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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2019
OR

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

Commission File Number: 0-14690

WERNER ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)

Nebraska |  | 47-0648386
(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)

(402) 895-6640
(Registrant’s telephone number, including area code)

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

Title of each class |  | Trading Symbol(s) |  | Name of each exchange on which registered
Common Stock, $0.01 Par Value |  | WERN |  | The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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 October 28, 2019, 69,204,715 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.

Table of Contents
WERNER ENTERPRISES, INC.
INDEX

|  | PAGE
PART I – FINANCIAL INFORMATION |
Item 1. | Financial Statements: | 3
| Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2019 and 2018 | 4
| Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018 | 5
| Consolidated Condensed Balance Sheets as of September 30, 2019 and December 31, 2018 | 6
| Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018 | 7
| Consolidated Statements of Stockholders’ Equity for the Three Months Ended September 30, 2019, June 30, 2019, March 31, 2019, September 30, 2018, June 30, 2018, and March 31, 2018 | 8
| Notes to Consolidated Financial Statements (Unaudited) as of September 30, 2019 | 10
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 29
Item 4. | Controls and Procedures | 30
PART II – OTHER INFORMATION |
Item 1. | Legal Proceedings | 31
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 31
Item 6. | Exhibits | 32

2

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PART I
FINANCIAL INFORMATION
Cautionary Note Regarding Forward-Looking Statements:
This Quarterly Report on Form 10-Q contains historical information and forward-looking statements based on information currently available to our management. The forward-looking statements in this report, including those made in Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of Part I, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. These safe harbor provisions encourage reporting companies to provide prospective information to investors. Forward-looking statements can be identified by the use of certain words, such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project” and other similar terms and language. We believe the forward-looking statements are reasonable based on currently available information. However, forward-looking statements involve risks, uncertainties and assumptions, whether known or unknown, that could cause our actual results, business, financial condition and cash flows to differ materially from those anticipated in the forward-looking statements. A discussion of important factors relating to forward-looking statements is included in Item 1A (Risk Factors) of Part I of our Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Form 10-K”). Readers should not unduly rely on the forward-looking statements included in this Form 10-Q because such statements speak only to the date they were made. Unless otherwise required by applicable securities laws, we undertake no obligation or duty to update or revise any forward-looking statements contained herein to reflect subsequent events or circumstances or the occurrence of unanticipated events.
Item 1. Financial Statements.
The interim consolidated financial statements contained herein reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the financial condition, results of operations and cash flows for the periods presented. The interim consolidated financial statements have been prepared in accordance with the U.S. Securities and Exchange Commission (“SEC”) instructions to Form 10-Q and were also prepared without audit. The interim consolidated financial statements do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements; although in management’s opinion, the disclosures are adequate so that the information presented is not misleading.
Operating results for the three-month and nine-month periods ended September 30, 2019, are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. In the opinion of management, the information set forth in the accompanying consolidated condensed balance sheets is fairly stated in all material respects in relation to the consolidated balance sheets from which it has been derived.
These interim consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and accompanying notes contained in our 2018 Form 10-K.
3

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WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME

| Three Months Ended September 30, |  | Nine Months Ended September 30,
(In thousands, except per share amounts) | 2019 |  | 2018 |  | 2019 |  | 2018
| (Unaudited)
Operating revenues | $ | 618,264 |  |  | $ | 629,735 |  |  | $ | 1,841,914 |  |  | $ | 1,811,549 |
Operating expenses: |  |  |  |  |  |  |
Salaries, wages and benefits | 209,586 |  |  | 201,606 |  |  | 618,386 |  |  | 580,515 |
Fuel | 59,518 |  |  | 67,072 |  |  | 176,720 |  |  | 191,769 |
Supplies and maintenance | 46,907 |  |  | 47,136 |  |  | 136,963 |  |  | 138,556 |
Taxes and licenses | 24,244 |  |  | 18,463 |  |  | 70,788 |  |  | 63,607 |
Insurance and claims | 21,930 |  |  | 22,011 |  |  | 65,631 |  |  | 73,858 |
Depreciation | 62,620 |  |  | 58,382 |  |  | 184,816 |  |  | 170,439 |
Rent and purchased transportation | 134,797 |  |  | 147,870 |  |  | 413,809 |  |  | 435,225 |
Communications and utilities | 3,892 |  |  | 3,993 |  |  | 11,806 |  |  | 12,028 |
Other | 1,413 |  |  | (184 | ) |  | 3,177 |  |  | (3,732 | )
Total operating expenses | 564,907 |  |  | 566,349 |  |  | 1,682,096 |  |  | 1,662,265 |
Operating income | 53,357 |  |  | 63,386 |  |  | 159,818 |  |  | 149,284 |
Other expense (income): |  |  |  |  |  |  |
Interest expense | 2,408 |  |  | 870 |  |  | 4,695 |  |  | 1,842 |
Interest income | (756 | ) |  | (646 | ) |  | (2,648 | ) |  | (2,079 | )
Other | 47 |  |  | 41 |  |  | (11 | ) |  | 172 |
Total other expense (income) | 1,699 |  |  | 265 |  |  | 2,036 |  |  | (65 | )
Income before income taxes | 51,658 |  |  | 63,121 |  |  | 157,782 |  |  | 149,349 |
Income taxes | 12,614 |  |  | 15,607 |  |  | 39,334 |  |  | 35,764 |
Net income | $ | 39,044 |  |  | $ | 47,514 |  |  | $ | 118,448 |  |  | $ | 113,585 |
Earnings per share: |  |  |  |  |  |  |
Basic | $ | 0.56 |  |  | $ | 0.67 |  |  | $ | 1.70 |  |  | $ | 1.58 |
Diluted | $ | 0.56 |  |  | $ | 0.66 |  |  | $ | 1.69 |  |  | $ | 1.57 |
Weighted-average common shares outstanding: |  |  |  |  |  |  |
Basic | 69,198 |  |  | 71,436 |  |  | 69,684 |  |  | 72,001 |
Diluted | 69,600 |  |  | 71,752 |  |  | 70,053 |  |  | 72,300 |

See Notes to Consolidated Financial Statements (Unaudited).
4

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WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

| Three Months Ended September 30, |  | Nine Months Ended September 30,
(In thousands) | 2019 |  | 2018 |  | 2019 |  | 2018
| (Unaudited)
Net income | $ | 39,044 |  |  | $ | 47,514 |  |  | $ | 118,448 |  |  | $ | 113,585 |
Other comprehensive income (loss): |  |  |  |  |  |  |
Foreign currency translation adjustments | (1,065 | ) |  | 2,011 |  |  | 79 |  |  | 1,799 |
Change in fair value of interest rate swap, net of tax | (1,440 | ) |  | 5 |  |  | (1,651 | ) |  | 377 |
Other comprehensive income (loss) | (2,505 | ) |  | 2,016 |  |  | (1,572 | ) |  | 2,176 |
Comprehensive income | $ | 36,539 |  |  | $ | 49,530 |  |  | $ | 116,876 |  |  | $ | 115,761 |

See Notes to Consolidated Financial Statements (Unaudited).
5

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WERNER ENTERPRISES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS

(In thousands, except share amounts) | September 30, 2019 |  | December 31, 2018
| (Unaudited) |  |
ASSETS |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 14,354 |  |  | $ | 33,930 |
Accounts receivable, trade, less allowance of $8,246 and $8,613, respectively | 323,375 |  |  | 337,927 |
Other receivables | 44,247 |  |  | 26,545 |
Inventories and supplies | 9,750 |  |  | 10,060 |
Prepaid taxes, licenses and permits | 7,462 |  |  | 16,619 |
Other current assets | 37,137 |  |  | 31,577 |
Total current assets | 436,325 |  |  | 456,658 |
Property and equipment | 2,384,254 |  |  | 2,247,577 |
Less – accumulated depreciation | 808,906 |  |  | 760,015 |
Property and equipment, net | 1,575,348 |  |  | 1,487,562 |
Other non-current assets | 151,866 |  |  | 139,284 |
Total assets | $ | 2,163,539 |  |  | $ | 2,083,504 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |
Current liabilities: |  |  |
Checks issued in excess of cash balances | $ | 8,902 |  |  | $ | — |
Accounts payable | 89,348 |  |  | 97,781 |
Current portion of long-term debt | 75,000 |  |  | 75,000 |
Insurance and claims accruals | 91,305 |  |  | 67,304 |
Accrued payroll | 38,501 |  |  | 40,271 |
Other current liabilities | 28,865 |  |  | 30,004 |
Total current liabilities | 331,921 |  |  | 310,360 |
Long-term debt, net of current portion | 275,000 |  |  | 50,000 |
Other long-term liabilities | 20,511 |  |  | 10,911 |
Insurance and claims accruals, net of current portion | 229,870 |  |  | 214,030 |
Deferred income taxes | 241,433 |  |  | 233,450 |
Commitments and contingencies |  |  |
Stockholders’ equity: |  |  |
Common stock, $0.01 par value, 200,000,000 shares authorized; 80,533,536 shares |  |  |
issued; 69,204,715 and 70,441,973 shares outstanding, respectively | 805 |  |  | 805 |
Paid-in capital | 112,064 |  |  | 107,455 |
Retained earnings | 1,252,344 |  |  | 1,413,746 |
Accumulated other comprehensive loss | (17,645 | ) |  | (16,073 | )
Treasury stock, at cost; 11,328,821 and 10,091,563 shares, respectively | (282,764 | ) |  | (241,180 | )
Total stockholders’ equity | 1,064,804 |  |  | 1,264,753 |
Total liabilities and stockholders’ equity | $ | 2,163,539 |  |  | $ | 2,083,504 |

See Notes to Consolidated Financial Statements (Unaudited).
6

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WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

| Nine Months Ended September 30,
(In thousands) | 2019 |  | 2018
| (Unaudited)
Cash flows from operating activities: |  |  |
Net income | $ | 118,448 |  |  | $ | 113,585 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
Depreciation | 184,816 |  |  | 170,439 |
Deferred income taxes | 8,413 |  |  | 25,114 |
Gain on disposal of property and equipment | (14,530 | ) |  | (15,922 | )
Non-cash equity compensation | 6,346 |  |  | 5,507 |
Insurance and claims accruals, net of current portion | 15,840 |  |  | 21,100 |
Other | (4,527 | ) |  | (5,081 | )
Changes in certain working capital items: |  |  |
Accounts receivable, net | 14,552 |  |  | (20,737 | )
Other current assets | 5,667 |  |  | (9,535 | )
Accounts payable | (532 | ) |  | 11,742 |
Other current liabilities | (2,308 | ) |  | 6,301 |
Net cash provided by operating activities | 332,185 |  |  | 302,513 |
Cash flows from investing activities: |  |  |
Additions to property and equipment | (375,202 | ) |  | (412,557 | )
Proceeds from sales of property and equipment | 103,543 |  |  | 123,267 |
Issuance of notes receivable | — |  |  | (3,300 | )
Decrease in notes receivable | 9,247 |  |  | 15,846 |
Net cash used in investing activities | (262,412 | ) |  | (276,744 | )
Cash flows from financing activities: |  |  |
Repayments of short-term debt | — |  |  | (40,000 | )
Proceeds from issuance of short-term debt | — |  |  | 40,000 |
Repayments of long-term debt | (50,000 | ) |  | (20,000 | )
Proceeds from issuance of long-term debt | 275,000 |  |  | 70,000 |
Change in net checks issued in excess of cash balances | 8,902 |  |  | (18,240 | )
Dividends on common stock | (279,962 | ) |  | (16,605 | )
Repurchases of common stock | (42,301 | ) |  | (46,413 | )
Tax withholding related to net share settlements of restricted stock awards | (1,191 | ) |  | (679 | )
Stock options exercised | 171 |  |  | 476 |
Net cash used in financing activities | (89,381 | ) |  | (31,461 | )
Effect of exchange rate fluctuations on cash | 32 |  |  | 211 |
Net decrease in cash, cash equivalents and restricted cash | (19,576 | ) |  | (5,481 | )
Cash, cash equivalents and restricted cash, beginning of period | 33,930 |  |  | 15,131 |
Cash, cash equivalents and restricted cash, end of period | $ | 14,354 |  |  | $ | 9,650 |
Supplemental disclosures of cash flow information: |  |  |
Interest paid | $ | 4,361 |  |  | $ | 1,699 |
Income taxes paid | 41,038 |  |  | 6,332 |
Supplemental schedule of non-cash investing and financing activities: |  |  |
Notes receivable issued upon sale of property and equipment | $ | 5,542 |  |  | $ | 8,054 |
Change in fair value of interest rate swap | (1,651 | ) |  | 377 |
Property and equipment acquired included in accounts payable | 8,847 |  |  | 4,797 |
Property and equipment disposed included in other receivables | 1,486 |  |  | 1,007 |
Dividends accrued but not yet paid at end of period | 6,229 |  |  | 6,407 |

See Notes to Consolidated Financial Statements (Unaudited).
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WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share and per share amounts) | Common Stock |  | Paid-In Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Income (Loss) |  | Treasury Stock |  | Total Stockholders’ Equity
| (Unaudited)
BALANCE, December 31, 2018 | $ | 805 |  |  | $ | 107,455 |  |  | $ | 1,413,746 |  |  | $ | (16,073 | ) |  | $ | (241,180 | ) |  | $ | 1,264,753 |
Comprehensive income | — |  |  | — |  |  | 36,086 |  |  | 513 |  |  | — |  |  | 36,599 |
Purchases of 600,000 shares of common stock | — |  |  | — |  |  | — |  |  | — |  |  | (20,545 | ) |  | (20,545 | )
Dividends on common stock ($0.09 per share) | — |  |  | — |  |  | (6,290 | ) |  | — |  |  | — |  |  | (6,290 | )
Equity compensation activity, 46,129 shares | — |  |  | (1,578 | ) |  | — |  |  | — |  |  | 399 |  |  | (1,179 | )
Non-cash equity compensation expense | — |  |  | 2,051 |  |  | — |  |  | — |  |  | — |  |  | 2,051 |
BALANCE, March 31, 2019 | 805 |  |  | 107,928 |  |  | 1,443,542 |  |  | (15,560 | ) |  | (261,326 | ) |  | 1,275,389 |
Comprehensive income | — |  |  | — |  |  | 43,318 |  |  | 420 |  |  | — |  |  | 43,738 |
Purchases of 700,000 shares of common stock | — |  |  | — |  |  | — |  |  | — |  |  | (21,756 | ) |  | (21,756 | )
Dividends on common stock ($3.84 per share) | — |  |  | — |  |  | (267,331 | ) |  | — |  |  | — |  |  | (267,331 | )
Equity compensation activity, 6,901 shares | — |  |  | (140 | ) |  | — |  |  | — |  |  | 130 |  |  | (10 | )
Non-cash equity compensation expense | — |  |  | 2,314 |  |  | — |  |  | — |  |  | — |  |  | 2,314 |
BALANCE, June 30, 2019 | 805 |  |  | 110,102 |  |  | 1,219,529 |  |  | (15,140 | ) |  | (282,952 | ) |  | 1,032,344 |
Comprehensive income | — |  |  | — |  |  | 39,044 |  |  | (2,505 | ) |  | — |  |  | 36,539 |
Dividends on common stock ($0.09 per share) | — |  |  | — |  |  | (6,229 | ) |  | — |  |  | — |  |  | (6,229 | )
Equity compensation activity, 9,712 shares | — |  |  | (19 | ) |  | — |  |  | — |  |  | 188 |  |  | 169 |
Non-cash equity compensation expense | — |  |  | 1,981 |  |  | — |  |  | — |  |  | — |  |  | 1,981 |
BALANCE, September 30, 2019 | $ | 805 |  |  | $ | 112,064 |  |  | $ | 1,252,344 |  |  | $ | (17,645 | ) |  | $ | (282,764 | ) |  | $ | 1,064,804 |

See Notes to Consolidated Financial Statements (Unaudited).
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WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share and per share amounts) | Common Stock |  | Paid-In Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Income (Loss) |  | Treasury Stock |  | Total Stockholders’ Equity
| (Unaudited)
BALANCE, December 31, 2017 | $ | 805 |  |  | $ | 102,563 |  |  | $ | 1,267,871 |  |  | $ | (15,835 | ) |  | $ | (170,622 | ) |  | $ | 1,184,782 |
Comprehensive income | — |  |  | — |  |  | 27,807 |  |  | 2,603 |  |  | — |  |  | 30,410 |
Dividends on common stock ($0.07 per share) | — |  |  | — |  |  | (5,071 | ) |  | — |  |  | — |  |  | (5,071 | )
Equity compensation activity, 44,980 shares | — |  |  | (1,069 | ) |  | — |  |  | — |  |  | 631 |  |  | (438 | )
Non-cash equity compensation expense | — |  |  | 1,410 |  |  | — |  |  | — |  |  | — |  |  | 1,410 |
Cumulative effect of accounting change | — |  |  | — |  |  | 2,011 |  |  | — |  |  | — |  |  | 2,011 |
BALANCE, March 31, 2018 | 805 |  |  | 102,904 |  |  | 1,292,618 |  |  | (13,232 | ) |  | (169,991 | ) |  | 1,213,104 |
Comprehensive income | — |  |  | — |  |  | 38,264 |  |  | (2,443 | ) |  | — |  |  | 35,821 |
Purchases of 627,652 shares of common stock | — |  |  | — |  |  | — |  |  | — |  |  | (22,884 | ) |  | (22,884 | )
Dividends on common stock ($0.09 per share) | — |  |  | — |  |  | (6,466 | ) |  | — |  |  | — |  |  | (6,466 | )
Equity compensation activity, 4,935 shares | — |  |  | (84 | ) |  | — |  |  | — |  |  | 91 |  |  | 7 |
Non-cash equity compensation expense | — |  |  | 1,979 |  |  | — |  |  | — |  |  | — |  |  | 1,979 |
BALANCE, June 30, 2018 | 805 |  |  | 104,799 |  |  | 1,324,416 |  |  | (15,675 | ) |  | (192,784 | ) |  | 1,221,561 |
Comprehensive income | — |  |  | — |  |  | 47,514 |  |  | 2,016 |  |  | — |  |  | 49,530 |
Purchases of 649,449 shares of common stock | — |  |  | — |  |  | — |  |  | — |  |  | (23,529 | ) |  | (23,529 | )
Dividends on common stock ($0.09 per share) | — |  |  | — |  |  | (6,407 | ) |  | — |  |  | — |  |  | (6,407 | )
Equity compensation activity, 12,267 shares | — |  |  | (13 | ) |  | — |  |  | — |  |  | 241 |  |  | 228 |
Non-cash equity compensation expense | — |  |  | 2,118 |  |  | — |  |  | — |  |  | — |  |  | 2,118 |
BALANCE, September 30, 2018 | $ | 805 |  |  | $ | 106,904 |  |  | $ | 1,365,523 |  |  | $ | (13,659 | ) |  | $ | (216,072 | ) |  | $ | 1,243,501 |

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 February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases,” to increase transparency and comparability by recognizing a right-of-use asset and a lease liability on the balance sheet and disclosing key information about leasing arrangements. The Company adopted ASU No. 2016-02 and related amendments as of January 1, 2019, using the optional transition method. See Note 3 - Leases for additional adoption information and disclosures required by Accounting Standards Codification (“ASC”) Topic 842.
In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” with the objective of improving the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The Company adopted ASU 2017-12 as of January 1, 2019. Upon adoption, this update had no effect on our financial position, results of operations and cash flows.
In February 2018, the FASB issued ASU No. 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Comprehensive Income,” which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The Company adopted ASU No. 2018-02 as of January 1, 2019. Upon adoption, this update had no effect on our financial position, results of operations and cash flows.
Accounting Standards Updates Not Yet Effective
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements,” which requires measurement and recognition of expected versus incurred credit losses for financial assets. The provisions of this update are effective for fiscal years beginning after December 15, 2019. We are evaluating the impact of adopting ASU No. 2016-13 on our financial position, results of operations and cash flows.
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement,” which modifies the disclosure requirements on fair value measurements. As part of its disclosure framework project, the FASB has eliminated, amended and added disclosure requirements for fair value measurements in Topic 820, Fair Value Measurement. The provisions of this update are effective for fiscal years beginning after December 15, 2019. Although we are evaluating the impact of adopting ASU No. 2018-13 on our financial position, results of operations and cash flows, we do not expect a material effect upon adoption because we do not currently disclose any fair value measurements subject to the amendments.
In August 2018, the FASB issued ASU No. 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force),” which updates the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract to align with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The provisions of this update are effective for fiscal years beginning after December 15, 2019. We are evaluating the impact of adopting ASU No. 2018-15 on our financial position, results of operations and cash flows.
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(2) Revenue
Revenue Recognition
Revenues are recognized over time as control of the promised services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.
The following table presents our revenues disaggregated by revenue source (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Truckload Transportation Services | $ | 480,351 |  |  | $ | 484,782 |  |  | $ | 1,423,201 |  |  | $ | 1,386,615 |
Werner Logistics | 121,331 |  |  | 129,422 |  |  | 369,584 |  |  | 380,854 |
Inter-segment eliminations | (1 | ) |  | (208 | ) |  | (240 | ) |  | (878 | )
Transportation services | 601,681 |  |  | 613,996 |  |  | 1,792,545 |  |  | 1,766,591 |
Other revenues | 16,583 |  |  | 15,739 |  |  | 49,369 |  |  | 44,958 |
Total revenues | $ | 618,264 |  |  | $ | 629,735 |  |  | $ | 1,841,914 |  |  | $ | 1,811,549 |

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,
| 2019 |  | 2018 |  | 2019 |  | 2018
United States | $ | 551,008 |  |  | $ | 548,885 |  |  | $ | 1,631,861 |  |  | $ | 1,577,189 |
Mexico | 49,031 |  |  | 61,028 |  |  | 153,803 |  |  | 177,180 |
Other | 18,225 |  |  | 19,822 |  |  | 56,250 |  |  | 57,180 |
Total revenues | $ | 618,264 |  |  | $ | 629,735 |  |  | $ | 1,841,914 |  |  | $ | 1,811,549 |

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, 2019 and December 31, 2018, the accounts receivable, net, balance was $323.4 million and $337.9 million, respectively. Contract assets represent a conditional right to consideration in exchange for goods or services and are transferred to receivables when the rights become unconditional. At September 30, 2019 and December 31, 2018, the balance of contract assets was $7.9 million and $7.4 million, respectively. The Company has recognized contract assets within the other current assets financial statement caption on the balance sheet. These contract assets are considered current assets as they will be settled in less than 12 months.
Contract liabilities represent advance consideration received from customers and are recognized as revenues over time as the related performance obligation is satisfied. At September 30, 2019 and December 31, 2018, the balance of contract liabilities was $1.6 million and $1.7 million, respectively. The amount of revenues recognized in the nine months ended September 30, 2019 that was included in the December 31, 2018 contract liability balance was $1.7 million. The Company has recognized contract liabilities within the accounts payable and other current liabilities financial statement captions on the balance sheet. These contract liabilities are considered current liabilities as they will be settled in less than 12 months.
Performance Obligations
We have elected to apply the practical expedient in ASC Topic 606 to not disclose the value of remaining performance obligations for contracts with an original expected length of one year or less. Remaining performance obligations represent the transaction price allocated to future reporting periods for freight shipments started but not completed at the reporting date that we expect to recognize as revenue in the period subsequent to the reporting date; transit times generally average approximately 3 days.
During the nine months ended September 30, 2019 and September 30, 2018, revenues recognized from performance obligations related to prior periods (for example, due to changes in transaction price) were not material.
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(3) Leases
Adoption of ASC Topic 842, “Leases”
On January 1, 2019, the Company adopted ASC Topic 842, “Leases”, which requires lessees to recognize most leases in the consolidated balance sheet as a right-of-use asset and a lease obligation. Expenses are recognized in the consolidated statement of income in a manner similar to previous accounting guidance. The Company adopted the accounting standard using the optional transition approach, which applies the provisions of the new guidance at the effective date without adjusting the comparative periods presented.
The Company elected the following practical expedients upon adoption: not to reassess whether any existing contracts are or contain leases, not to reassess the lease classification for any existing leases, not to reassess initial direct costs for any existing leases and not to separately identify lease and non-lease components for all underlying classes of assets. Additionally, the Company made a short-term lease accounting policy election to not recognize right-of-use assets and liabilities for leases with a term of 12 months or less.
Adoption of the new standard resulted in recognition of right-of-use assets and corresponding lease liabilities of $8.7 million as of January 1, 2019. The new standard did not have a significant impact on the consolidated statement of income.
The Company has entered into operating leases primarily for real estate. The leases have terms which range from 1 year to 11 years, and some include options to renew. Renewal terms are included in the lease term when it is reasonably certain that the Company will exercise the option to renew.
Operating leases are included in the other non-current assets, other current liabilities and other long-term liabilities on the consolidated condensed balance sheets. These assets and liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date, using the Company’s incremental borrowing rate because the rate implicit in each lease in not readily determinable. The Company has certain contracts for real estate that may contain lease and non-lease components which it has elected to treat as a single lease component. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Variable lease expense is recognized in the period in which the obligation for those payments is incurred. Lease expense is reported in rent and purchase transportation on the consolidated statements of income.
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The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s operating leases as of September 30, 2019.

(In thousands) | September 30, 2019
Maturity of Lease Liabilities |
2019 (remaining) | $ | 932 |
2020 | 3,424 |
2021 | 2,554 |
2022 | 1,625 |
2023 | 688 |
Thereafter | 1,746 |
Total undiscounted operating lease payments | $ | 10,969 |
Less: Imputed interest | (763 | )
Present value of operating lease liabilities | $ | 10,206 |
Balance Sheet Classification |
Right-of-use assets (recorded in other non-current assets) | $ | 9,883 |
Current lease liabilities (recorded in other current liabilities) | $ | 3,251 |
Long-term lease liabilities (recorded in other long-term liabilities) | 6,955 |
Total operating lease liabilities | $ | 10,206 |
Other Information |
Weighted-average remaining lease term for operating leases | 4.34 years |
Weighted-average discount rate for operating leases | 3.5 | %

Cash Flows
An initial right-of-use asset of $8.7 million was recognized as a non-cash asset addition with the adoption of the new lease accounting standard. Additional right-of-use assets of $3.6 million were recognized as non-cash asset additions that resulted from new operating lease liabilities during the nine months ended September 30, 2019. Cash paid for amounts included in the present value of operating lease liabilities was $2.7 million during the nine months ended September 30, 2019, and is included in operating cash flows.
Operating Lease Expense
Operating lease expense was $2.0 million and $6.2 million during the three and nine months ended September 30, 2019, respectively. This expense included $0.9 million and $2.7 million for the three and nine months ended September 30, 2019, respectively, for long-term operating leases, with the remainder for variable and short-term lease expense.
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Lessor Operating Leases
We are the lessor of tractors and trailers under operating leases with initial terms of 2 to 10 years. We recognize revenue for such leases on a straight-line basis over the term of the lease, and revenues for the three and nine months ended September 30, 2019 were $3.6 million and $10.4 million, respectively. The following table presents information about the maturities of these operating leases as of September 30, 2019.

(In thousands) | September 30, 2019
2019 (remaining) | $ | 3,169 |
2020 | 7,674 |
2021 | 248 |
2022 | 62 |
2023 | — |
Thereafter | — |
Total | $ | 11,153 |

(4) Credit Facilities
As of September 30, 2019, we had unsecured committed credit facilities with three banks. We had with Wells Fargo Bank, N.A. a $300.0 million credit facility which will expire on May 14, 2024. We had a $200.0 million credit facility with BMO Harris Bank N.A. which will expire on May 14, 2024. We also had an unsecured line of credit of $75.0 million with U.S. Bank, N.A., which will expire on July 13, 2020. Borrowings under these credit facilities bear variable interest based on the London Interbank Offered Rate (“LIBOR”). On July 2, 2019, we (i) terminated our previous $75.0 million interest rate swap agreement with Wells Fargo Bank, N.A., (ii) entered into a new $75.0 million interest rate swap agreement with Wells Fargo Bank, N.A., and (iii) entered into a $75.0 million interest rate swap agreement with BMO Harris Bank N.A.
As of September 30, 2019 and December 31, 2018, our outstanding debt totaled $350.0 million and $125.0 million, respectively. We had $200.0 million outstanding under the credit facilities at a weighted average variable interest rate of 2.67% as of September 30, 2019. We had (i) an additional $75.0 million outstanding under the Wells Fargo Bank, N.A. credit facility at a variable rate of 2.72% as of September 30, 2019, which is effectively fixed at 2.32% with an interest rate swap agreement through May 14, 2024 and (ii) an additional $75.0 million outstanding under the BMO Harris Bank N.A. credit facility at a variable rate of 2.79% as of September 30, 2019, which is effectively fixed at 2.36% with an interest rate swap agreement through May 14, 2024. The $575.0 million of borrowing capacity under our credit facilities at September 30, 2019, is further reduced by $32.7 million in stand-by letters of credit under which we are obligated. Each of the debt agreements includes, among other things, financial covenants requiring us (i) 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, 2019, we were in compliance with these covenants.
At September 30, 2019, the aggregate future maturities of long-term debt by year are as follows (in thousands):

2019 | $ | — |
2020 | 75,000 |
2021 | — |
2022 | — |
2023 | — |
2024 | 275,000 |
Total | $ | 350,000 |

The carrying amounts of our long-term debt approximate fair value due to the duration of the notes and the variable interest rates.
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(5) Commitments and Contingencies
As of September 30, 2019, we have committed to property and equipment purchases of approximately $63.5 million.
We are involved in certain claims and pending litigation, including those described herein, arising in the ordinary course of business. The majority of these claims relate to bodily injury, property damage, cargo and workers’ compensation incurred in the transportation of freight, as well as certain class action litigation related to personnel and employment matters. We accrue for the uninsured portion of contingent losses from these and other pending claims when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Based on the knowledge of the facts, management believes the resolution of claims and pending litigation, taking into account existing reserves, will not have a material adverse effect on our consolidated financial statements. Moreover, the results of complex legal proceedings are difficult to predict, and our view of these matters may change in the future as the litigation and related events unfold.
On May 17, 2018, in Harris County District Court in Houston, Texas, a jury rendered an adverse verdict against Werner Enterprises, Inc. (the “Company”) in a lawsuit arising from 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 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 $17.7 million as of September 30, 2019, and $15.2 million as of December 31, 2018. Under the terms of the Company’s insurance policies, the Company is the primary obligor of the verdict, and as such, the Company has also recorded a $79.2 million receivable from its third-party insurance providers in other non-current assets and a corresponding liability of the same amount in the long-term portion of insurance and claims accruals in the consolidated balance sheets as of September 30, 2019 and December 31, 2018.
The Company is pursuing an appeal of this verdict. No assurances can be given regarding the outcome of any such appeal.
We are involved in class action litigation in the U.S. District Court for the District of Nebraska, in which the plaintiffs allege that we owe drivers for unpaid wages under the Fair Labor Standards Act (“FLSA”) and the Nebraska Wage Payment and Collection Act and that we failed to pay minimum wage per hour for drivers in our student driver training program, related to short break time and sleeper berth time. The period covered by this class action suit is August 2008 through March 2014. The case was tried to a jury in May 2017, resulting in a verdict of $0.8 million in plaintiffs’ favor on the short break matter and a verdict in our favor on the sleeper berth matter. As a result of various post-trial motions, the court has awarded $0.5 million to the plaintiffs for attorney fees and costs. As of September 30, 2019, we had accrued for the jury’s award, attorney fees and costs in the short break matter and had not accrued for the sleeper berth matter. Plaintiffs have appealed the post-verdict amounts awarded by the trial court for fees, costs and liquidated damages.
We are also involved in certain class action litigation in which the plaintiffs allege claims for failure to provide meal and rest breaks, unpaid wages, unauthorized deductions and other items. Based on the knowledge of the facts, management does not currently believe the outcome of these class actions is likely to have a material adverse effect on our financial position or results of operations. However, the final disposition of these matters and the impact of such final dispositions cannot be determined at this time.
(6) Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and restricted stock awards. There are no differences in the numerators of our computations of basic and diluted earnings per share for any periods presented.
The computation of basic and diluted earnings per share is shown below (in thousands, except per share amounts).
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| Three Months Ended September 30, |  | Nine Months Ended September 30, |
| 2019 |  | 2018 |  | 2019 |  | 2018 |
Net income | $ | 39,044 |  |  | $ | 47,514 |  |  | $ | 118,448 |  |  | $ | 113,585 |  |
Weighted average common shares outstanding | 69,198 |  |  | 71,436 |  |  | 69,684 |  |  | 72,001 |  |
Dilutive effect of stock-based awards | 402 |  |  | 316 |  |  | 369 |  |  | 299 |  |
Shares used in computing diluted earnings per share | 69,600 |  |  | 71,752 |  |  | 70,053 |  |  | 72,300 |  |
Basic earnings per share | $ | 0.56 |  |  | $ | 0.67 |  |  | $ | 1.70 |  |  | $ | 1.58 |  |
Diluted earnings per share | $ | 0.56 |  |  | $ | 0.66 |  |  | $ | 1.69 |  |  | $ | 1.57 |  |

There were no options to purchase shares of common stock that were outstanding during the periods indicated above that were excluded from the computation of diluted earnings per share because the option purchase price was greater than the average market price of the common shares during the period. Performance awards are excluded from the calculation of dilutive potential common shares until the threshold performance conditions have been satisfied.
(7) Equity Compensation
The Werner Enterprises, Inc. Amended and Restated Equity Plan (the “Equity Plan”), approved by the Company’s shareholders, provides for grants to employees and non-employee directors of the Company in the form of nonqualified stock options, restricted stock and units (“restricted awards”), performance awards, and stock appreciation rights. The Board of Directors or the Compensation Committee of our Board of Directors determines the terms of each award, including the type, recipients, number of shares subject to and vesting conditions of each award. No awards of stock appreciation rights have been issued under the Equity Plan to date. The maximum number of shares of common stock that may be awarded under the Equity Plan is 20,000,000 shares. The maximum aggregate number of shares that may be awarded to any one person in any one calendar year under the Equity Plan is 500,000. As of September 30, 2019, there were 6,779,440 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, 2019, the total unrecognized compensation cost related to non-vested equity compensation awards was approximately $10.6 million and is expected to be recognized over a weighted average period of 1.8 years. The following table summarizes the equity compensation expense and related income tax benefit recognized in the Consolidated Statements of Income (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Restricted awards: |  |  |  |  |  |  |
Pre-tax compensation expense | $ | 1,310 |  |  | $ | 1,028 |  |  | $ | 3,786 |  |  | $ | 3,091 |
Tax benefit | 335 |  |  | 262 |  |  | 966 |  |  | 788 |
Restricted stock expense, net of tax | $ | 975 |  |  | $ | 766 |  |  | $ | 2,820 |  |  | $ | 2,303 |
Performance awards: |  |  |  |  |  |  |
Pre-tax compensation expense | $ | 680 |  |  | $ | 992 |  |  | $ | 2,577 |  |  | $ | 2,319 |
Tax benefit | 173 |  |  | 253 |  |  | 657 |  |  | 591 |
Performance award expense, net of tax | $ | 507 |  |  | $ | 739 |  |  | $ | 1,920 |  |  | $ | 1,728 |

We do not have a formal policy for issuing shares upon an exercise of stock options or vesting of restricted and performance awards. Such shares are generally issued from treasury stock. From time to time, we repurchase shares of our common stock, the timing and amount of which depends on market and other factors. Historically, the shares acquired from such repurchases have provided us with sufficient quantities of stock to issue for equity compensation. Based on current treasury stock levels, we do not expect to repurchase additional shares specifically for equity compensation during 2019.
Stock Options
Stock options are granted at prices equal to the market value of the common stock on the date the option award is granted. Option awards exercised in 2019 became exercisable in installments from 24 to 72 months after the date of grant. The options were exercisable over a period not to exceed ten years, one day from the date of grant. No stock options are outstanding as of September 30, 2019.
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The following table summarizes stock option activity for the nine months ended September 30, 2019:

| Number of Options (in thousands) |  | Weighted Average Exercise Price ($) |  | Weighted Average Remaining Contractual Term (Years) |  | Aggregate Intrinsic Value (in thousands)
Outstanding at beginning of period | 9 |  |  | $ | 19.02 |  |  |  |  |
Granted | — |  |  | — |  |  |  |  |
Exercised | (9 | ) |  | 19.02 |  |  |  |  |
Forfeited | — |  |  | — |  |  |  |  |
Expired | — |  |  | — |  |  |  |  |
Outstanding at end of period | — |  |  | — |  |  | 0.00 |  | $ | — |
Exercisable at end of period | — |  |  | — |  |  | 0.00 |  | $ | — |

We did not grant any stock options during the nine-month periods ended September 30, 2019 and September 30, 2018. The fair value of stock option grants is estimated using a Black-Scholes valuation model. In the nine-month periods ended September 30, 2019, and September 30, 2018, the total intrinsic value of stock options exercised was $136 thousand and $484 thousand, respectively.
Restricted Awards
Restricted stock entitles the holder to shares of common stock when the award vests. Restricted stock units entitle the holder to a combination of cash or stock equal to the value of common stock when the unit vests. The value of these shares may fluctuate according to market conditions and other factors. Restricted awards currently outstanding vest over periods ranging from 12 to 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, 2019:

| Number of Restricted Awards (in thousands) |  | Weighted Average Grant Date Fair Value ($)
Nonvested at beginning of period | 326 |  |  | $ | 31.93 |
Granted | 147 |  |  | 32.55 |
Vested | (53 | ) |  | 33.04 |
Forfeited | (9 | ) |  | 31.55 |
Nonvested at end of period | 411 |  |  | 32.02 |

We estimate the fair value of restricted awards based upon the market price of the underlying common stock on the date of grant, reduced by the present value of estimated future dividends because the awards are not entitled to receive dividends prior to vesting. Our estimate of future dividends is based on the most recent quarterly dividend rate at the time of grant, adjusted for any known future changes in the dividend rate. Cash settled restricted stock units are recorded as a liability within the Consolidated Balance Sheets and are adjusted to fair value each reporting period.
The total fair value of previously granted restricted awards vested during the nine-month periods ended September 30, 2019 and September 30, 2018 was $1.8 million and $0.8 million, respectively. We withheld shares based on the closing stock price on the vesting date to settle the employees’ statutory obligation for the applicable income and other employment taxes. The shares withheld to satisfy the tax withholding obligations 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, over periods ranging from 12 to 60 months from the grant date of the award. The performance awards do not confer any voting or dividend rights to recipients until such shares vest and do not have any post-vesting sales restrictions.
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The following table summarizes performance award activity for the nine months ended September 30, 2019:

| Number of Performance Awards (in thousands) |  | Weighted Average Grant Date Fair Value ($)
Nonvested at beginning of period | 207 |  |  | $ | 27.92 |
Granted | 97 |  |  | 32.88 |
Vested | (35 | ) |  | 27.07 |
Forfeited | — |  |  | — |
Nonvested at end of period | 269 |  |  | 30.40 |

The 2019 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, 2019 to December 31, 2020. Shares earned based on cumulative diluted earnings per share may be capped based on absolute total shareholder return during the three-year period ended December 31, 2021. The 2019 performance awards will vest in one installment on the third anniversary from the grant date.
We estimate the fair value of performance awards based upon the market price of the underlying common stock on the date of grant, reduced by the present value of estimated future dividends because the awards are not entitled to receive dividends prior to vesting. Our estimate of future dividends is based on the most recent quarterly dividend rate at the time of grant, adjusted for any known future changes in the dividend rate.
The vesting date fair value of performance awards that vested during the nine-month periods ended September 30, 2019 and September 30, 2018 was $1.2 million and $1.3 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.
(8) Segment Information
We have two 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; and (iii) the regional short-haul (“Regional”) fleet 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 four operating units that provide non-trucking services to our customers. These four 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; (iii) Werner Global Logistics international (“WGL”) provides complete management of global shipments from origin to destination using a combination of air, ocean, truck and rail transportation modes; and (iv) Werner Final Mile (“Final Mile”) offers home and business deliveries of large or heavy items using third-party agents with two associates operating a liftgate straight truck.
We generate other revenues from our driver training schools, transportation-related activities such as third-party equipment maintenance and equipment leasing, and other business activities. None of these operations meets the quantitative reporting thresholds. As a result, these operations are grouped in “Other” in the table below. “Corporate” includes revenues and expenses that are incidental to our activities and are not attributable to any of our operating segments, including gains and losses on sales of assets not attributable to our operating segments. We do not prepare separate balance sheets by segment and, as a result, assets
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are not separately identifiable by segment. Inter-segment eliminations in the table below represent transactions between reporting segments that are eliminated in consolidation.
The following table summarizes our segment information (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Revenues |  |  |  |  |  |  |
Truckload Transportation Services | $ | 480,351 |  |  | $ | 484,782 |  |  | $ | 1,423,201 |  |  | $ | 1,386,615 |
Werner Logistics | 121,331 |  |  | 129,422 |  |  | 369,584 |  |  | 380,854 |
Other | 15,896 |  |  | 15,107 |  |  | 47,464 |  |  | 42,788 |
Corporate | 687 |  |  | 632 |  |  | 1,905 |  |  | 2,170 |
Subtotal | 618,265 |  |  | 629,943 |  |  | 1,842,154 |  |  | 1,812,427 |
Inter-segment eliminations | (1 | ) |  | (208 | ) |  | (240 | ) |  | (878 | )
Total | $ | 618,264 |  |  | $ | 629,735 |  |  | $ | 1,841,914 |  |  | $ | 1,811,549 |
Operating Income |  |  |  |  |  |  |
Truckload Transportation Services | $ | 48,870 |  |  | $ | 58,894 |  |  | $ | 143,488 |  |  | $ | 135,748 |
Werner Logistics | 3,028 |  |  | 4,776 |  |  | 12,921 |  |  | 13,135 |
Other | 1,709 |  |  | 576 |  |  | 5,181 |  |  | 433 |
Corporate | (250 | ) |  | (860 | ) |  | (1,772 | ) |  | (32 | )
Total | $ | 53,357 |  |  | $ | 63,386 |  |  | $ | 159,818 |  |  | $ | 149,284 |

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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:

• | Overview

• | 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 2018 Form 10-K.
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 global delivery network and systems analysis to optimize transportation needs. Our success depends on our ability to efficiently and effectively manage our resources in the delivery of truckload transportation and logistics services to our customers. Resource requirements vary with customer demand, which may be subject to seasonal or general economic conditions. Our ability to adapt to changes in customer transportation requirements is essential to efficiently deploy resources and make capital investments in tractors and trailers (with respect to our TTS segment) or obtain qualified third-party capacity at a reasonable price (with respect to our Werner Logistics segment). Although our business volume is not highly concentrated, we 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 from our customers additional fuel surcharge revenues that generally recoup a majority of the increased fuel costs; however, we cannot assure that current recovery levels will continue in future periods. Because fuel surcharge revenues fluctuate in response to changes in fuel costs, we identify them separately and exclude them from the statistical calculations to provide a more meaningful comparison between periods. The key statistics used to evaluate trucking revenues, net of fuel surcharge, are (i) average revenues per tractor per week, (ii) average percentage of empty miles (miles without trailer cargo), (iii) average trip length (in loaded miles) and (iv) average number of tractors in service. General economic conditions, seasonal trucking industry freight patterns and industry capacity are important factors that impact these statistics. Our 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; 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 quarter 2019 to third quarter 2018, several industry-wide issues have caused, and could continue to cause, costs to increase in future periods. These issues include shortages of drivers or independent contractors, changing fuel prices, higher new truck and trailer purchase prices and compliance with new or proposed regulations. Our main fixed costs include depreciation expense for tractors and trailers and equipment licensing fees (included in taxes and licenses expense). The 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 four operating units within our Werner Logistics segment (Truckload Logistics, Intermodal, WGL and Final Mile). 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. We evaluate the Werner Logistics segment’s financial performance by reviewing the gross margin percentage (revenues less rent and purchased transportation expenses expressed as a percentage of revenues) and the operating income percentage. The gross margin percentage can be impacted by the rates charged to customers and the costs of securing third-party capacity. We have a mix of contracted long-term rates and variable rates for the cost of third-party capacity, and we cannot assure that our operating results will not be adversely impacted in the future if our ability to obtain qualified third-party capacity providers changes or the rates of such providers increase.
Results of Operations:
The following table sets forth the Consolidated Statements of Income in dollars and as a percentage of total operating revenues and the percentage increase or decrease in the dollar amounts of those items compared to the prior year.

| Three Months Ended (3ME) September 30, |  | Nine Months Ended (9ME) September 30, |  | Percentage Change in Dollar Amounts
| 2019 |  | 2018 |  | 2019 |  | 2018 |  | 3ME | 9ME
(Amounts in thousands) | $ | % |  | $ | % |  | $ | % |  | $ | % |  | % | %
Operating revenues | $ | 618,264 |  | 100.0 |  | $ | 629,735 |  | 100.0 |  |  | $ | 1,841,914 |  | 100.0 |  | $ | 1,811,549 |  | 100.0 |  |  | (1.8 | ) | 1.7 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Salaries, wages and benefits | 209,586 |  | 33.9 |  | 201,606 |  | 32.0 |  |  | 618,386 |  | 33.6 |  | 580,515 |  | 32.0 |  |  | 4.0 |  | 6.5 |
Fuel | 59,518 |  | 9.6 |  | 67,072 |  | 10.6 |  |  | 176,720 |  | 9.6 |  | 191,769 |  | 10.6 |  |  | (11.3 | ) | (7.8 | )
Supplies and maintenance | 46,907 |  | 7.6 |  | 47,136 |  | 7.5 |  |  | 136,963 |  | 7.4 |  | 138,556 |  | 7.7 |  |  | (0.5 | ) | (1.1 | )
Taxes and licenses | 24,244 |  | 3.9 |  | 18,463 |  | 2.9 |  |  | 70,788 |  | 3.8 |  | 63,607 |  | 3.5 |  |  | 31.3 |  | 11.3 |
Insurance and claims | 21,930 |  | 3.6 |  | 22,011 |  | 3.5 |  |  | 65,631 |  | 3.6 |  | 73,858 |  | 4.1 |  |  | (0.4 | ) | (11.1 | )
Depreciation | 62,620 |  | 10.1 |  | 58,382 |  | 9.3 |  |  | 184,816 |  | 10.0 |  | 170,439 |  | 9.4 |  |  | 7.3 |  | 8.4 |
Rent and purchased transportation | 134,797 |  | 21.8 |  | 147,870 |  | 23.5 |  |  | 413,809 |  | 22.5 |  | 435,225 |  | 24.0 |  |  | (8.8 | ) | (4.9 | )
Communications and utilities | 3,892 |  | 0.7 |  | 3,993 |  | 0.6 |  |  | 11,806 |  | 0.6 |  | 12,028 |  | 0.7 |  |  | (2.5 | ) | (1.8 | )
Other | 1,413 |  | 0.2 |  | (184 | ) | — |  |  | 3,177 |  | 0.2 |  | (3,732 | ) | (0.2 | ) |  | 867.9 |  | 185.1 |
Total operating expenses | 564,907 |  | 91.4 |  | 566,349 |  | 89.9 |  |  | 1,682,096 |  | 91.3 |  | 1,662,265 |  | 91.8 |  |  | (0.3 | ) | 1.2 |
Operating income | 53,357 |  | 8.6 |  | 63,386 |  | 10.1 |  |  | 159,818 |  | 8.7 |  | 149,284 |  | 8.2 |  |  | (15.8 | ) | 7.1 |
Total other expense (income) | 1,699 |  | 0.3 |  | 265 |  | 0.1 |  |  | 2,036 |  | 0.1 |  | (65 | ) | — |  |  | 541.1 |  | 3,232.3 |
Income before income taxes | 51,658 |  | 8.3 |  | 63,121 |  | 10.0 |  |  | 157,782 |  | 8.6 |  | 149,349 |  | 8.2 |  |  | (18.2 | ) | 5.6 |
Income taxes | 12,614 |  | 2.0 |  | 15,607 |  | 2.5 |  |  | 39,334 |  | 2.2 |  | 35,764 |  | 1.9 |  |  | (19.2 | ) | 10.0 |
Net income | $ | 39,044 |  | 6.3 |  | $ | 47,514 |  | 7.5 |  |  | $ | 118,448 |  | 6.4 |  | $ | 113,585 |  | 6.3 |  |  | (17.8 | ) | 4.3 |

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The following tables set forth the operating revenues, operating expenses and operating income for the TTS segment, as well as certain statistical data regarding our TTS segment operations for the periods indicated.

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Truckload Transportation Services segment (amounts in thousands) | $ |  | % |  | $ |  | % |  | $ |  | % |  | $ |  | %
Trucking revenues, net of fuel surcharge | $ | 417,954 |  |  |  |  | $ | 409,306 |  |  |  |  | $ | 1,227,105 |  |  |  |  | $ | 1,168,588 |  |  |
Trucking fuel surcharge revenues | 57,171 |  |  |  |  | 68,420 |  |  |  |  | 177,881 |  |  |  |  | 197,212 |  |  |
Non-trucking and other operating revenues | 5,226 |  |  |  |  | 7,056 |  |  |  |  | 18,215 |  |  |  |  | 20,815 |  |  |
Operating revenues | 480,351 |  |  | 100.0 |  | 484,782 |  |  | 100.0 |  | 1,423,201 |  |  | 100.0 |  | 1,386,615 |  |  | 100.0
Operating expenses | 431,481 |  |  | 89.8 |  | 425,888 |  |  | 87.9 |  | 1,279,713 |  |  | 89.9 |  | 1,250,867 |  |  | 90.2
Operating income | $ | 48,870 |  |  | 10.2 |  | $ | 58,894 |  |  | 12.1 |  | $ | 143,488 |  |  | 10.1 |  | $ | 135,748 |  |  | 9.8

| Three Months Ended September 30, |  |  |  | Nine Months Ended September 30, |  |
Truckload Transportation Services segment | 2019 |  | 2018 |  | % Change |  | 2019 |  | 2018 |  | % Change
Average tractors in service | 8,010 |  |  | 7,728 |  |  | 3.6 | % |  | 7,945 |  |  | 7,568 |  |  | 5.0 | %
Average revenues per tractor per week (1) | $ | 4,014 |  |  | $ | 4,074 |  |  | (1.5 | )% |  | $ | 3,960 |  |  | $ | 3,959 |  |  | — | %
Total tractors (at quarter end) |  |  |  |  |  |  |  |  |  |  |  |
Company | 7,480 |  |  | 7,135 |  |  | 4.8 | % |  | 7,480 |  |  | 7,135 |  |  | 4.8 | %
Independent contractor | 575 |  |  | 615 |  |  | (6.5 | )% |  | 575 |  |  | 615 |  |  | (6.5 | )%
Total tractors | 8,055 |  |  | 7,750 |  |  | 3.9 | % |  | 8,055 |  |  | 7,750 |  |  | 3.9 | %
Total trailers (at quarter end) | 22,895 |  |  | 23,345 |  |  | (1.9 | )% |  | 22,895 |  |  | 23,345 |  |  | (1.9 | )%
One-Way Truckload |  |  |  |  |  |  |  |  |  |  |  |
Trucking revenues, net of fuel surcharge (in 000’s) | $ | 185,791 |  |  | $ | 195,660 |  |  | (5.0 | )% |  | $ | 550,204 |  |  | $ | 566,706 |  |  | (2.9 | )%
Average tractors in service | 3,418 |  |  | 3,327 |  |  | 2.7 | % |  | 3,385 |  |  | 3,355 |  |  | 0.9 | %
Total tractors (at quarter end) | 3,435 |  |  | 3,350 |  |  | 2.5 | % |  | 3,435 |  |  | 3,350 |  |  | 2.5 | %
Average percentage of empty miles | 12.24 | % |  | 10.89 | % |  | 12.4 | % |  | 12.02 | % |  | 11.01 | % |  | 9.2 | %
Average revenues per tractor per week (1) | $ | 4,181 |  |  | $ | 4,523 |  |  | (7.6 | )% |  | $ | 4,168 |  |  | $ | 4,331 |  |  | (3.8 | )%
Average % change in revenues per total mile (1) | (5.6 | )% |  | 15.7 | % |  |  |  | (0.8 | )% |  | 14.2 | % |  |  |
Average % change in total miles per tractor per week | (2.0 | )% |  | 0.1 | % |  |  |  | (2.9 | )% |  | 0.2 | % |  |  |
Average completed trip length in miles (loaded) | 843 |  |  | 833 |  |  | 1.2 | % |  | 844 |  |  | 827 |  |  | 2.1 | %
Dedicated |  |  |  |  |  |  |  |  |  |  |  |
Trucking revenues, net of fuel surcharge (in 000’s) | $ | 232,163 |  |  | $ | 213,646 |  |  | 8.7 | % |  | $ | 676,901 |  |  | $ | 601,882 |  |  | 12.5 | %
Average tractors in service | 4,592 |  |  | 4,401 |  |  | 4.3 | % |  | 4,560 |  |  | 4,213 |  |  | 8.2 | %
Total tractors (at quarter end) | 4,620 |  |  | 4,400 |  |  | 5.0 | % |  | 4,620 |  |  | 4,400 |  |  | 5.0 | %
Average revenues per tractor per week (1) | $ | 3,888 |  |  | $ | 3,734 |  |  | 4.1 | % |  | $ | 3,805 |  |  | $ | 3,663 |  |  | 3.9 | %

(1) | Net of fuel surcharge revenues.

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

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Werner Logistics segment (amounts in thousands) | $ |  | % |  | $ |  | % |  | $ |  | % |  | $ |  | %
Operating revenues | $ | 121,331 |  |  | 100.0 |  | $ | 129,422 |  |  | 100.0 |  | $ | 369,584 |  |  | 100.0 |  | $ | 380,854 |  |  | 100.0
Rent and purchased transportation expense | 102,886 |  |  | 84.8 |  | 108,870 |  |  | 84.1 |  | 309,742 |  |  | 83.8 |  | 322,064 |  |  | 84.6
Gross margin | 18,445 |  |  | 15.2 |  | 20,552 |  |  | 15.9 |  | 59,842 |  |  | 16.2 |  | 58,790 |  |  | 15.4
Other operating expenses | 15,417 |  |  | 12.7 |  | 15,776 |  |  | 12.2 |  | 46,921 |  |  | 12.7 |  | 45,655 |  |  | 12.0
Operating income | $ | 3,028 |  |  | 2.5 |  | $ | 4,776 |  |  | 3.7 |  | $ | 12,921 |  |  | 3.5 |  | $ | 13,135 |  |  | 3.4

| Three Months Ended September 30, |  |  |  | Nine Months Ended September 30, |  |
Werner Logistics segment | 2019 |  | 2018 |  | % Change |  | 2019 |  | 2018 |  | % Change
Average tractors in service | 33 |  |  | 43 |  |  | (23.3 | )% |  | 36 |  |  | 42 |  |  | (14.3 | )%
Total tractors (at quarter end) | 31 |  |  | 43 |  |  | (27.9 | )% |  | 31 |  |  | 43 |  |  | (27.9 | )%
Total trailers (at quarter end) | 1,580 |  |  | 1,415 |  |  | 11.7 | % |  | 1,580 |  |  | 1,415 |  |  | 11.7 | %

Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018
Operating Revenues
Operating revenues decreased 1.8% for the three months ended September 30, 2019, compared to the same period of the prior year. When comparing third quarter 2019 to third quarter 2018, TTS segment revenues decreased $4.4 million or 0.9%, and Werner Logistics revenues decreased $8.1 million or 6.3%.
During third quarter 2019, freight demand in our One-Way Truckload fleet was seasonally below average and meaningfully below the unusually strong freight demand of third quarter 2018, which was aided by two December 2017 mandates. Tax reform incentives strengthened third quarter 2018 freight volumes while the electronic hours of service requirement limited truck and driver capacity in third quarter 2018. One-Way Truckload demand, while still lower than the same period a year ago, showed slight seasonal improvement sequentially in September 2019, October 2019 and into early November 2019.
Trucking revenues, net of fuel surcharge, increased 2.1% in third quarter 2019 compared to third quarter 2018 due to a 3.6% increase in average tractors in service, partially offset by a 1.5% decrease in average revenues per tractor per week, net of fuel surcharge, which was due primarily to a decrease in average miles per tractor, partially offset by a small increase in average revenues per total mile. The small increase in average revenues per total mile was due primarily to strength in Dedicated pricing, partially offset by lower One-Way Truckload pricing. We currently expect the percentage change in average revenues per total mile for the One-Way Truckload fleet for the full year 2019 compared to 2018 to be in the range of flat to 3% lower. The third quarter 2019 freight market provided few project and surge freight opportunities with premium rates, unlike the very robust freight market in third quarter 2018. We currently expect freight to seasonally strengthen sequentially in fourth quarter 2019, and we expect peak season to be solid but not as strong as the 2018 peak season.
The average number of tractors in service in the TTS segment increased 3.6% to 8,010 in third quarter 2019 from 7,728 in third quarter 2018. We ended third quarter 2019 with 8,055 trucks in the TTS segment, a year-over-year increase of 305 trucks compared to the end of third quarter 2018, and a sequential increase of 120 trucks compared to the end of second quarter 2019. We currently expect growth in our truck fleet from year-end 2018 to be in the low end of the range of 3% to 5% in 2019, and do not expect truck growth in fourth quarter 2019. We cannot predict whether future driver shortages, if any, will adversely affect our ability to maintain our fleet size. If such a driver shortage were to occur, it could result in a fleet size reduction, and our results of operations could be adversely affected.
Trucking fuel surcharge revenues decreased 16.4% to $57.2 million in third quarter 2019 from $68.4 million in third quarter 2018 due to lower average fuel prices in the 2019 quarter. These revenues represent collections from customers for the increase in fuel and fuel-related expenses, including the fuel component of our independent contractor cost (recorded as rent and purchased transportation expense) and fuel taxes (recorded in taxes and licenses expense), when diesel fuel prices rise. Conversely, when fuel prices decrease, fuel surcharge revenues decrease. To lessen the effect of fluctuating fuel prices on our margins, we collect fuel surcharge revenues from our customers for the cost of diesel fuel and taxes in excess of specified base fuel price levels
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according to terms in our customer contracts. Fuel surcharge rates generally adjust weekly based on an independent U.S. Department of Energy fuel price survey which is released every Monday. Our fuel surcharge programs are designed to (i) recoup higher fuel costs from customers when fuel prices rise and (ii) provide customers with the benefit of lower fuel costs when fuel prices decline. These programs generally enable us to recover a majority, but not all, of the fuel price increases. The remaining portion is generally not recoverable because it results from empty and out-of-route miles (which are not billable to customers) and truck idle time. Fuel prices that change rapidly in short time periods also impact our recovery because the surcharge rate in most programs only changes once per week.
Werner Logistics revenues are generated by its four operating units and 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 $1 thousand in third quarter 2019 and $208 thousand in third quarter 2018 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 quarter 2019, Werner Logistics revenues decreased $8.1 million, or 6.3%, primarily due to significantly lower Intermodal volume impacted by a delayed peak season and excess trucking capacity in the market compared to third quarter 2018. Truckload Logistics (formerly our Brokerage and Freight Management units within Werner Logistics) experienced double-digit volume growth; however, this was offset by rate pressure, led primarily by a nearly 20% decline in transactional spot pricing for non-contractual shipments and few project freight opportunities in third quarter 2019. The Werner Logistics gross margin percentage in third quarter 2019 of 15.2% decreased from 15.9% in third quarter 2018 due primarily to a softer and more competitive Truckload Logistics freight market. The Werner Logistics operating income percentage in third quarter 2019 of 2.5% decreased from third quarter 2018 of 3.7%, and operating income dollars decreased $1.7 million, or 36.6%, compared to third quarter 2018, although we began to gain efficiencies from our investments in decision-making technologies that optimize and automate freight and carrier selection, enabling us to lower our other operating expenses.
Operating Expenses
Our operating ratio (operating expenses expressed as a percentage of operating revenues) was 91.4% for the three months ended September 30, 2019, compared to 89.9% for the three months ended September 30, 2018. Expense items that impacted the overall operating ratio are described on the following pages. The tables on pages 21 through 23 show the Consolidated Statements of Income in dollars and as a percentage of total operating revenues and the percentage increase or decrease in the dollar amounts of those items compared to the same quarter of the prior year, as well as the operating ratios, operating margins, and certain statistical information for our two reportable segments, TTS and Werner Logistics.
Salaries, wages and benefits increased $8.0 million or 4.0% in third quarter 2019 compared to third quarter 2018 and increased 1.9% as a percentage of operating revenues to 33.9%. The higher dollar amount of salaries, wages and benefits expense in the 2019 third quarter was due primarily to higher driver pay rates and 4.6 million more company truck miles, both of which also resulted in an increased amount of payroll taxes and other payroll-related fringe benefits. When evaluated on the basis of company truck miles, driver salaries, wages and benefits also increased, which we primarily attribute to nearly 4% higher driver pay per company truck mile in third quarter 2019 compared to third quarter 2018. The rate of year-over-year percentage increases in driver pay began to moderate when compared to the larger driver pay increases from the first half of 2018. Non-driver salaries, wages and benefits in the non-trucking Werner Logistics segment decreased 6.6%.
We renewed our workers’ compensation insurance coverage for the policy year beginning April 1, 2019. Our coverage levels are the same as the prior policy year. We continue to maintain a self-insurance retention of $1.0 million per claim. Our workers’ compensation insurance premium rate for the policy year beginning April 2019 is 5% higher than the rate for the previous policy year.
The driver recruiting market is extremely competitive. Several ongoing market factors persisted including a declining number of, and increased competition for, driver training school graduates, an historically low national unemployment rate, aging truck driver demographics and increased truck safety regulations including the regulation changes for electronic logging devices. We continue to take significant actions to strengthen our driver recruiting and retention to make Werner a preferred choice for the best drivers, including raising driver pay, maintaining a new truck and trailer fleet, purchasing best-in-class safety and training features for all new trucks, investing in our driver training school network and collaborating with customers to improve or eliminate unproductive freight. These efforts continue to have positive results on our driver retention. We are unable to predict whether we will experience future driver shortages or continue to maintain our current driver retention rates. If such a driver shortage were to occur and additional driver pay rate increases became necessary to attract and retain drivers, our results of operations would be negatively impacted to the extent that we could not obtain corresponding freight rate increases.
Fuel decreased $7.6 million or 11.3% in third quarter 2019 compared to third quarter 2018 and decreased 1.0% as a percentage of operating revenues due to lower average diesel fuel prices, despite 4.6 million more company truck miles in third quarter 2019.
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Average diesel fuel prices were 30 cents per gallon lower in third quarter 2019 than in third quarter 2018 and were 11 cents per gallon lower than in second quarter 2019.
We continue to employ measures to improve our fuel mpg such as (i) limiting truck engine idle time, (ii) optimizing the speed, weight and specifications of our equipment and (iii) implementing mpg-enhancing equipment changes to our fleet including new trucks, more aerodynamic truck features, idle reduction systems, trailer tire inflation systems, trailer skirts and automated manual transmissions to reduce our fuel gallons purchased. However, fuel savings from mpg improvement is partially offset by higher depreciation expense and the additional cost of diesel exhaust fluid. 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 2019, the average diesel fuel price per gallon was approximately 39 cents lower than the average diesel fuel price per gallon in October 2018 and approximately 13 cents lower than in fourth quarter 2018.
Shortages of fuel, increases in fuel prices and petroleum product rationing can have a materially adverse effect on our operations and profitability. We are unable to predict whether fuel price levels will increase or decrease in the future or the extent to which fuel surcharges will be collected from customers. As of September 30, 2019, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.
Supplies and maintenance decreased $0.2 million or 0.5% in third quarter 2019 compared to third quarter 2018 and increased 0.1% as a percentage of operating revenues. The lower dollar amount of supplies and maintenance expense was due primarily to lower driver recruiting costs in third quarter 2019 compared to third quarter 2018, partially offset by increased toll expense and higher maintenance costs resulting from 4.6 million more company truck miles.
Taxes and licenses increased $5.8 million or 31.3% in third quarter 2019 compared to third quarter 2018 and increased 1.0% as a percentage of revenues. During third quarter 2018, we reached a favorable settlement related to a property tax dispute that reduced taxes and licenses expense by $4.9 million for property taxes that were expensed and paid over a multi-year period. In addition to this favorable item in 2018, the effect of having more company trucks and company truck miles in third quarter 2019 compared to third quarter 2018 also added to the increased taxes and licenses.
Insurance and claims decreased $0.1 million or 0.4% in third quarter 2019 compared to third quarter 2018 and increased 0.1% as a percentage of operating revenues. During third quarter 2018, the court entered the final judgment on the apportionment of fault related to an adverse jury verdict rendered May 17, 2018, which we are appealing (see Note 5 in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part 1 of this report). We incurred insurance and claims expense of $2.8 million in third quarter 2018 for accrued interest and legal fees. We incurred insurance and claims expense of $0.8 million in third quarter 2019 for accrued interest related to this matter. Interest is accrued at $0.4 million per month, until such time as the outcome of our appeal is finalized, excluding the months of June and July 2019 when the plaintiffs requested an extension of time to respond to our appeal. The majority of our insurance and claims expense results from our claim experience and claim development under our self-insurance program; the remainder results from insurance premiums for claims in excess of our self-insured limits.
We renewed our liability insurance policies on August 1, 2019 with the same deductibles and aggregates as the August 1, 2018 renewal. We continue to be responsible for the first $3.0 million per claim with an annual $6.0 million aggregate for claims between $3.0 million and $5.0 million. We also have an additional $5.0 million deductible per claim for each claim between $5.0 million and $10.0 million. As a result, we are responsible for the first $10.0 million per claim, until we meet the $6.0 million aggregate for claims between $3.0 million and $5.0 million. We maintain liability insurance coverage with insurance carriers substantially in excess of the $10.0 million per claim. Our liability insurance premiums for the policy year that began August 1, 2019 are 11% higher, or $0.7 million higher, than premiums for the previous policy year.
Depreciation expense increased $4.2 million or 7.3% in third quarter 2019 compared to third quarter 2018 and increased 0.8% as a percentage of operating revenues. A larger company truck fleet, the higher cost of new truck and trailer equipment, and information technology and communications infrastructure upgrades resulted in higher depreciation expense in third quarter 2019.
We are continuing to invest in new trucks and trailers and our terminals in 2019 to improve our driver experience, increase operational efficiency and more effectively manage our maintenance, safety and fuel costs. We currently intend to maintain the average age of our truck and trailer fleet at or near current levels. The average age of our truck fleet remains low by industry standards and was 1.8 years as of September 30, 2019, and the average age of our trailers was 4.0 years.
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Rent and purchased transportation expense decreased $13.1 million or 8.8% in third quarter 2019 compared to third quarter 2018 and decreased 1.7% 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 decreased $6.0 million as a result of lower logistics revenues, and as a percentage of Werner Logistics revenues increased to 84.8% in third quarter 2019 from 84.1% in third quarter 2018 due primarily to a softer and more competitive Truckload Logistics freight market.
Rent and purchased transportation expense for the TTS segment decreased $7.3 million in third quarter 2019 compared to third quarter 2018. Independent contractor miles were slightly lower in third quarter 2019, and the per-mile settlement rate for certain independent contractors decreased in third quarter 2019 compared to third quarter 2018. Independent contractor miles as a percentage of total miles were 9.9% in third quarter 2019 compared to 10.4% in third quarter 2018. Because independent contractors supply their own tractors and drivers and are responsible for their operating expenses, the decrease in independent contractor miles as a percentage of total miles shifted costs from the rent and purchased transportation category to other expense categories, including (i) salaries, wages and benefits, (ii) fuel, (iii) depreciation, (iv) supplies and maintenance and (v) taxes and licenses.
Challenging operating conditions continue to make independent contractor recruitment and retention difficult. Such conditions include inflationary cost increases that are the responsibility of independent contractors and a shortage of financing available to independent contractors for equipment purchases. Historically we have been able to add company tractors and recruit additional company drivers to offset any decrease in the number of independent contractors. If a shortage of independent contractors and company drivers were to occur, further increases in per-mile settlement rates (for independent contractors) and driver pay rates (for company drivers) may become necessary to attract and retain these drivers. This could negatively affect our results of operations to the extent that we would not be able to obtain corresponding freight rate increases.
Other operating expenses increased $1.6 million in third quarter 2019 compared to third quarter 2018 and increased 0.2% as a percentage of operating revenues. Gains on sales of assets (primarily used trucks and trailers) are reflected as a reduction of other operating expenses and are reported net of sales-related expenses (which include costs to prepare the equipment for sale). Gains on sales of assets were $4.1 million in third quarter 2019 compared to $4.6 million in third quarter 2018. We realized higher average gains per truck and lower average gains per trailer in third quarter 2019 compared to third quarter 2018 and sold 53% fewer trucks and 35% more trailers. Pricing in the market for our used trucks and trailers began to moderate in the latter part of second quarter 2019 and continued in third quarter 2019. We currently expect gains on sales of equipment in 2019 to be in the low end of the range of $18 million to $20 million and to moderate in fourth quarter 2019. Increases to the provision for doubtful accounts for our driver training schools and professional consulting services also contributed to the increase in other operating expenses.
Other Expense (Income)
Other expense (income) increased $1.4 million in third quarter 2019 compared to third quarter 2018. Interest expense increased $1.5 million in third quarter 2019 compared to third quarter 2018 due to higher average outstanding debt in the 2019 quarter. We currently expect interest expense in fourth quarter 2019 to be slightly lower than the $2.4 million recorded in third quarter 2019, based on our current debt level and interest rates, including the $150 million of our debt for which we fixed the interest rate in early July 2019 at an average rate of 2.34% with two $75 million interest rate swap agreements.
Income Taxes
Our effective income tax rate (income taxes expressed as a percentage of income before income taxes) was 24.4% in third quarter 2019 and 24.7% in third quarter 2018. The lower income tax rate in third quarter 2019 was attributed primarily to favorable discrete federal and state income tax items. We currently expect our 2019 effective income tax rate to be in the low end of the range of 25% to 26%.
Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018
Operating Revenues
Operating revenues increased 1.7% for the nine months ended September 30, 2019, compared to the same period of the prior year. In the TTS segment, trucking revenues, net of fuel surcharge, increased 5.0% in the 2019 year-to-date period compared to the 2018 year-to-date period due primarily to a 5.0% increase in the average number of tractors in service. Average revenues per total mile, net of fuel surcharge, increased 2.9% in the first nine months of 2019 compared to the same period in 2018, and average monthly miles per tractor decreased by 2.8%. TTS segment fuel surcharge revenues for the nine months ended September 30, 2019 decreased $19.3 million or 9.8% when compared to the nine months ended September 30, 2018 due to lower average fuel prices in the 2019 period. Werner Logistics revenues decreased 3.0% to $369.6 million in the first nine months of 2019 compared to $380.9 million in the same 2018 period.
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Operating Expenses
Our operating ratio (operating expenses expressed as a percentage of operating revenues) was 91.3% for the nine months ended September 30, 2019, compared to 91.8% for the nine months ended September 30, 2018. Expense items that impacted the overall operating ratio are described on the following pages. The tables on pages 21 through 23 show the Consolidated Statements of Income in dollars and as a percentage of total operating revenues and the percentage increase or decrease in the dollar amounts of those items compared to the same period of the prior year, as well as the operating ratios, operating margins, and certain statistical information for our two reportable segments, TTS and Werner Logistics.
Salaries, wages and benefits increased $37.9 million or 6.5% in the first nine months of 2019 compared to the first nine months of 2018 and increased as a percentage of operating revenues to 33.6%. The higher dollar amount of salaries, wages and benefits expense was due primarily to higher driver pay rates and approximately 14.1 million more company truck miles, both of which resulted in higher payroll taxes and payroll-related fringe benefits. Increased health insurance costs in the 2019 period also contributed to the increase in salaries, wages and benefits. When evaluated on the basis of company truck miles, driver pay increased by about 6%. Non-driver salaries, wages and benefits in the non-trucking Werner Logistics segment increased 0.1% compared to 3.0% lower revenues.
Fuel decreased $15.0 million or 7.8% in the first nine months of 2019 compared to the same period in 2018 and decreased 1.0% as a percentage of operating revenues due primarily to lower average diesel fuel prices in 2019, partially offset by increased company truck miles. Average diesel fuel prices were 18 cents per gallon lower in the first nine months of 2019 than in the same 2018 period.
Supplies and maintenance decreased $1.6 million or 1.1% despite higher truck miles driven in the first nine months of 2019 compared to the same period in 2018 and decreased 0.3% as a percentage of operating revenues. The lower dollar amount was due primarily to lower tractor maintenance costs in the first nine months of 2019 compared to the first nine months of 2018, partially the result of more effective management of winter weather conditions and lower weather-related maintenance costs in early 2019, and lower driver recruiting costs. These decreases were partially offset by increased toll expense in the first nine months of 2019 compared to the same period in 2018.
Taxes and licenses increased $7.2 million or 11.3% in the first nine months of 2019 compared to the same period in 2018 and increased 0.3% as a percentage of revenues. The increase was primarily due to the aforementioned favorable settlement related to a property tax dispute that reduced taxes and licenses expense by $4.9 million. In addition to this favorable item in 2018, the effect of having more company trucks and company truck miles in the first nine months of 2019 compared to same period in 2018 also added to the increased taxes and licenses.
Insurance and claims expense decreased $8.2 million or 11.1% in the first nine months of 2019 compared to the same period in 2018 and decreased 0.5% as a percentage of operating revenues. The lower expense in the 2019 year-to-date period was due primarily to the $14.0 million accrual in the 2018 period versus the $2.7 million accrual in the 2019 period related to the aforementioned adverse jury verdict.
Depreciation expense increased $14.4 million or 8.4% in the first nine months of 2019 compared to the same 2018 period and increased 0.6% as a percentage of operating revenues due primarily to the higher cost of new equipment, a larger company truck and trailer fleet, and information technology and communications infrastructure upgrades.
Rent and purchased transportation expense decreased $21.4 million or 4.9% in the first nine months of 2019 compared to the same 2018 period and decreased 1.5% as a percentage of operating revenues. Rent and purchased transportation for the TTS segment decreased $9.7 million in the first nine months of 2019 compared to the same 2018 period. This decrease is due primarily to 2.1% fewer independent contractor miles driven in the first nine months of 2019 compared to the same period in 2018. Independent contractor miles as a percentage of total miles were 10.0% and 10.4% in the first nine months of 2019 and 2018, respectively. Werner Logistics rent and purchased transportation expense decreased $12.3 million and as a percentage of Werner Logistics revenues decreased to 83.8% in the 2019 period from 84.6% in the 2018 period.
Other operating expenses increased $6.9 million in the first nine months of 2019 compared to the same period in 2018 and increased 0.4% as a percentage of operating revenues. Gains on sales of assets (primarily used trucks and trailers) decreased to $14.5 million in the nine months ended September 30, 2019, compared to $15.9 million in the nine months ended September 30, 2018, which included a $3.5 million gain on the sale of real estate. In the 2019 year-to-date period, we sold 24% fewer trucks and 6% more trailers and realized higher average gains per truck and lower average gains per trailer when compared to same period of 2018. Increased costs associated with professional and software consulting services and the provision for doubtful accounts for our driver training schools for the nine months ended September 30, 2019, compared to the same period in 2018 also contributed to the increase of other operating expenses.
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Other Expense (Income)
Other expense (income) increased $2.1 million in the first nine months of 2019 compared to the same 2018 period. Higher interest expense in first nine months of 2019 compared to the same period in 2018 due to higher average outstanding debt in the 2019 period was partially offset by higher interest income in the 2019 period.
Income Taxes
Our effective income tax rate (income taxes expressed as a percentage of income before income taxes) increased to 24.9% for the first nine months of 2019 from 23.9% for the first nine months of 2018. The lower income tax rate in the year-to-date 2018 period is attributed primarily to the benefit of discrete federal and state income tax items in the 2018 period.
Liquidity and Capital Resources:
During the nine months ended September 30, 2019, we generated cash flow from operations of $332.2 million, a 9.8% or $29.7 million increase in cash flows compared to the same nine-month period a year ago. The increase in net cash provided by operating activities resulted primarily from increased cash flows from working capital items, primarily accounts receivable, and higher non-cash depreciation and net income, partially offset by higher income tax payments. We were able to make net capital expenditures, pay dividends and repurchase company stock with the net cash provided by operating activities and existing cash balances, supplemented by net borrowings under our credit facilities.
Net cash used in investing activities decreased to $262.4 million for the nine-month period ended September 30, 2019 from $276.7 million for the nine-month period ended September 30, 2018. Net property additions (primarily revenue equipment) were $271.7 million for the nine-month period ended September 30, 2019, compared to $289.3 million during the same period of 2018. As of September 30, 2019, we were committed to property and equipment purchases of approximately $63.5 million. We currently estimate net capital expenditures (primarily revenue equipment) in 2019 to be in the low end of the range of $275 million to $300 million, compared to net capital expenditures in 2018 of $349.0 million. We intend to fund these net capital expenditures through cash flow from operations and financing available under our existing credit facilities, if necessary.
Net financing activities used $89.4 million during the nine months ended September 30, 2019, and used $31.5 million during the same period in 2018. We borrowed $275.0 million of long-term debt and repaid $50.0 million of long-term debt during the nine months ended September 30, 2019, bringing our outstanding debt at September 30, 2019 to $350.0 million. We borrowed $110.0 million of short-term debt and repaid $60.0 million of debt during the nine months ended September 30, 2018. The proceeds from the additional borrowings in 2019 were used to pay the $261.1 million special dividend. We paid dividends of $280.0 million in the nine-month period ended September 30, 2019 and $16.6 million in the nine-month period ended September 30, 2018. In May 2019, we declared a special dividend of $3.75 per share, or $261.1 million, which was paid on June 7, 2019. Beginning with the quarterly dividend paid in July 2018, we increased our quarterly dividend rate by $0.02 per share, or 29%, to the current rate of $0.09 per share. Financing activities for the nine months ended September 30, 2019, also included common stock repurchases of 1,300,000 shares at a cost of $42.3 million. 1,277,101 shares were repurchased in the nine months ended September 30, 2018 at a cost of $46.4 million. From time to time, the Company has repurchased, and may continue to repurchase, shares of the Company’s common stock. The timing and amount of such purchases depend upon stock market conditions and other factors. As of September 30, 2019, the Company had purchased 700,000 shares pursuant to our current Board of Directors repurchase authorization and had 4,300,000 shares remaining available for repurchase. We also had financing net inflows of $8.9 million in the nine months ended September 30, 2019, and financing net outflows of $18.2 million in the nine months ended September 30, 2018, related to the change in net checks issued in excess of cash balances.
Management believes our financial position at September 30, 2019 is strong. As of September 30, 2019, we had $14.4 million of cash and cash equivalents and over $1 billion of stockholders’ equity. Cash is invested primarily in government portfolio money market funds. As of September 30, 2019, we had a total of $575.0 million of borrowing capacity under three credit facilities (see Note 4 in the Notes to Consolidated Financial Statements (Unaudited) under Item 1 of Part I of this Form 10-Q), of which we had borrowed $350.0 million. The remaining $225.0 million of credit available under these facilities at September 30, 2019 is reduced by the $32.7 million in stand-by letters of credit under which we are obligated. These stand-by letters of credit are primarily required as security for insurance policies. We believe our liquid assets, cash generated from operating activities, and borrowing capacity under our three credit facilities will provide sufficient funds for our operating and capital needs for the foreseeable future. Based on our strong financial position, management does not foresee any significant barriers to obtaining sufficient financing, if necessary.
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Contractual Obligations and Commercial Commitments:
Item 7 of Part II of our 2018 Form 10-K includes our disclosure of contractual obligations and commercial commitments as of December 31, 2018. Except for entering into new debt agreements with additional borrowings under such agreements, and the associated future interest expense, as disclosed in Note 4 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, 2019.
Regulations:
Item 1 of Part I of our 2018 Form 10-K includes a discussion of pending proposed regulations that may have an effect on our operations if they become adopted and effective as proposed. There have been no material changes in the status of these proposed regulations previously disclosed in the 2018 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 2018 Form 10-K. Estimates of accrued liabilities for insurance and claims for liability and physical damage losses 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 2018 Form 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risk from changes in commodity prices, foreign currency exchange rates and interest rates.
Commodity Price Risk
The price and availability of diesel fuel are subject to fluctuations attributed to changes in the level of global oil production, refining capacity, seasonality, weather and other market factors. Historically, we have recovered a majority, but not all, of fuel price increases from customers in the form of fuel surcharges. We implemented customer fuel surcharge programs with most of our customers to offset much of the higher fuel cost per gallon. However, we do not recover all of the fuel cost increase through these surcharge programs.
On January 1, 2020, the International Maritime Organization regulations limiting sulfur content of bunker fuel (IMO 2020) will take effect. While the regulations do not apply to domestic transportation modes, IMO 2020 will significantly increase the demand and competition for low-sulfur fuel, which is expected to result in higher diesel fuel prices for truck and rail transportation and may also constrict supply. We cannot predict the extent to which fuel prices will increase or decrease in the future or the extent to which fuel surcharges could be collected. As of September 30, 2019, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.
Foreign Currency Exchange Rate Risk
We conduct business in several foreign countries, including Mexico, Canada, and China. To date, most foreign revenues are denominated in U.S. Dollars, and we receive payment for foreign freight services primarily in U.S. Dollars to reduce direct foreign currency risk. Assets and liabilities maintained by a foreign subsidiary company in the local currency are subject to foreign exchange gains or losses. Foreign currency translation gains and losses primarily relate to changes in the value of revenue equipment owned by a subsidiary in Mexico, whose functional currency is the Peso. Foreign currency translation losses were $1.1 million for third quarter 2019 and gains were $2.0 million for third quarter 2018. These were recorded in accumulated other comprehensive loss within stockholders’ equity in the Consolidated Balance Sheets.
Interest Rate Risk
We manage interest rate exposure through a mix of variable rate debt and interest rate swap agreements. We had $150 million of debt outstanding at September 30, 2019, for which the interest rate is effectively fixed at 2.34% through May 2024 with two
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interest rate swap agreements to reduce our exposure to interest rate increases. We had $200 million of variable rate debt outstanding at September 30, 2019. Interest rates on the variable rate debt and our unused credit facilities are based on the LIBOR. Assuming this level of borrowing, a hypothetical one-percentage point increase in the LIBOR interest rate would increase our annual interest expense by approximately $2.0 million.
Item 4. Controls and Procedures.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). Our disclosure controls and procedures are designed to provide reasonable assurance of achieving the desired control objectives. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at a reasonable assurance level in enabling us to record, process, summarize and report information required to be included in our periodic filings with the SEC within the required time period and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, concluded that no changes in our internal control over financial reporting occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We have confidence in our internal controls and procedures. Nevertheless, our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that the internal controls or disclosure procedures and controls will prevent all errors or intentional fraud. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of such internal controls are met. Further, the design of an internal control system must reflect that resource constraints exist, and the benefits of controls must be evaluated relative to their costs. Because of the inherent limitations in all internal control systems, no evaluation of controls can provide absolute assurance that all control issues, misstatements and instances of fraud, if any, have been prevented or detected.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
Information regarding the May 17, 2018 adverse jury verdict and subsequent final judgment on July 30, 2018 in Harris County District Court in Houston, Texas, is incorporated by reference from Note 5 in our Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On May 14, 2019, 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 shares of its common stock. As of September 30, 2019, the Company had purchased 700,000 shares pursuant to this authorization and had 4,300,000 shares remaining available for repurchase. The Company may purchase shares from time to time depending on market, economic and other factors. The authorization will continue unless withdrawn by the Board of Directors.
No shares of common stock were repurchased during third quarter 2019 by either the Company or any “affiliated purchaser,” as defined by Rule 10b-18 of the Exchange Act.
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Item 6. Exhibits.

Exhibit No. |  | Exhibit |  | Incorporated by Reference to:
3(i) |  | Restated Articles of Incorporation of Werner Enterprises, Inc. |  | Exhibit 3(i) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007
3(ii) |  | Revised and Restated By-Laws of Werner Enterprises, Inc. |  | Exhibit 3.1 to the Company’s Current Report on Form 8-K dated August 14, 2018
11 |  | Statement Re: Computation of Per Share Earnings |  | See Note 6 (Earnings Per Share) in the Notes to Consolidated Financial Statements (Unaudited) under Item 1 of Part I of this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019
31.1 |  | Certification of the Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 (Section 302 of the Sarbanes-Oxley Act of 2002) |  | Filed herewith
31.2 |  | Certification of the Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 (Section 302 of the Sarbanes-Oxley Act of 2002) |  | Filed herewith
32.1 |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002) |  | Furnished herewith
32.2 |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002) |  | Furnished herewith
101 |  | The following unaudited financial information from Werner Enterprises’ Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in iXBRL (Inline Extensible Business Reporting Language) includes: (i) Consolidated Statements of Income for the three and nine months ended September 30, 2019 and September 30, 2018, (ii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2019 and September 30, 2018, (iii) Consolidated Condensed Balance Sheets as of September 30, 2019 and December 31, 2018, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and September 30, 2018, (v) Consolidated Statements of Stockholders’ Equity for the three months ended September 30, 2019, June 30, 2019, March 31, 2019, September 30, 2018, June 30, 2018 and March 31, 2018, and (vi) the Notes to Consolidated Financial Statements (Unaudited) as of September 30, 2019. |  |
104 |  | The cover page from this Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Inline XBRL (included as Exhibit 101). |  |

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

| WERNER ENTERPRISES, INC.
Date: November 6, 2019 | By: |  | /s/ John J. Steele
|  |  | John J. Steele
|  |  | Executive Vice President, Treasurer and Chief Financial Officer
Date: November 6, 2019 | By: |  | /s/ James L. Johnson
|  |  | James L. Johnson
|  |  | Executive Vice President, Chief Accounting Officer and Corporate Secretary

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