year ago. The ~~decrease~~increase in net cash provided by operating activities was due primarily to increased cash flows from working capital ~~changes resulting from changes in accounts receivable~~ and higher ~~federal and state estimated income tax payments.~~net income. We were able to make net capital expenditures, repay debt, pay dividends and repurchase company stock with the net cash provided by operating activities and existing cash balances.

Net cash used in investing activities was ~~$308.9~~$34.5 million for the ~~nine-month~~three-month period ended ~~September 30, 2021~~March 31, 2022 compared to ~~$181.0~~$41.3 million ~~for~~during the ~~nine-month~~same period ~~ended September 30, 2020. Net cash invested~~ in ~~our ECM acquisition was $141.3 million.~~2021. Net property additions (primarily revenue equipment) were ~~$162.7~~$37.1 million for the ~~nine-month~~three-month period ended ~~September 30, 2021,~~March 31, 2022, compared to ~~$187.3~~$37.9 million during the same period of ~~2020.~~2021. We currently estimate net capital expenditures (primarily revenue equipment) in ~~2021~~2022 to be in the range of $250 million to ~~$275~~$300 million, compared to net capital expenditures in ~~2020~~2021 of ~~$266.2~~$193.0 million. ~~We expect to receive fewer new trucks and trailers in 2021 than originally planned, because of resource challenges experienced by our equipment manufacturers.~~ We intend to fund these net capital expenditures through cash flow from operations and financing available under our existing credit facilities, if necessary. As of ~~September 30, 2021,~~March 31, 2022, we were committed to property and equipment purchases of approximately ~~$109.7~~$182.3 million.

Net financing activities ~~provided $71.9~~used $49.0 million during the ~~nine~~three months ended ~~September 30, 2021, and used $156.4~~March 31, 2022, compared to $40.4 million during the same period in ~~2020.~~2021. We had net ~~borrowings~~repayments on our debt of ~~$150.0~~$1.3 million during the ~~nine~~three months ended ~~September 30, 2021, bringing~~March 31, 2022, reducing our outstanding debt at ~~September 30, 2021~~March 31, 2022 to ~~$350.0 million. The proceeds were used to finance the July 1, 2021 purchase of ECM. We~~$426.3 million, and repaid ~~$125.0~~$25.0 million of debt during the ~~nine months ended September 30, 2020.~~same period in 2021. We paid dividends of ~~$21.1~~$7.9 million in the ~~nine-month~~three-month period ended ~~September 30, 2021~~March 31, 2022 and ~~$18.7~~$6.1 million during the same period in ~~the nine-month period ended September 30, 2020.~~2021. We ~~increased~~currently plan to continue paying our quarterly dividend, ~~rate by $0.01 per share, or 11% beginning with the~~which we have paid quarterly ~~dividend paid in May 2021, and we increased our quarterly dividend rate by $0.02 per share, or 20%, beginning with the quarterly dividend paid in July 2021.~~ since 1987.

Financing activities for the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, also included common stock repurchases of ~~1,179,566~~845,100 shares at a cost of ~~$53.3~~$36.2 million. The Company has repurchased, and may continue to repurchase, shares of the Company’s common stock. The timing and amount of such purchases depend upon economic and stock market conditions and other factors. As of ~~September 30, 2021,~~March 31, 2022, the Company had purchased ~~3,362,558~~1,822,986 shares pursuant to our current Board of Directors repurchase authorization and had ~~1,637,442~~4,177,014 shares remaining available for repurchase.

Management believes our financial position at September 30, 2021 is strong. As of September 30, 2021, we had $45.4 million of cash and cash equivalents and over $1.3 billion of stockholders’ equity. Cash is invested primarily in government portfolio money market funds. As of September 30, 2021, we had a total borrowing capacity of $600.0 million under our credit facilities (see Note 7 in the Notes to Consolidated Financial Statements (Unaudited) under Item I of Part I of this Form 10-Q), of which we had borrowed $350.0 million. Subsequent to the end of the quarter, in October 2021, we borrowed an additional $50 million under our credit facilities. The remaining $250.0 million of credit available under the facilities at September 30, 2021 is reduced by the $50.9 million in stand-by letters of credit under which we are obligated. These stand-by letters of credit are primarily required as security for insurance policies. We believe our liquid assets, cash generated from operating activities, and borrowing capacity under our credit facilities will provide sufficient funds for our operating and capital needs for the foreseeable future.

~~Contractual Obligations and Commercial Commitments:~~

Item 7 of Part II of our 2020 Form 10-K includes our disclosure of contractual obligations and commercial commitments as of December 31, 2020. Except for amending our existing debt agreements and entering into a new debt agreement with additional borrowings under such agreements, and the associated future interest expense, as disclosed in Note 7 in the Notes to Consolidated Financial Statements (Unaudited) under Item I of Part I of this Form 10-Q, there were no material changes in the nature of these items during the nine months ended September 30, 2021.

Item 1 of Part I of our ~~2020~~2021 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 the proposed regulations previously disclosed in the ~~2020~~2021 Form 10-K.

Critical Accounting 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 Estimates can be found in our ~~2020~~2021 Form 10-K. Estimates of accrued liabilities for insurance and claims for bodily injury, property damage and workers’ compensation is a critical accounting estimate that requires us to make significant judgments and estimates and affects our financial statements.

There have been no material changes to this critical accounting estimate from that discussed in our ~~2020~~2021 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, regulatory changes, seasonality, weather and other market factors. Historically, we have recovered a majority, but not all, of fuel price increases from customers in the form of fuel surcharges. We implemented customer fuel surcharge programs with most of our customers to offset much of the higher fuel cost per gallon. However, we do not recover all of the fuel cost increase through these surcharge programs.

As of March 31, 2022, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.

Foreign Currency Exchange Rate Risk

We conduct business in foreign countries, primarily in Mexico. To date, most foreign revenues are denominated in U.S. Dollars, and we receive payment for foreign freight services primarily in U.S. Dollars to reduce direct foreign currency risk. Assets and liabilities maintained by a foreign subsidiary company in the local currency are subject to foreign exchange gains or losses. Foreign currency translation gains and losses primarily relate to changes in the value of revenue equipment owned by a subsidiary in Mexico, whose functional currency is the Peso. Foreign currency translation gains were $1.2 million for first quarter 2022 and foreign currency translation losses were ~~$1.1~~$1.6 million for ~~third~~first quarter ~~2021 and gains were $0.8 million for third quarter 2020.~~2021. These were recorded in accumulated other comprehensive loss within stockholders’ equity in the consolidated condensed balance sheets.

We manage interest rate exposure through a mix of variable interest rate debt and interest rate swap agreements. We had $150 million of variable interest rate debt outstanding at ~~September 30, 2021,~~March 31, 2022, for which the interest rate is effectively fixed at 2.34% through May 2024 with two interest rate swap agreements to reduce our exposure to interest rate ~~increases, and~~increases. In addition, we had ~~$100~~$180 million of ~~debt outstanding at September 30, 2021 at a fixed rate of 1.28%. We had $100 million of~~ variable interest rate debt outstanding at ~~September 30, 2021.~~March 31, 2022. Interest rates on the variable rate debt and our unused credit facilities are based on the ~~LIBOR.~~Secured Overnight Financing Rate (“SOFR”). See Note 7 in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report for further detail of our debt. Assuming this level of borrowing, a hypothetical one-percentage point increase in the ~~LIBOR~~SOFR interest rate would increase our annual interest expense by approximately ~~$1.0~~$1.8 million.

Due to uncertainty surrounding the suitability and sustainability of LIBOR, central banks and global regulators have called for financial market participants to prepare for the discontinuation of LIBOR. On March 5, 2021, ICE Benchmark Administration ratified its proposal on ceasing publication of one-week and two-month settings of the USD LIBOR benchmark at the end of December 2021, and ceasing publication of the remaining overnight and one-, three-, six- and 12-month USD LIBOR settings at the end of the June 2023. LIBOR is a widely-referenced benchmark rate, and our unsecured credit facilities are referenced to LIBOR. We are communicating with our banks regarding the eventual transition to a new benchmark rate.

Item 4. Controls and Procedures.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). Our disclosure controls and procedures are designed to provide reasonable assurance of achieving the desired

control objectives. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at a reasonable assurance level in enabling us to record, process, summarize and report information required to be included in our periodic filings with the U.S. Securities and Exchange Commission (SEC) within the required time period and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

During the first quarter 2022, we migrated our core finance general ledger function to a new system. As a result of this implementation, there were certain changes to processes and procedures, which resulted in material changes to our internal control over financial reporting since management's last assessment of the our internal control over financial reporting, which was completed as of December 31, 2021.

Management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, concluded that no other 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.

Item 1. Legal Proceedings.

For information regarding legal proceedings, see Note 8 in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report.

Item 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed under Item 1A (Risk Factors) in our ~~2020~~2021 Form 10-K, which could materially affect our business, financial condition, and future results of operations. The risks described in ~~this Form 10-Q and in~~ our ~~2020~~2021 Form 10‑K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and results of operations. ~~In addition to~~

There have been no material changes from the risk factors ~~set forth~~disclosed in our ~~2020~~2021 Form ~~10-K, we believe the following risks and uncertainties should be considered in evaluating our business.~~

~~The new OSHA rule concerning COVID-19 vaccination/testing of employees could have a material adverse effect on our business, financial condition, and results of operations.~~

In September 2021, President Biden announced a proposed new rule requiring all employers with at least 100 employees to ensure that their employees are fully vaccinated or require any employees who remain unvaccinated to produce a negative COVID-19 test result on at least a weekly basis before coming to work. The Department of Labor’s Occupational Safety and Health Administration ("OSHA") released the corresponding Emergency Temporary Standard (“ETS”) on November 4, 2021. After the ETS release, the Department of Labor clarified that truck drivers traveling alone are exempt from the ETS. Approximately 10% of our trucks have two professional drivers in the same truck. Although we are continuing to seek clarity on the ETS, it appears drivers who are in a truck together will be subject to the ETS, which means weekly testing and mask usage, if not vaccinated. The masking portion of the ETS goes into effect on December 5, 2021. The weekly testing requirement becomes effective on January 4, 2022. The ETS could, among other things, (i) cause our unvaccinated employees to go to smaller employers, not subject to the ETS, or leave us or the trucking industry, (ii) result in logistical issues, increased expenses, and operational issues from arranging for weekly tests of our unvaccinated employees who are subject to the rule, especially our unvaccinated drivers, (iii) result in increased costs for recruiting and retention of drivers, and (iv) result in decreased revenue if we are unable to recruit and retain new drivers due to the ETS. It is expected that the ETS could reduce the pool of available drivers to us and our industry, which would further impact the extreme shortage of available drivers. Furthermore, we already have seen legal challenges to the ETS, and there are more challenges to the ETS being threatened by trade associations and states’ attorneys general. Those challenges might block, alter, or delay the ETS. These uncertainties are likely to cause additional issues with compliance. Depending on the final resolution of these various unknowns, the ETS could have a material adverse effect on our business, financial condition, and results of operations.

~~Difficulty in obtaining materials, equipment, goods, and services from our vendors and suppliers could adversely affect our business.~~

We are dependent on our vendors and suppliers. We believe we have good vendor relationships and that we are generally able to obtain favorable pricing and other terms from vendors and suppliers. If we fail to maintain satisfactory relationships with our vendors and suppliers, or if our vendors and suppliers are unable to provide the products and materials we need or experience significant financial problems, we could experience difficulty in obtaining needed goods and services because of production interruptions, limited material availability, or other reasons. Currently, tractor and trailer manufacturers are experiencing significant shortages of semiconductor chips and other component parts and supplies, forcing many manufacturers to reduce or suspend their production, which has led to a lower supply of tractors and trailers, higher prices, and lengthened trade cycles, which could have a material adverse effect on our business, financial condition, and results of operations, particularly our maintenance expense, mileage productivity, and driver retention.10-K.

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

On ~~May 14, 2019,~~November 9, 2021, our Board of Directors approved and announced a new stock repurchase program under which the Company is authorized to repurchase up to ~~5,000,000~~6,000,000 shares of its common stock. As of ~~September 30, 2021,~~March 31, 2022, the Company had purchased ~~3,362,558~~1,822,986 shares pursuant to this authorization and had ~~1,637,442~~4,177,014 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 ~~third~~first quarter ~~2021~~2022 made pursuant to this authorization. The Company did not purchase any shares during ~~third~~first quarter ~~2021~~2022 other than pursuant to this authorization. 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 (of 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
July 1-31, 2021 — $ — — 2,686,562
August 1-31, 2021 752,004 $ 45.33 752,004 1,934,558
September 1-30, 2021 297,116 $ 46.00 297,116 1,637,442
Total 1,049,120 $ 45.52 1,049,120 1,637,442


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
January 1-31, 2022	—	$	—	—	5,022,114
February 1-28, 2022	414,522	$	43.27	414,522	4,607,592
March 1-31, 2022	430,578	$	42.37	430,578	4,177,014
Total	845,100	$	42.81	845,100

Exhibit No.

Exhibit

Incorporated by Reference to:

101

The following unaudited financial information from Werner Enterprises’ Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2021,~~March 31, 2022, formatted in iXBRL (Inline Extensible Business Reporting Language) includes: (i) Consolidated Statements of Income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and September 30, 2020,~~ (ii) Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and September 30, 2020,~~ (iii) Consolidated Condensed Balance Sheets as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, (iv) Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and September 30, 2020,~~ (v) Consolidated Statements of Stockholders’ Equity and Temporary Equity - Redeemable Noncontrolling Interest for the three months ended ~~September 30, 2021, June 30, 2021,~~ March 31, ~~2021, September 30, 2020, June 30, 2020~~2022 and ~~March 31, 2020,~~2021, and (vi) the Notes to Consolidated Financial Statements (Unaudited) as of ~~September 30, 2021.~~March 31, 2022.

104

The cover page from this Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2021,~~March 31, 2022, formatted in Inline XBRL (included as Exhibit 101).

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


	WERNER ENTERPRISES, INC.

Date: ~~November~~May 9, ~~2021~~2022	By:	/s/ John J. Steele
		John J. Steele
		Executive Vice President, Treasurer and Chief Financial Officer

Date: ~~November~~May 9, ~~2021~~2022	By:	/s/ James L. Johnson
		James L. Johnson
		Executive Vice President, Chief Accounting Officer and Corporate Secretary


		PAGE
PART I – FINANCIAL INFORMATION
	Cautionary Note Regarding Forward-Looking Statements	3
Item 1.	Financial Statements:	34
	Consolidated Statements of Income for the Three ~~and Nine~~ Months Ended ~~September 30, 2021~~March 31 , 202 2 and ~~2020~~202 1	4
	Consolidated Statements of Comprehensive Income for the Three ~~and Nine~~ Months Ended ~~September 30, 2021~~March 3 1 , 202 2 and ~~2020~~202 1	5
	Consolidated Condensed Balance Sheets as of ~~September 30, 2021~~March 31 , 202 2 and December 31, ~~2020~~202 1	6
	Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30, 2021~~March 3 1 , 202 2 and ~~2020~~202 1	7
	Consolidated Statements of Stockholders’ Equity and Temporary Equity - Redeemable Noncontrolling Interest for the Three Months Ended ~~September 30, 2021, June 30, 2021,~~ March 31, ~~2021, September 30, 2020, June 30, 2020~~202 2 and ~~March 31, 2020~~ 202 1	8
	Notes to Consolidated Financial Statements (Unaudited) as of ~~September 30, 2021~~March 3 1 , 202 2	109
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2217
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3226
Item 4.	Controls and Procedures	3226
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	3427
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3427
Item 6.	Exhibits	3628


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


(In thousands, except share amounts)	September 30, 2021		December 31, 2020
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	45,428	$	29,334
Accounts receivable, trade, less allowance of $9,233 and $8,686, respectively	426,346		341,104
Other receivables	26,524		23,491
Inventories and supplies	11,787		12,062
Prepaid taxes, licenses and permits	8,140		17,231
Other current assets	51,566		33,694
Total current assets	569,791		456,916
Property and equipment	2,515,378		2,405,335
Less – accumulated depreciation	908,852		862,077
Property and equipment, net	1,606,526		1,543,258
Goodwill	44,710		—
Intangible assets, net	50,974		—
Other non-current assets	207,140		156,502
Total assets	$	2,479,141	$	2,156,676
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	92,425	$	83,263
Current portion of long-term debt	6,250		25,000
Insurance and claims accruals	70,073		76,917
Accrued payroll	43,397		35,594

Accrued expenses	27,574		25,032
Other current liabilities	21,509		28,208
Total current liabilities	261,228		274,014
Long-term debt, net of current portion	343,750		175,000
Other long-term liabilities	43,656		43,114
Insurance and claims accruals, net of current portion	234,000		231,638

Deferred income taxes	253,335		237,870
Total liabilities	1,135,969		961,636
Commitments and contingencies	0		0
Temporary equity - redeemable noncontrolling interest	36,615		—
Stockholders’ equity:
Common stock, $0.01 par value, 200,000,000 shares authorized; 80,533,536 shares
issued; 66,884,251 and 67,931,726 shares outstanding, respectively	805		805
Paid-in capital	119,776		116,039
Retained earnings	1,598,232		1,438,916
Accumulated other comprehensive loss	(21,592)		(22,833)
Treasury stock, at cost; 13,649,285 and 12,601,810 shares, respectively	(390,664)		(337,887)
Total stockholders’ equity	1,306,557		1,195,040
Total liabilities, temporary equity and stockholders’ equity	$	2,479,141	$	2,156,676


	Estimated Fair Value (in thousands)		Weighted-Average Estimated Amortization Period (Years)
Customer relationships	$	33,200	10
Trade names	19,000		12
Total intangible assets	$	52,200


(In thousands)	September 30, 2021
Maturity of Lease Liabilities
2021 (remaining)	$	1,240
2022	4,384
2023	2,959
2024	2,144
2025	1,617
Thereafter	2,711
Total undiscounted operating lease payments	$	15,055
Less: Imputed interest	(1,010)
Present value of operating lease liabilities	$	14,045

Balance Sheet Classification
Right-of-use assets (recorded in other non-current assets)	$	13,580

Current lease liabilities (recorded in other current liabilities)	$	4,305
Long-term lease liabilities (recorded in other long-term liabilities)	9,740
Total operating lease liabilities	$	14,045

Other Information
Weighted-average remaining lease term for operating leases	4.90 years
Weighted-average discount rate for operating leases	2.91		%


2021 (remaining)	$	2,500
2022	5,000
2023	5,000
2024	337,500
2025	—
Total	$	350,000


	Number of Restricted Awards (in thousands)	Weighted Average Grant Date Fair Value ($)
Nonvested at beginning of period	367	$	35.78
Granted	130	41.96
Vested	(123)	35.09
Forfeited	(13)	36.88
Nonvested at end of period	361	38.20


	Three Months Ended September 30,								Nine Months Ended September 30,
Truckload Transportation Services segment	2021			2020			% Change		2021			2020			% Change
Average tractors in service	8,161			7,615			7.2	%	7,872			7,746			1.6	%
Average revenues per tractor per week (1)	$	4,349		$	4,216		3.2	%	$	4,236		$	4,082		3.8	%
Total tractors (at quarter end)
Company	7,905			7,245			9.1	%	7,905			7,245			9.1	%
Independent contractor	315			465			(32.3)	%	315			465			(32.3)	%
Total tractors	8,220			7,710			6.6	%	8,220			7,710			6.6	%
Total trailers (at quarter end)	25,245			22,350			13.0	%	25,245			22,350			13.0	%

One-Way Truckload
Trucking revenues, net of fuel surcharge (in 000’s)	$	190,314		$	173,021		10.0	%	$	513,324		$	518,854		(1.1)	%
Average tractors in service	3,110			3,048			2.0	%	2,894			3,156			(8.3)	%
Total tractors (at quarter end)	3,100			2,995			3.5	%	3,100			2,995			3.5	%
Average percentage of empty miles	11.17		%	11.70		%	(4.5)	%	11.08		%	12.18		%	(9.0)	%
Average revenues per tractor per week (1)	$	4,708		$	4,366		7.8	%	$	4,549		$	4,215		7.9	%
Average % change in revenues per total mile (1)	21.8		%	2.9		%			16.2		%	(0.9)		%
Average % change in total miles per tractor per week	(11.4)		%	1.4		%			(7.2)		%	2.0		%
Average completed trip length in miles (loaded)	731			866			(15.6)	%	814			847			(3.9)	%

Dedicated
Trucking revenues, net of fuel surcharge (in 000’s)	$	271,066		$	244,314		10.9	%	$	787,231		$	714,413		10.2	%
Average tractors in service	5,051			4,567			10.6	%	4,978			4,590			8.5	%
Total tractors (at quarter end)	5,120			4,715			8.6	%	5,120			4,715			8.6	%
Average revenues per tractor per week (1)	$	4,129		$	4,115		0.3	%	$	4,055		$	3,990		1.6	%


Period	Total Number of Shares (of 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
July 1-31, 2021	—	$	—	—	2,686,562
August 1-31, 2021	752,004	$	45.33	752,004	1,934,558
September 1-30, 2021	297,116	$	46.00	297,116	1,637,442
Total	1,049,120	$	45.52	1,049,120	1,637,442