2019 ANNUAL REPORT
FINANCIAL HIGHLIGHTS
2019
2018
2017
2016
2015
Operating revenues
Net income*
$2,463,701
$2,457,914
$2,116,737
$2,008,991
$2,093,529
$166,944
$168,148
$202,889
$79,129
$123,714
Diluted earnings per share*
$2.38
$2.33
$2.80
$1.09
Cash dividends declared per share**
$4.11
$0.34
$0.27
$0.24
$1.71
$0.22
Return on average stockholders’ equity*
Operating ratio
Operating ratio - Truckload Segment
14.6%
90.8%
89.4%
13.7%
19.5%
8.2%
14.1%
90.9%
93.2%
93.7%
90.4%
89.2%
91.6%
93.0%
88.5%
Total assets
Total debt
$2,143,864
$2,083,504
$1,807,991
$1,793,003
$1,585,647
$300,000
$125,000
$75,000
$180,000
$75,000
Stockholders’ equity*
$1,111,008
$1,264,753
$1,184,782
$994,787
$935,654
Dollars in thousands, except per share amounts
* 2017 includes the favorable impact of the non-cash reduction in deferred income tax expense of $111 million, or $1.52 per diluted share,
in fourth quarter 2017 due to the Tax Cuts and Jobs Act of 2017.
** 2019 includes a $3.75 per share special dividend declared in May 2019.
TOTAL ASSETS
OPERATING REVENUES
2019
$2,143,864
2018
$2,083,504
2017
$1,807,991
2016
$1,793,003
2015
$1,585,647
2019
$2,463,701
2018
$2,457,914
2017
$2,116,737
2016
$2,008,991
2015
$2,093,529
DILUTED EARNINGS PER SHARE
2019
$2.38
2018
$2.33
2017
$2.80
2016
$1.09
2015
$1.71
TO OUR SHAREHOLDERS
Coming off the once in a generation freight and rate year of 2018, 2019 was
challenging in truckload transportation due to increased industry truck capacity and
slower economic growth. Despite these challenges, we delivered higher earnings
per share in 2019 than 2018.
The strength of our balanced revenue model, our unwavering commitment to superior
customer service and our exceptional operational execution helped us weather the
storm and outperform our peers.
For the year 2019, revenues increased slightly to nearly $2.5 billion, and diluted
earnings per share increased 2% to $2.38.
From 2015 to 2018, we made significant investments in the 5 T’s of trucks, trailers,
talent, terminals and technology to raise the bar on quality. As this heavy investment
occurred and the resulting benefits became more tangible and visible, our corporate
culture strengthened. Our associates recommitted themselves to producing better
outcomes for our customers. Pride and accountability increased.
We are beginning to realize the benefits of a new and improved Werner. Our 2019
financial results demonstrate our progress. And the best is yet to come.
We are in the on-time, every time business.
We value customers who understand that their supply chain is a competitive
differentiator when they align themselves with premium providers like Werner.
As competitive market forces drive down delivery times for brick and mortar retailers
and other customers, the strength of our high service model is increasingly difficult
for others to replicate. We are intentionally aligned with successful customers that
are winning in their space.
We remain committed to a safety-first culture. Tightened driver hiring criteria,
expanded use of proven safety technology tools and enhanced driver training are all
Werner Core Values
are intended to
represent our tight-
knit culture and
associates who each
play a vital role
in safely serving
America every day.
SAFETY & SERVICE
TEAMWORK
proactive steps we are taking to improve our safety performance.
Nothing we do is worth getting hurt or hurting others.
Freight market conditions currently remain challenging,
however there are signs for improvement ahead. Industry
capacity should be constrained by
lower truck builds,
regulatory changes that tighten driver supply, a hardening
liability insurance market, a softening used truck pricing market and
growing trucking company failures. Demand trends are more difficult
to predict, particularly in an election year, but we believe the recently executed
trade agreements with Mexico and China are incrementally positive.
We are extremely grateful for our Werner team. The men and women of Werner
worked harder than ever in 2019 to produce strong results. Their dedication,
commitment, resolve and creativity continue make a positive difference as we
move forward.
We sincerely value and appreciate all of our stakeholders including our customers,
suppliers, shareholders and associates for their ongoing confidence, trust and
support.
Regardless of the economic environment, Werner is uniquely structured to be
resilient, adaptable and relentlessly focused on producing exceptional service to our
customers. We look forward to the challenges and opportunities ahead.
March 1, 2020
CL Werner
Executive Chairman
Derek J. Leathers
President and Chief Executive Officer
COMMUNITY
INNOVATION
LEADERSHIP
INTEGRITY
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[Mark one]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to __________
Commission File Number: 0-14690
WERNER ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Nebraska
(State or other jurisdiction of
incorporation or organization)
14507 Frontier Road
Post Office Box 45308
Omaha , Nebraska
(Address of principal executive offices)
47-0648386
(I.R.S. Employer
Identification No.)
68145-0308
(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
Common Stock, $0.01 Par Value
Trading Symbol(s)
WERN
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Securities registered pursuant to Section 12(g) of the Act: NONE
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 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
The aggregate market value of the common equity held by non-affiliates of the Registrant (assuming for these purposes that all executive officers and Directors
are “affiliates” of the Registrant) as of June 28, 2019, the last business day of the Registrant’s most recently completed second fiscal quarter, was approximately
$1.372 billion (based on the closing sale price of the Registrant’s Common Stock on that date as reported by Nasdaq).
As of February 10, 2020, 69,350,761 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of Registrant for the Annual Meeting of Stockholders to be held May 12, 2020, are incorporated in Part III of this report.
WERNER ENTERPRISES, INC.
INDEX
PART I
Page
Item 1.
Business..................................................................................................................................................................... 1
Item 1A. Risk Factors............................................................................................................................................................... 6
Item 1B. Unresolved Staff Comments...................................................................................................................................... 9
Item 2.
Properties................................................................................................................................................................... 9
Item 3.
Legal Proceedings.................................................................................................................................................... 10
Item 4.
Mine Safety Disclosures.......................................................................................................................................... 11
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities.................................................................................................................................................. 11
Item 6.
Selected Financial Data........................................................................................................................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 13
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.................................................................................. 23
Item 8.
Financial Statements and Supplementary Data....................................................................................................... 24
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................. 48
Item 9A. Controls and Procedures.......................................................................................................................................... 48
Item 9B. Other Information.................................................................................................................................................... 50
PART III
Item 10. Directors, Executive Officers and Corporate Governance...................................................................................... 50
Item 11. Executive Compensation......................................................................................................................................... 50
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters............... 50
Item 13. Certain Relationships and Related Transactions, and Director Independence........................................................ 51
Item 14. Principal Accounting Fees and Services.................................................................................................................. 51
PART IV
Item 15. Exhibits, Financial Statement Schedules..................................................................................................................51
Item 16. Form 10-K Summary................................................................................................................................................53
This Annual Report on Form 10-K for the year ended December 31, 2019 (this “Form 10-K”) and the documents incorporated
herein by reference contain forward-looking statements based on expectations, estimates and projections as of the date of this
filing. Actual results may differ materially from those expressed in such forward-looking statements. For further guidance, see
Item 1A of Part I and Item 7 of Part II of this Form 10-K.
ITEM 1.
BUSINESS
General
PART I
We are a transportation and logistics company engaged primarily in transporting truckload shipments of general commodities in
both interstate and intrastate commerce. We also provide logistics services through our Werner Logistics segment. We believe we
are one of the largest truckload carriers in the United States (based on total operating revenues), and our headquarters are located
in Omaha, Nebraska, near the geographic center of our truckload service area. We were founded in 1956 by Clarence L. Werner,
who started the business with one truck at the age of 19 and serves as our Executive Chairman. We were incorporated in the State
of Nebraska in September 1982 and completed our initial public offering in June 1986 with a fleet of 632 trucks as of February
1986. At the end of 2019, our Truckload Transportation Services (“TTS”) segment had a fleet of 8,000 trucks, of which 7,460
were company-operated and 540 were owned and operated by independent contractors. Our Werner Logistics division operated
an additional 33 intermodal drayage trucks at the end of 2019.
We have two reportable segments – TTS and Werner Logistics. Our TTS segment is comprised of Dedicated and One-Way
Truckload. Dedicated had 4,630 trucks as of December 31, 2019 and 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
had 3,370 trucks as of December 31, 2019 and includes the following operating fleets: (i) the medium-to-long-haul van (“Van”)
fleet transports a variety of consumer nondurable products and other commodities in truckload quantities over irregular routes
using dry van trailers, including Mexico cross-border routes; (ii) the expedited (“Expedited”) fleet provides time-sensitive truckload
services utilizing driver teams; (iii) the regional short-haul (“Regional”) fleet 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. Our TTS fleets operate throughout the 48
contiguous U.S. states pursuant to operating authority, both common and contract, granted by the U.S. Department of Transportation
(“DOT”) and pursuant to intrastate authority granted by various U.S. states. We also have authority to operate in several provinces
of Canada and to provide through-trailer service into and out of Mexico. The principal types of freight we transport include retail
store merchandise, consumer products, grocery products and manufactured products. We focus on transporting consumer
nondurable products that generally ship more consistently throughout the year and whose volumes are generally more stable during
a slowdown in the economy.
Our Werner Logistics segment is a non-asset-based transportation and logistics provider and generates the majority of our non-
trucking revenues through four operating units. 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. Our Brokerage unit had
transportation services contracts with 25,535 carriers as of December 31, 2019.
Marketing and Operations
Our business philosophy is to provide superior on-time customer service at a significant value for our customers. To accomplish
this, we operate premium modern tractors and trailers. This equipment has fewer mechanical and maintenance issues and helps
attract and retain experienced drivers. We continually develop our business processes and technology to improve customer service
and driver retention. We focus on customers who value the broad geographic coverage, diversified truck and logistics services,
equipment capacity, technology, customized services and flexibility available from a large, financially-stable transportation and
logistics provider.
We operate in the truckload and logistics sectors of the transportation industry. Our TTS segment provides specialized services to
customers based on (i) each customer’s trailer needs (such as van and temperature-controlled trailers), (ii) geographic area (regional
and medium-to-long-haul van, including transport throughout Mexico and Canada), (iii) time-sensitive shipments (expedited) or
(iv) conversion of their private fleet to us (dedicated). In 2019, TTS segment revenues accounted for 77% of total operating
1
revenues and Werner Logistics revenues accounted for 20% of total operating revenues. Our Werner Logistics segment manages
the transportation and logistics requirements for customers, providing customers with additional sources of truck capacity,
alternative modes of transportation, a global delivery network and systems analysis to optimize transportation needs. Werner
Logistics services include (i) truck brokerage, (ii) freight management, (iii) intermodal transport, (iv) international and (v) final
mile. The Werner Logistics international services are provided through our domestic and global subsidiary companies and include
(i) ocean, air and ground transportation services, (ii) door-to-door freight forwarding and (iii) customs brokerage. Most Werner
Logistics international services are provided throughout North America and Asia with additional coverage throughout Australia,
Europe, South America and Africa. Werner Logistics is highly dependent on qualified associates, information systems and the
services of qualified third-party capacity providers. You can find the revenues generated by services that accounted for more than
10% of our consolidated revenues, consisting of TTS and Werner Logistics, for the last three years in Note 2 and Note 10 in the
Notes to Consolidated Financial Statements under Item 8 of Part II of this Form 10-K.
We have a diversified freight base but are dependent on a relatively small number of customers for a significant portion of our
revenues. During 2019, our largest 5, 10, 25 and 50 customers comprised 30%, 41%, 56% and 67% of our revenues, respectively.
No single customer generated more than 9% of our revenues in 2019. The industry groups of our top 50 customers are 51% retail
and consumer products, 20% manufacturing/industrial, 17% food and beverage and 12% logistics and other. Many of our One-
Way Truckload customer contracts may be terminated upon 30 days’ notice, which is common in the truckload industry. We are
moving toward longer-term Dedicated customer contracts, most of which are two to five years in length (including some contracts
with annual evergreen clauses) and generally may be terminated by either party typically upon 90 days or more notice following
the expiration of the contract’s first year. We typically renegotiate rates with our customers for these Dedicated contracts on an
annual basis.
All of our company and independent contractor tractors are equipped with communication devices. These devices enable us and
our drivers to conduct two-way communication using standardized and freeform messages. This technology also allows us to plan
and monitor shipment progress. We automatically monitor truck movement and obtain specific data on the location of all trucks
in the fleet every 15 minutes. Using the real-time global positioning data obtained from the devices, we have advanced application
systems to improve customer and driver service. Examples of such application systems include: (i) an electronic logging system
which records and monitors drivers’ hours of service and integrates with our information systems to pre-plan driver shipment
assignments based on real-time available driving hours; (ii) software that pre-plans shipments drivers can trade enroute to meet
driver home-time needs without compromising on-time delivery schedules; and (iii) automated “possible late load” tracking that
informs the operations department of trucks possibly operating behind schedule, allowing us to take preventive measures to avoid
late deliveries. In 1998, we began a successful pilot program and subsequently became the first trucking company in the United
States to receive an exemption from DOT to use a global positioning-based paperless log system as an alternative to the paper
logbooks traditionally used by truck drivers to track their daily work activities. We have used electronic logging devices (“ELDs”)
to monitor and enforce drivers’ hours of service since 1996.
Seasonality
In the trucking industry, revenues generally follow a seasonal pattern. Peak freight demand has historically occurred in the months
of September, October and November. After the December holiday season and during the remaining winter months, our freight
volumes are typically lower because some customers reduce shipment levels. Our operating expenses have historically been higher
in the winter months due primarily to decreased fuel efficiency, increased cold weather-related maintenance costs of revenue
equipment and increased insurance and claims costs attributed to adverse winter weather conditions. We attempt to minimize the
impact of seasonality through our marketing program by seeking additional freight from certain customers during traditionally
slower shipping periods and focusing on transporting consumer nondurable products. Revenue can also be affected by adverse
weather conditions, holidays and the number of business days that occur during a given period because revenue is directly related
to the available working days of shippers.
Employee Associates and Independent Contractors
As of December 31, 2019, we employed 9,676 drivers; 594 mechanics and maintenance associates for the trucking operation;
1,321 office associates for the trucking operation; and 1,145 associates for Werner Logistics, international, driving schools and
other non-trucking operations. We also had 540 independent contractors who provide both a tractor and a driver or drivers. None
of our U.S., Canadian or Chinese associates are represented by a collective bargaining unit, and we consider relations with our
associates to be good.
We recognize that our professional driver workforce is one of our most valuable assets. Most of our professional drivers are
compensated on a per-mile basis. For most company-employed drivers, the rate per mile generally increases with the drivers’
length of service. Professional drivers may earn additional compensation through incentive performance pay programs and for
2
performing additional work associated with their job (such as loading and unloading freight and making extra stops and shorter
mileage trips).
At times, there are driver shortages in the trucking industry. Availability of experienced drivers can be affected by (i) changes in
the demographic composition of the workforce; (ii) alternative employment opportunities other than truck driving that become
available in the economy; and (iii) individual drivers’ desire to be home more frequently. The driver market was extremely
competitive in 2019, and the supply of recent driver training school graduates continues to tighten. We believe that a declining
number of, and increased competition for, driver training school graduates, the 50-year low domestic unemployment rate, aging
truck driver demographics and increased truck safety regulations are tightening driver supply. We believe our strong mileage
utilization, attractive and varied pay packages, financial strength, safety record, and new truck fleet are attractive to drivers when
compared to many other carriers. Additionally, we believe our large percentage of driving jobs in shorter-haul operations (such
as Dedicated and Regional) that allow drivers to return home more often is attractive to drivers.
We utilize recent driver training school graduates as a significant source of new drivers. These drivers have completed a training
program at a driver training school and hold a commercial driver’s license (“CDL”). They continue to gain industry experience
by partnering with a Werner-certified leader prior to that driver becoming a solo driver with their own truck. As mentioned above,
the recruiting environment for recent driver training school graduates remained challenging in 2019. The availability of these
drivers has been negatively impacted by the decreased availability of student loan financing for driver training schools. At the end
of 2019, we owned two driver training schools that operate a total of 14 driver training locations to assist with the training and
development of drivers for our company and the industry.
As economic conditions improve and regulatory changes are implemented, competition for experienced drivers and recent driver
training school graduates may increase and could become more challenging in 2020. We cannot predict whether we will experience
future shortages in the availability of experienced drivers or driver training school graduates. If such a shortage were to occur and
additional driver pay rate increases became necessary to attract and retain experienced drivers or driver training school graduates,
our results of operations would be negatively impacted to the extent that we could not obtain corresponding freight rate increases.
We also recognize that independent contractors complement our company-employed drivers. Independent contractors supply their
own tractors and drivers and are responsible for their operating expenses. Independent contractors also provide us with another
source of drivers to support our fleet. We intend to maintain our emphasis on independent contractor recruiting, in addition to
company driver recruitment. We, along with others in the trucking industry, however, continue to experience independent contractor
recruitment and retention difficulties that have persisted over the past several years. Challenging operating conditions, including
inflationary cost increases that are the responsibility of independent contractors and a shortage of financing available to independent
contractors for equipment purchases, continue to make it difficult to recruit and retain independent contractors. If a shortage of
independent contractors occurs, additional increases in per-mile settlement rates (for independent contractors) and driver pay rates
(for company drivers) may become necessary to attract and retain a sufficient number of drivers. These increases could negatively
affect our results of operations to the extent that we could not obtain corresponding freight rate increases.
Revenue Equipment
As of December 31, 2019, we operated 7,460 company tractors and 540 tractors owned by independent contractors in our TTS
segment. Our Werner Logistics segment operated an additional 33 company tractors at the end of 2019. The company tractors
were primarily manufactured by Freightliner (a Daimler company), Peterbilt and Kenworth (both divisions of PACCAR) and
International (a Navistar company). We adhere to a comprehensive maintenance program for both company tractors and trailers.
We inspect independent contractor tractors prior to acceptance for compliance with Werner and DOT operational and safety
requirements. We periodically inspect these tractors, in a manner similar to company tractor inspections, to monitor continued
compliance. We also regulate the vehicle speed of company trucks to improve safety and fuel efficiency.
The average age of our company truck fleet was 1.9 years at December 31, 2019, compared to 1.8 years at December 31, 2018.
At December 31, 2019, the average age of our trailer fleet was 4.0 years, compared to 4.1 years at December 31, 2018. All of our
trucks are equipped with satellite tracking devices, and nearly all of our company-owned trucks have collision mitigation safety
systems and automated manual transmissions.
We operated 24,145 company-owned trailers at December 31, 2019, comprised of dry vans, flatbeds, temperature-controlled, and
other specialized trailers. Most of our trailers were manufactured by Wabash National Corporation. Nearly all of our dry van trailer
fleet consisted of 53-foot composite (DuraPlate®) trailers, and we also provide other trailer lengths, such as 48-foot and 57-foot
trailers, to meet the specialized needs of certain customers. Nearly all of our trailers have satellite tracking.
Our wholly-owned subsidiary, Werner Fleet Sales, sells our used trucks and trailers. Werner Fleet Sales has been in business since
1992 and operates in 8 locations. We may also trade used trucks to original equipment manufacturers when purchasing new trucks.
3
Fuel
In 2019, we purchased nearly all of our fuel from a predetermined network of fuel truck stops throughout the United States, of
which approximately 94% was purchased from three large fuel truck stop chains. We negotiate discounted pricing based on
historical purchase volumes with these fuel truck stop chains and other factors.
Shortages of fuel, increases in fuel prices and rationing of petroleum products can have a material adverse effect on our operations
and profitability. Our customer fuel surcharge reimbursement programs generally enable us to recover from our customers a
majority, but not all, of higher fuel prices compared to normalized average fuel prices. These fuel surcharges, which automatically
adjust depending on the U.S. Department of Energy (“DOE”) weekly retail on-highway diesel fuel prices, enable us to recoup
much of the higher cost of fuel when prices increase and provide customers with the benefit of lower fuel costs when fuel prices
decline. We do not generally recoup higher fuel costs for empty and out-of-route miles (which are not billable to customers) and
truck idle time. We cannot predict whether fuel prices will increase or decrease in the future or the extent to which fuel surcharges
will be collected from customers. As of December 31, 2019, we had no derivative financial instruments to reduce our exposure
to fuel price fluctuations.
We maintain aboveground and underground fuel storage tanks at many of our terminals. Leakage or damage to these facilities
could expose us to environmental clean-up costs. The tanks are routinely inspected to help prevent and detect such problems.
Regulations
We are regulated by the U.S. DOT and certain areas of our business are subject to applicable federal, state and international laws
and regulations. DOT and an agency within DOT, the Federal Motor Carrier Safety Administration (“FMCSA”), generally govern
matters such as safety requirements and compliance, registration to engage in motor carrier operations, drivers’ hours of service
(“HOS”), and certain mergers, consolidations, and acquisitions. Werner maintains a satisfactory safety rating, which is the highest
available rating of the three safety ratings given by FMCSA. A conditional or unsatisfactory safety rating could adversely impact
Werner’s business, as some of our customer contracts require a satisfactory rating. Werner must also comply with federal, state,
and international regulations which govern equipment weight and dimensions.
FMCSA’s Compliance, Safety, Accountability (“CSA”) safety initiative monitors the safety performance of motor carriers. CSA
uses the Safety Measurement System (“SMS”) to analyze data from roadside inspections, crash reports, and investigation results.
The Fixing America’s Surface Transportation (“FAST”) Act of 2015 directed FMCSA to remove from public view certain
information regarding carrier’s compliance and safety performance. The FAST Act also instructed FMCSA to study the accuracy
of CSA and SMS data and issue a corrective action plan. Werner continues to monitor FMCSA’s actions and CSA related
developments.
Interstate motor carriers are subject to the FMCSA HOS regulations, which govern our drivers’ operating hours. The HOS of
Drivers Final Rule which became effective July 1, 2013, includes provisions affecting restart periods, rest breaks, on-duty time,
and penalties for violations. Subsequent actions allowed the pre-July 2013 restart provisions to remain in effect indefinitely, pending
further action from FMCSA. In August 2019, FMCSA published a Notice of Proposed Rulemaking proposing changes to HOS
requirements, which Werner continues to monitor.
Werner is the industry leader for ELDs to record driver hours and pioneered the Werner Paperless Logging System in 1996 that
was subsequently approved for our use by FMCSA in 1998. FMCSA’s ELD Final Rule went into effect in December 2017, requiring
all motor carriers to have certified ELDs that meet specific standards for documenting HOS. The out-of-service enforcement of
ELDs began April 1, 2018, and carriers using automatic onboard logging devices were required to transition to ELDs by December
16, 2019.
The FMCSA Commercial Driver’s License Drug and Alcohol Clearinghouse (“the Clearinghouse”) Final Rule was published in
December 2016 with the effective date of January 6, 2020. The Clearinghouse requires motor carriers, designated service agents,
medical review officers, and substance abuse professionals to submit records related to drug and alcohol tests, including test
refusals and positive drug test results, to the nationwide database. Motor carriers are also required to query the database prior to
hiring an applicant and on an annual basis. After experiencing intermittent technical issues upon implementation, FMCSA published
a notice on January 22, 2020 that the Clearinghouse is fully operational and mandatory use is now in effect.
Effective January 1, 2020, motor carriers are required to perform annual random drug tests for 50 percent of existing drivers, an
increase from the previous 25 percent rate. The rate was increased in response to the 2018 FMCSA Drug and Alcohol Testing
Survey, which reported an increase to 1.0 percent of the random testing positive rate for controlled substances. The minimum
annual percentage rate for random alcohol testing remains at 10 percent.
FMCSA issued its final rule for Entry-Level Driver Training (“ELDT”) in December 2016. The original compliance date was
February 7, 2020. However, FMCSA announced a two-year delay of the rule, and the new effective date is February 7, 2022. We
4
will continue to monitor the status of this rulemaking as it will directly impact our training schools and the hiring of professional
drivers.
The U.S. Environmental Protection Agency (“EPA”) and DOT announced in August 2016 Phase 2 of the Greenhouse Gas and
Fuel Efficiency Standards for Medium and Heavy-Duty Trucks. The final rule requires a reduction of carbon emissions and fuel
savings from engines, vehicles, and new trailers to be phased in over the next decade. In January 2020, EPA announced an Advance
Notice of Proposed Rulemaking that would establish new standards for highway heavy-duty engines to lower nitrogen oxide
emissions.
California’s ongoing emissions reduction goals have significantly impacted the industry. The California Air Resources Board
regulations not only apply to California intrastate carriers, but also to carriers outside of California who own or dispatch equipment
in the state. Werner continues to structure our fleet plans to operate compliant equipment in California.
WGL, through its domestic and global subsidiary companies, holds a variety of licenses required to carry out its international
services. These licenses permit WGL to provide services as a Non-Vessel Operating Common Carrier (“NVOCC”), customs broker,
freight forwarder, indirect air carrier, accredited cargo agent, as well as to provide other services. These international services
subject WGL to regulation by the Transportation Security Administration (“TSA”) and Customs and Borders Protection (“CBP”)
agencies of the U.S. Department of Homeland Security, the U.S. Federal Maritime Commission (“FMC”), the International Air
Transport Association (“IATA”), as well as similar regulatory agencies in foreign jurisdictions.
Our operations are subject to applicable federal, state, and local environmental laws and regulations, many of which are implemented
by the EPA and similar state regulatory agencies. These laws and regulations govern the management of hazardous wastes, discharge
of pollutants into the air and surface and underground waters and disposal of certain substances. We do not believe that compliance
with these regulations has a material effect on our capital expenditures, earnings and competitive position.
The United States-Mexico-Canada Agreement (“USMCA”) was signed by President Trump, Prime Minister Trudeau, and then
Mexican President Nieto on November 30, 2018 to serve as a successor for the North American Free Trade Agreement (“NAFTA”).
All three countries must ratify USMCA to replace NAFTA. Mexico and the United States have ratified USMCA. For Canada to
ratify, the agreement must pass through its own legislative process first. We conduct a substantial amount of business in international
freight shipments to and from the United States, Mexico, and Canada (see Note 10 in the Notes to Consolidated Financial Statements
under Item 8 of Part II of this Form 10-K). We believe we are one of the largest truckload carriers in terms of freight volume
shipped to and from the United States, Mexico, and Canada.
Canada announced changes to its Commercial Vehicle Drivers HOS Regulations mandating the use of ELDs on June 13, 2019.
The new ELD mandate is similar to requirements in the United States without introducing any impediments to trade, and will
become effective on June 12, 2021. The ELD regulations in Canada are not expected to have negative effects to our business
model as Werner has used ELDs to record HOS since our Canadian operations started in 2000.
Werner is dedicated to participating in the development of meaningful public policy by continuing to evaluate local, state, and
federal legislative and regulatory actions that impact our operations.
Competition
The freight transportation industry is highly competitive and includes thousands of trucking and non-asset-based logistics
companies. We have a small share of the markets we target. Our TTS segment competes primarily with other truckload carriers.
Logistics companies, intermodal companies, railroads, less-than-truckload carriers and private carriers provide competition for
both our TTS and Werner Logistics segments. Our Werner Logistics segment also competes for the services of third-party capacity
providers.
Competition for the freight we transport or manage is based primarily on service, efficiency, available capacity and, to some degree,
on freight rates alone. We believe that few other truckload carriers have greater financial resources, own more equipment or carry
a larger volume of freight than us. We believe we are one of the largest carriers in the truckload transportation industry based on
total operating revenues.
Internet Website
We maintain an Internet website where you can find additional information regarding our business and operations. The website
address is www.werner.com. On the website, we make certain investor information available free of charge, including our Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, stock ownership reports filed under
Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and any amendments to such reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. This information is included on our website as soon as
reasonably practicable after we electronically file or furnish such materials to the U.S. Securities and Exchange Commission
(“SEC”). We also provide our corporate governance materials, such as Board committee charters and our Code of Corporate
5
Conduct, on our website free of charge, and we may occasionally update these materials when necessary to comply with SEC and
NASDAQ rules or to promote the effective and efficient governance of our company. Information provided on our website is not
incorporated by reference into this Form 10-K.
ITEM 1A.
RISK FACTORS
The following risks and uncertainties may cause our actual results, business, financial condition and cash flows to materially differ
from those anticipated in the forward-looking statements included in this Form 10-K. Caution should be taken not to place undue
reliance on forward-looking statements made herein 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 revise or update any forward-looking
statements contained herein to reflect subsequent events or circumstances or the occurrence of unanticipated events. Also refer to
the Cautionary Note Regarding Forward-Looking Statements in Item 7 of Part II of this Form 10-K.
Our business is subject to overall economic conditions that could have a material adverse effect on our results of operations.
We are sensitive to changes in overall economic conditions that impact customer shipping volumes, industry freight demand and
industry truck capacity. When shipping volumes decline or available truck capacity increases, freight pricing generally becomes
more competitive as carriers compete for loads to maintain truck productivity. We may be negatively affected by future economic
conditions including employment levels, business conditions, fuel and energy costs, public health crises, interest rates and tax
rates. It is unknown whether and how global supply chains may be affected by the developing situation with the coronavirus.
Economic conditions may also impact the financial condition of our customers, resulting in a greater risk of bad debt losses, and
that of our suppliers, which may affect negotiated pricing or availability of needed goods and services.
Difficulty in recruiting and retaining experienced drivers, recent driver training school graduates and independent contractors
impacts our results of operations.
At times, the trucking industry has experienced driver shortages. Driver availability may be affected by changing workforce
demographics, alternative employment opportunities, national unemployment rates, freight market conditions, availability of
financial aid for driver training schools and changing industry regulations. If such a shortage were to occur and additional driver
pay rate increases were 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. Additionally, a shortage of drivers could result in idled equipment,
which would affect our profitability and would limit growth opportunities.
Independent contractor availability may also be affected by both inflationary cost increases that are the responsibility of independent
contractors and the availability of equipment financing. On-going state legislative challenges to the independent contractor model
could also affect independent contractor availability. If a shortage of independent contractors occurs, additional increases in per-
mile settlement rates (for independent contractors) and driver pay rates (for company drivers) may become necessary to attract
and retain a sufficient number of drivers. These increases would negatively affect our results of operations to the extent that we
would be unable to obtain corresponding freight rate increases.
Increases in fuel prices and shortages of fuel can have a material adverse effect on the results of operations and profitability.
To lessen the effect of fluctuating fuel prices on our margins, we have fuel surcharge programs with our customers. 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. Fuel shortages, increases in fuel prices and petroleum product rationing could have a material adverse impact on our
operations and profitability. To the extent that we cannot recover the higher cost of fuel through customer fuel surcharges, our
financial results would be negatively impacted. As of December 31, 2019, we had no derivative financial instruments to reduce
our exposure to fuel price fluctuations.
On January 1, 2020, the International Maritime Organization regulations limiting sulfur content of bunker fuel (IMO 2020) took
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.
We operate in a highly competitive industry, which may limit growth opportunities and reduce profitability.
The freight transportation industry is highly competitive and includes thousands of trucking and non-asset-based logistics
companies. We compete primarily with other truckload carriers in our TTS segment. Logistics companies, digital brokers,
6
intermodal companies, railroads, less-than-truckload carriers and private carriers also provide a lesser degree of competition in
our TTS segment, but such providers are more direct competitors in our Werner Logistics segment. Competition for the freight
we transport or manage is based primarily on service, efficiency, available capacity and, to some degree, on freight rates alone.
This competition could have an adverse effect on either the number of shipments we transport or the freight rates we receive,
which could limit our growth opportunities and reduce our profitability.
We operate in a highly regulated industry. Changes in existing regulations or violations of existing or future regulations could
adversely affect our operations and profitability.
We are regulated by the DOT and its agency the FMCSA in the United States and similar governmental transportation agencies
in foreign countries in which we operate. We are also regulated by agencies in certain U.S. states. These regulatory agencies have
the authority to govern transportation-related activities, such as safety, authorization to conduct motor carrier operations and other
matters. The Regulations subsection in Item 1 of Part I of this Form 10-K describes several proposed and pending regulations that
may have a significant effect on our operations including our productivity, driver recruitment and retention and capital expenditures.
The subsidiaries of WGL hold a variety of licenses required to carry out its international services, and the loss of any of these
licenses would adversely impact the operations of WGL.
The seasonal pattern generally experienced in the trucking industry may affect our periodic results during traditionally slower
shipping periods and winter months.
In the trucking industry, revenues generally follow a seasonal pattern which may affect our results of operations. After the December
holiday season and during the remaining winter months, our freight volumes are typically lower because some customers reduce
shipment levels. Our operating expenses have historically been higher in the winter months because of cold temperatures and
other adverse winter weather conditions which result in decreased fuel efficiency, increased cold weather-related maintenance
costs of revenue equipment and increased insurance and claims costs. Revenue can also be affected by adverse weather conditions,
holidays and the number of business days during a given period because revenue is directly related to the available working days
of shippers.
We depend on key customers, the loss or financial failure of which may have a material adverse effect on our operations and
profitability.
A significant portion of our revenue is generated from key customers. During 2019, our largest 5, 10 and 25 customers accounted
for 30%, 41% and 56% of revenues, respectively. No single customer generated more than 9% of our revenues in 2019. We do
not have long-term contractual relationships with many of our key One-Way Truckload customers. Most of our Dedicated customer
contracts are two to five years in length and generally may be terminated by either party typically upon 90 days or more notice
following the expiration of the contract’s first year. We typically renegotiate rates with our customers for these Dedicated contracts
annually. We cannot provide any assurance that key customer relationships will continue at the same levels. If a key customer
substantially reduced or terminated our services, it could have a material adverse effect on our business and results of operations.
We review our customers’ financial conditions for granting credit, monitor changes in customers’ financial conditions on an ongoing
basis and review individual past-due balances and collection concerns. However, a key customer’s financial failure may negatively
affect our results of operations.
We depend on the services of third-party capacity providers, the availability of which could affect our profitability and limit
growth in our Werner Logistics segment.
Our Werner Logistics segment is highly dependent on the services of third-party capacity providers, such as other truckload carriers,
less-than-truckload carriers, railroads, ocean carriers and airlines. Many of those providers face the same economic challenges as
we do and therefore are actively and competitively soliciting business. These economic conditions may have an adverse effect on
the availability and cost of third-party capacity. If we are unable to secure the services of these third-party capacity providers at
reasonable rates, our results of operations could be adversely affected.
If we cannot effectively manage the challenges associated with doing business internationally, our revenues and profitability
may suffer.
Our results are affected by the success of our operations in Mexico, China and other foreign countries in which we operate (see
Note 10 in the Notes to Consolidated Financial Statements under Item 8 of Part II of this Form 10-K). We are subject to risks of
doing business internationally, including fluctuations in foreign currencies, changes in the economic strength of the countries in
which we do business, difficulties in enforcing contractual obligations and intellectual property rights, burdens of complying with
a wide variety of international and United States export and import laws, and social, political, and economic instability. Additional
risks associated with our foreign operations, including restrictive trade policies and imposition of duties, taxes, or government
royalties by foreign governments, are present but largely mitigated by the terms of NAFTA for Mexico and Canada. The agreement
7
permitting cross border movements for both United States and Mexican based carriers into the United States and Mexico presents
additional risks in the form of potential increased competition and the potential for increased congestion on the cross border lanes
between countries. On November 30, 2018, the United States, Canada and Mexico signed the USMCA as an overhaul and update
to NAFTA. The United States and Mexico have ratified the USMCA, and ratification by Canada is pending. It is currently difficult
to anticipate the full impact of this agreement on foreign trade and our Mexico operations.
Our earnings could be reduced by increases in the number of insurance claims, cost per claim, costs of insurance premiums
or availability of insurance coverage.
We are self-insured for a significant portion of liability resulting from bodily injury, property damage, cargo and associate workers’
compensation and health benefit claims. This is supplemented by premium-based insurance with licensed insurance companies
above our self-insurance level for each type of coverage. To the extent we experience a significant increase in the number of
claims, cost per claim (including costs resulting from large verdicts) or insurance premium costs for coverage in excess of our
retention amounts, our operating results would be negatively affected. Healthcare legislation and inflationary cost increases could
also have a negative effect on our results.
Decreased demand for our used revenue equipment could result in lower unit sales, resale values and gains on sales of assets.
We are sensitive to changes in used equipment prices and demand, especially with respect to tractors. We have been in the business
of selling our company-owned trucks since 1992, when we formed our wholly-owned subsidiary Werner Fleet Sales. Reduced
demand for used equipment could result in a lower volume of sales or lower sales prices, either of which could negatively affect
our gains on sales of assets.
Our operations are subject to applicable environmental laws and regulations, the violation of which could result in substantial
fines or penalties.
In addition to direct regulation by DOT, FMCSA, EPA and other federal, state, and local agencies, we are subject to applicable
environmental laws and regulations dealing with the handling of hazardous materials, aboveground and underground fuel storage
tanks, discharge and retention of storm-water, and emissions from our vehicles. We operate in industrial areas, where truck terminals
and other industrial activities are located and where groundwater or other forms of environmental contamination have occurred.
Our operations involve the risks of fuel spillage or seepage, environmental damage and hazardous waste disposal, among others.
We also maintain bulk fuel storage at several of our facilities. If we are involved in a spill or other accident involving hazardous
substances, or if we are found to be in violation of applicable laws or regulations, it could have a material adverse effect on our
business and operating results. If we fail to comply with applicable environmental regulations, we could be subject to substantial
fines or penalties and to civil and criminal liability. Tractors and trailers used in our daily operations have been affected by regulatory
changes related to air emissions and fuel efficiency, and may be adversely affected in the future by new regulatory actions.
We rely on the services of key personnel, the loss of which could impact our future success.
We are highly dependent on the services of key personnel, including our executive officers. Although we believe we have an
experienced and highly qualified management team, the loss of the services of these key personnel could have a significant adverse
impact on us and our future profitability.
Difficulty in obtaining goods and services from our vendors and suppliers could adversely affect our business.
We are dependent on our vendors and suppliers. We believe we have good vendor relationships and that we are generally able to
obtain favorable pricing and other terms from vendors and suppliers. If we fail to maintain satisfactory relationships with our
vendors and suppliers, or if our vendors and suppliers experience significant financial problems, we could experience difficulty
in obtaining needed goods and services because of production interruptions or other reasons. Consequently, our business could
be adversely affected.
We use our information systems extensively for day-to-day operations, and service interruptions or a failure of our information
technology infrastructure or a breach of our information security systems, networks or processes could have a material adverse
effect on our business.
We depend on the stability, availability and security of our information systems to manage our business. Much of our software
was developed internally or by adapting purchased software applications to suit our needs. Our information systems are used for
planning loads, communicating with and dispatching drivers and other capacity providers, billing customers, paying vendors and
providing financial reports. We rely on one vendor for GPS and satellite communication services, which are integrated in our
information systems. If any of our critical information systems fail or become unavailable, or those of our service providers, we
would have to perform certain functions manually, which could temporarily affect our ability to efficiently manage our operations.
8
We have redundant computer hardware systems to reduce this risk. We also maintain information security policies to protect our
systems and data from cyber security events and threats. The security risks associated with information technology systems have
increased in recent years because of the increased sophistication, activities and evolving techniques of perpetrators of cyber attacks.
The techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently, may be
difficult to detect for a long time and often are not recognized until launched against a target. As a result, we may be unable to
anticipate these techniques or to implement adequate preventative measures. A failure in or breach of our information technology
security systems, or those of our third-party service providers, as a result of cyber attacks or unauthorized network access could
disrupt our business, result in the disclosure or misuse of confidential or proprietary information, increase our costs and/or cause
losses and reputational damage. In addition, recently, there has also been heightened regulatory and enforcement focus on data
protection in the U.S., and failure to comply with applicable U.S. data protection regulations or other data protection standards
may expose us to litigation, fines, sanctions or other penalties, which could harm our reputation and adversely impact our business,
results of operations and financial condition.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our headquarters are located on approximately 138 acres near U.S. Interstate 80 west of Omaha, Nebraska, 55 acres of which are
undeveloped. Our headquarters office building includes a computer center, drivers’ lounges, cafeteria and company store. The
Omaha headquarters also includes a driver safety and training facility, equipment maintenance and repair facilities and a sales
office for selling used trucks and trailers. The equipment maintenance and repair facilities contain a central parts warehouse, frame
straightening and alignment machine, truck and trailer wash areas, equipment safety lanes, body shops for tractors and trailers,
two paint booths and a reclaim center. Our headquarter facilities have suitable space available to accommodate planned needs for
at least the next three to five years.
9
We also have several terminals throughout the United States, consisting of office and/or maintenance facilities. In addition, we
own parcels of land in several locations in the United States for future terminal development. Our terminal locations are described
below:
Location
Omaha, Nebraska
Omaha, Nebraska
Phoenix, Arizona
Fontana, California
Denver, Colorado
Atlanta, Georgia
Indianapolis, Indiana
Springfield, Ohio
Allentown, Pennsylvania
Dallas, Texas
Laredo, Texas
Lakeland, Florida
El Paso, Texas
Joliet, Illinois
West Memphis, Arkansas
Brownstown, Michigan
Owned or Leased
Description
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Leased
Owned
Owned
Leased
Owned
Owned
Owned
Owned
Corporate headquarters, maintenance,
truck sales
Disaster recovery, warehouse
Office, maintenance
Office, maintenance, truck sales
Maintenance
Office, maintenance, truck sales
Maintenance
Truck sales
Office, maintenance, truck sales
Office, maintenance
Office, maintenance, truck sales
Office, maintenance, transloading,
truck sales
Office, maintenance
Office, maintenance
Office, maintenance, truck sales
Maintenance
Maintenance
Segment
TTS, Werner Logistics,
Corporate
Corporate
TTS
TTS
TTS
TTS
TTS
TTS
TTS
TTS
TTS
TTS, Werner Logistics
TTS
TTS
TTS
TTS
TTS
We currently lease (i) small sales offices, brokerage offices and trailer parking yards in various locations throughout the United
States and (ii) office space in Mexico, Canada and China. We own (i) a 96-room motel located near our Omaha headquarters; (ii)
an 85-room hotel located near our Atlanta terminal; (iii) a 71-room private driver lodging facility at our Dallas terminal; and (iv) a
terminal facility in Queretaro, Mexico, which we lease to a third party. The Werner Fleet Sales network has eight locations, which
are located in certain terminals listed above. Our driver training schools operate in 14 locations in the United States, either in
certain terminals listed above or in leased facilities.
ITEM 3.
LEGAL PROCEEDINGS
We are a party subject to routine litigation incidental to our business, primarily involving claims for bodily injury, property damage,
cargo and workers’ compensation incurred in the transportation of freight. We have maintained a self-insurance program with a
qualified department of risk management professionals since 1988. These associates manage our bodily injury, property damage,
cargo and workers’ compensation claims. An independent actuary reviews our calculation of the undiscounted self-insurance
reserves for bodily injury, property damage and workers’ compensation claims at year-end.
We renewed our liability insurance policies on August 1, 2019 with the same deductibles and aggregates that first became effective
with the August 1, 2017 renewal. For the policy years August 1, 2017 through July 31, 2020, our self-insured retention (“SIR”)
and deductible amount is $3.0 million, plus administrative expenses, for each occurrence involving bodily injury or property
damage. We also have an annual $6.0 million aggregate for claims between $3.0 million and $5.0 million and 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. Our SIR/
deductible was $2.0 million for policy years from August 1, 2004 through July 31, 2017, and we were also responsible for varying
annual aggregate amounts of liability for claims in excess of the SIR/deductible. For the policy year August 1, 2016 through July
31, 2017, we had an annual $8.0 million aggregate for claims between $2.0 million and $5.0 million and an annual aggregate of
$5.0 million for claims between $5.0 million and $10.0 million. We maintain premium-based liability insurance coverage with
insurance carriers substantially in excess of the $10.0 million per claim, to coverage levels that our management considers adequate.
See also Note 1 and Note 8 in the Notes to Consolidated Financial Statements under Item 8 of Part II of this Form 10-K.
10
We are responsible for workers’ compensation claims up to $1.0 million per claim and have premium-based insurance coverage
for individual claims above $1.0 million. We also maintain a $26.6 million bond for the State of Nebraska and a $10.4 million
bond for our workers’ compensation insurance carrier.
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 8 in the Notes to Consolidated Financial Statements
under Item 8 of Part II of this Form 10-K.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock
Our common stock trades on the NASDAQ Global Select MarketSM tier of the NASDAQ Stock Market under the symbol “WERN”.
As of February 10, 2020, our common stock was held by 338 stockholders of record. Because many of our shares of common
stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders
represented by these record holders.
Dividend Policy
We have paid cash dividends on our common stock following each fiscal quarter since the first payment in July 1987. Our current
quarterly dividend rate is $0.09 per common share. We also paid a $3.75 per share special dividend in 2019. We currently intend
to continue paying a regular quarterly dividend. We do not currently anticipate any restrictions on our future ability to pay such
dividends. However, we cannot give any assurance that dividends will be paid in the future or of the amount of any such quarterly
or special dividends because they are dependent on our earnings, financial condition and other factors.
Equity Compensation Plan Information
For information on our equity compensation plans, please refer to Item 12 of Part III of this Form 10-K.
11
Performance Graph
Comparison of Five-Year Cumulative Total Return
The following graph is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to the liabilities of Section 18
of the Exchange Act, and the report shall not be deemed to be incorporated by reference into any prior or subsequent filing by us
under the Securities Act of 1933 or the Exchange Act except to the extent we specifically request that such information be
incorporated by reference or treated as soliciting material.
Werner Enterprises, Inc. (WERN)
Standard & Poor’s 500
2018 Peer Group
2019 Peer Group
12/31/2014
100
$
100
$
100
$
100
$
12/31/2015
76
$
101
$
72
$
73
$
12/31/2016
88
$
114
$
94
$
95
$
12/31/2017
127
$
138
$
119
$
123
$
12/31/2018
98
$
132
$
$
99
101
$
12/31/2019
138
$
174
$
139
$
141
$
Assuming the investment of $100 on December 31, 2014, and reinvestment of all dividends, the graph above compares the
cumulative total stockholder return on our common stock for the last five fiscal years with the cumulative total return of Standard &
Poor’s 500 Market Index and our Peer Group over the same period. In 2019, we selected a new Peer Group in order to more closely
align with our benchmarking Peer Group, which consists of the following companies: ArcBest; Covenant Transportation; Echo
Global Logistics; Forward Air; Heartland Express; Hub Group; JB Hunt; Kansas City Southern; Knight-Swift Transportation;
Landstar System; Marten Transport; Old Dominion Freight Line; Saia; Schneider National; US Xpress; and YRC Worldwide. We
added Covenant Transportation, Marten Transport, and US Xpress to our 2019 Peer Group and removed Genesee & Wyoming
and Kirby. Our stock price was $36.39 as of December 31, 2019. This price was used for purposes of calculating the total return
on our common stock for the year ended December 31, 2019.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
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. On the same day, the Board of Directors withdrew the
previous stock repurchase authorization that was approved in October 2007, which had 2,035,608 shares remaining available for
repurchase. As of December 31, 2019, the Company had purchased 700,000 shares pursuant to the new authorization and had
12
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 fourth quarter 2019 by either the Company or any “affiliated purchaser”, as
defined by Rule 10b-18 of the Exchange Act.
ITEM 6.
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the consolidated financial statements and notes under
Item 8 of Part II of this Form 10-K.
(In thousands, except per share amounts)
Operating revenues
Net income (1)
Diluted earnings per share (1)
Cash dividends declared per share (2)
Total assets (3)
Total debt
Stockholders’ equity (1)
Book value per share (1) (4)
Return on average stockholders’ equity (1) (5)
Return on average total assets (1) (3) (6)
Operating ratio (consolidated) (7)
2019
2018
2017
2016
2015
$ 2,463,701
$ 2,457,914
$ 2,116,737
$ 2,008,991
$ 2,093,529
166,944
168,148
202,889
79,129
123,714
2.38
4.11
2.33
0.34
2.80
0.27
1.09
0.24
1.71
0.22
2,143,864
2,083,504
1,807,991
1,793,003
1,585,647
300,000
125,000
75,000
1,111,008
1,264,753
1,184,782
16.04
17.95
14.6%
7.8%
90.8%
13.7%
8.7%
90.9%
16.36
19.5%
11.5%
93.2%
180,000
994,787
13.78
8.2%
4.7%
93.7%
75,000
935,654
13.00
14.1%
8.2%
90.4%
(1)
Includes the $110.5 million, or $1.52 per diluted share, non-cash reduction in income tax expense in 2017 resulting from the revaluation of net deferred
income tax liabilities due to the Tax Cuts and Jobs Act of 2017. Excluding this item, return on average total assets was 5.3%, and return on average
stockholders’ equity was 9.0% for 2017. Management believes the exclusion of the tax reform benefit provides a more useful comparison of the Company’s
performance from period to period.
(2)
Includes a $3.75 per share special dividend declared in May 2019.
(3) Pursuant to the Company’s early adoption of Accounting Standards Update 2015-17, “Total assets” and “Return on average total assets” for 2015 reflects
the impact of reclassifying the current deferred income tax asset into the non-current deferred income tax liability.
(4) Stockholders’ equity divided by common shares outstanding as of the end of the period. Book value per share indicates the dollar value remaining for
common shareholders if all assets were liquidated at recorded amounts and all debts were paid at recorded amounts.
(5) Net income expressed as a percentage of average stockholders’ equity. Return on equity is a measure of a corporation’s profitability relative to recorded
shareholder investment.
(6) Net income expressed as a percentage of average total assets. Return on assets is a measure of a corporation’s profitability relative to recorded assets.
(7) Operating expenses expressed as a percentage of operating revenues. Operating ratio is a common measure used in the trucking industry to evaluate
profitability.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“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:
• Cautionary Note Regarding Forward-Looking Statements
• Overview
• Results of Operations
• Liquidity and Capital Resources
• Contractual Obligations and Commercial Commitments
• Off-Balance Sheet Arrangements
• Critical Accounting Estimates
•
Inflation
13
Cautionary Note Regarding Forward-Looking Statements:
This Annual Report on Form 10-K 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 this Item 7 (Management’s
Discussion and Analysis of Financial Condition and Results of Operations), 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 this Form 10-K. Readers should not unduly
rely on the forward-looking statements included in this Form 10-K 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.
Overview:
We have two reportable segments, 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. 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 2019 to 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.
14
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.
(Amounts in thousands)
Operating revenues
Operating expenses:
Salaries, wages and benefits
Fuel
Supplies and maintenance
Taxes and licenses
Insurance and claims
Depreciation
Rent and purchased transportation
Communications and utilities
Other
Total operating expenses
Operating income
Total other expense (income)
Income before income taxes
Income tax expense
Net income
2019
2018
Percentage
Change in
Dollar
Amounts
$
%
$
%
%
$
2,463,701
100.0
$
2,457,914
100.0
0.2
818,487
235,928
182,909
95,525
88,913
249,527
549,438
15,303
2,199
33.2
9.6
7.4
3.9
3.6
10.1
22.3
0.6
0.1
781,064
254,564
185,074
87,318
98,133
230,151
589,002
16,063
(7,670)
2,238,229
90.8
2,233,699
225,472
3,566
221,906
54,962
166,944
9.2
0.2
9.0
2.2
6.8
$
224,215
334
223,881
55,733
168,148
$
31.8
10.4
7.5
3.5
4.0
9.4
24.0
0.6
(0.3)
90.9
9.1
—
9.1
2.3
6.8
4.8
(7.3)
(1.2)
9.4
(9.4)
8.4
(6.7)
(4.7)
128.7
0.2
0.6
967.7
(0.9)
(1.4)
(0.7)
15
The following tables set forth the operating revenues, operating expenses and operating income for the TTS segment and certain
statistical data regarding our TTS segment operations, as well as statistical data for the One-Way Truckload and Dedicated operating
units within TTS.
TTS segment (amounts in thousands)
Trucking revenues, net of fuel surcharge
Trucking fuel surcharge revenues
Non-trucking and other operating revenues
Operating revenues
Operating expenses
Operating income
TTS segment
Average tractors in service
Average revenues per tractor per week (1)
Total tractors (at year end)
Company
Independent contractor
Total tractors
Total trailers (at year end)
One-Way Truckload
2019
2018
$
%
$
%
% Chg
$
1,652,663
$
1,588,175
234,366
22,747
265,078
28,070
1,909,776
100.0
1,881,323
100.0
1,707,116
$
202,660
89.4
10.6
1,678,742
$
202,581
89.2
10.8
4.1 %
(11.6)%
(19.0)%
1.5 %
1.7 %
— %
$
2019
7,969
3,988
7,460
540
8,000
22,700
$
2018
% Chg
7,622
4,007
7,240
580
7,820
23,945
4.6 %
(0.5)%
3.0 %
(6.9)%
2.3 %
(5.2)%
Trucking revenues, net of fuel surcharge (in 000’s)
$
738,510
$
770,972
(4.2)%
Average tractors in service
Total tractors (at year end)
Average percentage of empty miles
Average revenues per tractor per week (1)
Average % change in revenues per total mile (1)
Average % change in total miles per tractor per week
Average completed trip length in miles (loaded)
Dedicated
Trucking revenues, net of fuel surcharge (in 000’s)
Average tractors in service
Total tractors (at year end)
Average revenues per tractor per week (1)
(1) Net of fuel surcharge revenues.
3,376
3,370
12.01 %
$
4,207
$
(2.1)%
(3.1)%
848
3,345
3,320
11.17%
4,432
13.2%
0.0%
833
0.9 %
1.5 %
7.5 %
(5.1)%
1.8 %
$
914,153
$
817,203
11.9 %
4,593
4,630
3,827
$
4,277
4,500
3,673
$
7.4 %
2.9 %
4.2 %
16
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.
Werner Logistics segment (amounts in thousands)
Operating revenues
Rent and purchased transportation expense
Gross margin
Other operating expenses
Operating income
Werner Logistics segment
Average tractors in service
Total tractors (at year end)
Total trailers (at year end)
2019 Compared to 2018
Operating Revenues
2019
$
489,729
411,506
78,223
61,935
16,288
%
100.0
$
84.0
16.0
12.7
3.3
$
2018
$
518,078
436,220
81,858
61,480
20,378
%
100.0
84.2
15.8
11.9
3.9
$
$
2019
2018
36
33
1,445
42
40
1,310
% Chg
(5.5)%
(5.7)%
(4.4)%
0.7 %
(20.1)%
% Chg
(14.3)%
(17.5)%
10.3 %
Operating revenues increased 0.2% in 2019 compared to 2018. When comparing 2019 to 2018, TTS segment revenues increased
$28.5 million, or 1.5%. Revenues for the Werner Logistics segment decreased $28.3 million or 5.5%.
2019 was a more difficult freight and rate year than 2018, due to slower growth in the domestic economy and increased truckload
capacity, both of which led to lower freight volumes and less attractive pricing in our One-Way Truckload fleet. Freight demand
in our One-Way Truckload fleet was weaker than normal during much of 2019 and well below the unusually strong freight demand
of 2018, which was aided by FMCSA’s ELD Final Rule and the Tax Cuts and Jobs Act of 2017, both of which occurred in December
2017. So far in 2020, freight volumes in our One-Way Truckload unit have been seasonally normal and slightly lower than the
same period in 2019. Pricing remains challenging. We expect shipment volumes to be negatively affected at U.S. ports in late first
quarter 2020 as a result of the impact of the coronavirus on factory production in China. It is currently expected that shipment
volumes at the U.S. ports would increase in second quarter 2020 as factory production in China increases. This is subject to swift
containment of the coronavirus.
Trucking revenues, net of fuel surcharge, increased 4.1% in 2019 compared to 2018 due to an 4.6% increase in the average number
of tractors in service, partially offset by a 0.5% decrease in average revenues per tractor per week, net of fuel surcharge. We attribute
the decline in average revenues per tractor per week to lower average miles per tractor, partially offset by higher average revenues
per total mile. The less robust freight market in 2019 and growth in our Dedicated fleet, which has lower miles per truck and a
shorter length of haul, are the primary reasons for the decline in average miles per truck for the TTS segment. Additionally, extended
winter weather conditions early in 2019 and a truck GPS satellite communications service provider failure that occurred during
four weeks in fourth quarter 2019 negatively impacted average miles per truck. The increase in average revenues per total mile
was due primarily to dedicated fleet expansion, higher contractual rates and lane mix changes, and the rate of improvement declined
in the latter part of 2019 because of fewer project and surge freight opportunities with premium rates and significantly lower spot
rates. We currently expect average revenues per total mile for the One-Way Truckload fleet to remain difficult for the first half of
2020 and to decrease in a range of 5% to 7% when compared to the first half of 2019.
The average number of tractors in service in the TTS segment increased 4.6% to 7,969 in 2019 compared to 7,622 in 2018. We
ended 2019 with 8,000 tractors in the TTS segment, a year-over-year increase of 180 trucks. Our Dedicated unit ended 2019 with
4,630 trucks (or 58% of our total TTS segment fleet) compared to 4,500 trucks at the end of 2018. We currently expect our truck
count at the end of 2020 to be in a range of a 3% lower to 1% higher when compared to the fleet size at year-end 2019, with flat
to slightly lower truck count in the first half of 2020 due to current market conditions. We cannot predict whether future driver
shortages, if any, will adversely affect our ability to maintain our fleet size. If such a driver market shortage were to occur, it could
result in a fleet size reduction, and our results of operations could be adversely affected.
Trucking fuel surcharge revenues decreased 11.6% to $234.4 million in 2019 from $265.1 million in 2018 because of lower average
fuel prices in 2019. 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
17
decrease. To lessen the effect of fluctuating fuel prices on our margins, we collect fuel surcharge revenues from our customers for
the cost of diesel fuel and taxes in excess of specified base fuel price levels according to terms in our customer contracts. Fuel
surcharge rates generally adjust weekly based on an independent U.S. Department of Energy fuel price survey which is released
every Monday. Our fuel surcharge programs are designed to (i) recoup higher fuel costs from customers when fuel prices rise and
(ii) provide customers with the benefit of lower fuel costs when fuel prices decline. These programs generally enable us to recover
a majority, but not all, of the fuel price increases. The remaining portion is generally not recoverable because it results from empty
and out-of-route miles (which are not billable to customers) and truck idle time. Fuel prices that change rapidly in short time
periods also impact our recovery because the surcharge rate in most programs only changes once per week.
Werner Logistics revenues are generated by its 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 $0.2 million in 2019 and $1.1 million in 2018 for Intermodal drayage movements performed by the
TTS segment (also recorded as trucking revenues by the TTS segment), and these transactions between reporting segments are
eliminated in consolidation. Werner Logistics revenues decreased 5.5% to $489.7 million in 2019 from $518.1 million in 2018
because of a softer freight market with increased competition. Werner Logistics gross margin dollars decreased 4.4% to $78.2
million in 2019 from $81.9 million in 2018, and Werner Logistics gross margin percentage increased slightly to 16.0% in 2019
from 15.8% in 2018. Werner Logistics operating income percentage decreased to 3.3% in 2019 from 3.9% in 2018. The gross
margin increase is due primarily to contractual pricing and improved capacity procurement in Truckload Logistics early in 2019,
with gross margin declining as 2019 progressed due to fewer project freight opportunities and lower transactional spot pricing.
Our operating margin decreased as the percentage decline in gross profit exceeded the percentage decline in other operating
expenses, although we began to gain efficiencies from our investments in decision-making technologies that optimize and automate
freight and carrier selection.
Operating Expenses
Our operating ratio (operating expenses expressed as a percentage of operating revenues) was 90.8% in 2019 compared to 90.9%
in 2018. Expense items that impacted the overall operating ratio are described on the following pages. The tables on pages 15
through 17 show the Consolidated Statements of Income in dollars and as a percentage of total operating revenues and the percentage
increase or decrease in the dollar amounts of those items compared to the 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 $37.4 million or 4.8% in 2019 compared to 2018 and increased 1.4% as a percentage of
operating revenues. The higher dollar amount of salaries, wages and benefits expense was due primarily to higher driver pay rates
and approximately 17 million more company truck miles in 2019 compared to 2018, both of which resulted in higher payroll taxes
and other payroll-related fringe benefits, and increases in medical claims, prescription drugs, and other health insurance costs in
2019. These increases were partially offset by lower non-driver pay in 2019 compared to 2018 related to our performance-based
incentive compensation program. When evaluated on the basis of company truck miles, driver pay increased by about 5% in 2019.
Non-driver salaries, wages and benefits in our non-trucking Werner Logistics segment decreased 2.9% from 2019 to 2018.
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 continued
to take significant actions to strengthen our driver recruiting and retention to make Werner the 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 continued to have positive results on our driver retention. We are currently 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 $18.6 million or 7.3% in 2019 compared to 2018 and decreased 0.8% as a percentage of operating revenues due
to lower average diesel fuel prices, partially offset by more company trucks and miles in 2019. Average diesel fuel prices, excluding
fuel taxes, for the full year 2019 were 17 cents per gallon lower than the full year 2018, an 8% decrease.
We continue to employ measures to improve our fuel mpg, including (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
18
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.
Through February 21, the average diesel fuel price per gallon in 2020 was approximately 7cents lower than the average diesel fuel
price per gallon in the same period of 2019 and approximately 14 cents lower than the average for first quarter 2019.
Shortages of fuel, increases in fuel prices and petroleum product rationing can have a material adverse effect on our operations
and profitability. We are unable to predict whether fuel price levels will increase or decrease in the future or the extent to which
fuel surcharges will be collected from customers. As of December 31, 2019, we had no derivative financial instruments to reduce
our exposure to fuel price fluctuations.
Supplies and maintenance decreased $2.2 million or 1.2% in 2019 compared to 2018 and decreased 0.1% as a percentage of
operating revenues despite higher company miles driven in 2019 due primarily to lower driver recruiting and other driver-related
costs in 2019. Also contributing to the decrease was more effective management of winter weather conditions in 2019 that resulted
in lower weather-related maintenance costs early in the year.
Taxes and licenses increased $8.2 million or 9.4% in 2019 compared to 2018 and increased 0.4% as a percentage of operating
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 2019 compared to 2018 and higher
state fuel tax rates also added to the increased taxes and licenses.
Insurance and claims decreased $9.2 million or 9.4% in 2019 compared to 2018 and decreased 0.4% as a percentage of operating
revenues. In 2018, we incurred $15.2 million of insurance and claims expense (including interest and legal fees) related to a
previously-disclosed adverse jury verdict rendered May 17, 2018, which we are appealing (see Note 8 in the Notes to Consolidated
Financial Statements set forth in Part II of this Form 10-K). In 2019, we incurred insurance and claims expense of $3.9 million
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.
In January 2020, one of our trucks was involved in a serious accident. We are still investigating the accident but it is probable that
it will adversely impact first quarter 2020 earnings. We self-insure for the first $10.0 million of liability coverage for this policy
period and have appropriate excess liability insurance coverage with insurance carriers above this amount.
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. See Item 3 of Part I of this Form 10-K for information
on our bodily injury and property damage coverage levels since August 1, 2016.
Depreciation increased $19.4 million or 8.4% in 2019 compared to 2018 and increased 0.7% as a percentage of operating revenues.
This expense increase is due primarily to (i) the higher cost of new revenue equipment, (ii) a larger company truck and trailer fleet,
and (iii) information technology and communication infrastructure upgrades.
We continued 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 1.9 years as of December 31, 2019, and the average age of our trailers was 4.0 years.
Rent and purchased transportation expense decreased $39.6 million or 6.7% in 2019 compared to 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
19
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 $24.7 million as a result
of lower logistics revenues and decreased to 84.0% of Werner Logistics revenues in 2019 from 84.2% in 2018.
Rent and purchased transportation expense for the TTS segment decreased $15.8 million in 2019 compared to 2018. This decrease
is due primarily to lower payments to independent contractors in 2019 compared to 2018, resulting from a decrease in independent
contractor miles driven in 2019. Lower average diesel fuel prices in 2019 also resulted in lower reimbursement to independent
contractors. Independent contractor miles as a percentage of total miles were 9.9% in 2019 and 10.3% in 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 occurs, further increases in per-mile settlement rates (for independent contractors) and driver pay rates (for
company drivers) may become necessary to attract and retain these drivers. This could negatively affect our results of operations
to the extent that we would not be able to obtain corresponding freight rate increases.
Other operating expenses increased $9.9 million in 2019 compared to 2018 and increased 0.4% 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
$21.6 million in 2019, including $3.4 million from sales of real estate, compared to $24.9 million in 2018, including $5.9 million
from sales of real estate. In 2019, we sold fewer trucks and more trailers than in 2018. We realized higher average gains per truck
and lower average gains per trailer sold in 2019 compared to 2018. Pricing in the market for our used trucks and trailers began to
moderate in the latter part of second quarter 2019, and the used truck pricing decline accelerated in fourth quarter 2019 due to
weaker demand. We currently expect gains on sales of equipment in 2020 to continue to moderate due to the softer used equipment
market and lower trailer sales and to be in the range of $6 million to $12 million. Increased costs associated with professional and
software consultant services and provision for doubtful accounts related to the driver training schools also contributed to the
increase in other operating expenses from 2018 to 2019.
Other Expense (Income)
Other expense (income) increased $3.2 million in 2019 compared to 2018. Interest expense increased $4.2 million in 2019 compared
to 2018 due to higher average outstanding debt and was partially offset by higher interest income.
Income Tax Expense
Income tax expense decreased $0.8 million in 2019 compared to 2018, due to lower pre-tax income and a slightly lower effective
income tax rate in 2019 of 24.8% compared to 24.9% in 2018. We currently estimate our full year 2020 effective income tax rate
to be approximately 25% to 26%.
2018 Compared to 2017
For a comparison of the Company’s results of operations for the fiscal years ended December 31, 2017 to the year ended December
31, 2018, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the U.S. Securities and Exchange
Commission on March 1, 2019.
Liquidity and Capital Resources:
During the year ended December 31, 2019, we generated cash flow from operations of $426.6 million, compared to $418.2 million
during the year ended December 31, 2018. This 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, partially offset
by higher income tax payments. We were able to make net capital expenditures, pay dividends, and repurchase stock with the net
cash provided by operating activities and existing cash balances, supplemented by net borrowings under our existing credit facilities.
20
Net cash used in investing activities decreased from $331.4 million during 2018 to $272.3 million during 2019. Net property
additions (primarily revenue equipment) were $283.9 million for the year ended December 31, 2019, compared to $349.0 million
during the same period of 2018. As of December 31, 2019, we were committed to property and equipment purchases of
approximately $113.4 million. We currently estimate net capital expenditures (primarily revenue equipment) in 2020 to be in the
range of $260 million to $300 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 $155.2 million in 2019 and used $67.6 million in 2018. During the year ended December 31, 2019,
we borrowed $275.0 million of long-term debt and repaid $100.0 million of long-term debt. Our outstanding debt at December
31, 2019 totaled $300.0 million. During 2018, we borrowed $110.0 million and repaid $60.0 million of debt. We paid dividends
of $286.2 million in 2019, including the special dividend and quarterly dividends, and $23.0 million in 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 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 2019 also included common stock repurchases of 1,300,000 shares at a cost of $42.3 million. 2,077,101
shares were repurchased in 2018 at a cost of $72.2 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 depends on stock market
conditions and other factors. On May 14, 2019, the Board of Directors approved a new stock repurchase program under which the
Company is authorized to repurchase up to 5,000,000 shares of its common stock. On the same day, the Board of Directors withdrew
the previous stock repurchase authorization, which had 2,035,608 shares remaining available for repurchase. As of December 31,
2019 , the Company had purchased 700,000 shares pursuant to the new authorization and had 4,300,000 shares remaining available
for repurchase.
Management believes our financial position at December 31, 2019 is strong. As of December 31, 2019, we had $26.4 million of
cash and cash equivalents and over $1.1 billion of stockholders’ equity. Cash is invested primarily in government portfolio money
market funds. As of December 31, 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 under Item 8 of Part II of this Form 10-K for information regarding our
credit agreements as of December 31, 2019), of which we had borrowed $300.0 million. Subsequent to the end of the year, in
February 2020, we repaid $50.0 million of debt using cash provided by working capital activities to-date in 2020. The remaining
$275.0 million of credit available under these facilities at December 31, 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 planned operating and capital needs for the foreseeable future.
Contractual Obligations and Commercial Commitments:
The following table sets forth our contractual obligations and commercial commitments as of December 31, 2019.
(Amounts in millions)
Contractual Obligations
Unrecognized tax benefits
Long-term debt, including current
maturities
Interest payments on debt
Operating leases
Property and equipment purchase
commitments
Total contractual cash obligations
Other Commercial Commitments
Unused lines of credit
Stand-by letters of credit
Total commercial commitments
Total obligations
Payments Due by Period
Total
Less than
1 year
(2020)
1-3 years
(2021-2022)
3-5 years
(2023-2024)
More
than 5
years
(After 2024)
Period
Unknown
$
2.5
$
— $
— $
— $
— $
300.0
24.5
12.6
113.4
453.0
242.3
32.7
275.0
728.0
$
$
$
$
$
$
$
$
75.0
6.3
3.9
113.4
198.6
$
— $
32.7
32.7
231.3
$
$
21
—
10.8
5.2
—
16.0
$
— $
—
— $
$
16.0
225.0
7.4
2.4
—
234.8
242.3
—
242.3
477.1
$
$
$
$
—
—
1.1
—
1.1
$
— $
—
— $
$
1.1
2.5
—
—
—
—
2.5
—
—
—
2.5
As of December 31, 2019, we had unsecured committed credit facilities with three banks. On May 14, 2019, we entered into new
five-year, unsecured revolving credit facilities with Wells Fargo Bank, N.A. and BMO Harris Bank N.A., replacing the previous
credit facilities with both lenders. We replaced our previous $100.0 million credit facility and $75.0 million term commitment
with Wells Fargo Bank, N.A. with a $300.0 million credit facility which will expire on May 14, 2024. Also on May 14, 2019, we
replaced our previous $75.0 million credit facility with BMO Harris Bank N.A. with a $200.0 million credit facility which will
expire on May 14, 2024. We also had an unsecured line of credit of $75.0 million credit facility 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 December 31, 2019, our outstanding debt totaled $300.0 million. We had $150.0 million million outstanding under the credit
facilities at a weighted average variable interest rate of 2.33% as of December 31, 2019. We had (i) an additional $75.0 million
outstanding under the Wells Fargo Bank, N.A. credit facility at a variable rate of 2.39% as of December 31, 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 2.40% as of December 31, 2019, which is effectively fixed at 2.36%
with an interest rate swap agreement through May 14, 2024. Interest payments on debt are based on the debt balance and interest
rates at December 31, 2019. The borrowing capacity under these credit facilities is further reduced by the amount of stand-by
letters of credit under which we are obligated. The stand-by letters of credit are primarily required for insurance policies. The
unused lines of credit are available to us in the event we need financing for the replacement of our fleet or for other significant
capital expenditures.
Operating lease obligations represent the future monthly rental payments for facilities. Property and equipment purchase
commitments relate to committed equipment expenditures, primarily for revenue equipment. As of December 31, 2019, we had
recorded a $2.5 million liability for unrecognized tax benefits. We are unable to reasonably determine when the $2.5 million
categorized as “period unknown” will be settled.
Off-Balance Sheet Arrangements:
In 2019, we did not have any arrangements that meet the definition of an off-balance sheet arrangement.
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 amount 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.
Estimates of accrued liabilities for insurance and claims for bodily injury, property damage and workers’ compensation is a critical
accounting estimate that requires us to make significant judgments and estimates and affects our financial statements. The accruals
for bodily injury, property damage and workers’ compensation (current and non-current) are recorded at the estimated ultimate
payment amounts and are based upon individual case estimates and actuarial estimates of incurred-but-not-reported losses using
loss development factors based upon past experience. In order to determine the loss development factors, we make judgments
relating to the comparability of historical claims to current incurred-but-not-reported losses. These judgments consider the nature,
frequency, severity, and age of claims, and industry, regulatory, and company-specific trends impacting the development of claims.
An independent actuary reviews our calculation of the undiscounted self-insurance reserves for bodily injury and property damage
claims and workers’ compensation claims at year-end. The actual cost to settle our self-insured claim liabilities can differ from
our reserve estimates because of a number of uncertainties, including the inherent difficulty in estimating the severity of a claim
and the potential amount to defend and settle a claim.
Inflation:
Inflation may impact our operating costs. A prolonged inflation period could cause rises in interest rates, fuel, wages and other
costs. These inflationary increases could adversely affect our results of operations unless freight rates could be increased
correspondingly. However, the effect of inflation has been minimal over the past three years.
22
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates, commodity prices and foreign currency exchange rates.
Commodity Price Risk
The price and availability of diesel fuel are subject to fluctuations attributed to changes in the level of global oil production, refining
capacity, regulatory changes, seasonality, weather and other market factors. Historically, we have recovered a majority, but not
all, of fuel price increases from customers in the form of fuel surcharges. We implemented customer fuel surcharge programs with
most of our customers to offset much of the higher fuel cost per gallon. However, we do not recover all of the fuel cost increase
through these surcharge programs. As of December 31, 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 gains were $2.0 million in 2019
and foreign currency translation losses were $0.5 million in 2018 and were recorded in accumulated other comprehensive loss
within stockholders’ equity in the Consolidated Balance Sheets. The exchange rate between the Mexican Peso and the U.S. Dollar
was 18.85 Pesos to $1.00 at December 31, 2019 compared to 19.68 Pesos to $1.00 at December 31, 2018.
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 December 31, 2019, for which the interest rate is effectively fixed at 2.34% through May 2024 with two interest
rate swap agreements to reduce our exposure to interest rate increases. We had $150 million of variable rate debt outstanding at
December 31, 2019. Interest rates on the variable rate debt and our unused credit facilities are based on the LIBOR (see Contractual
Obligations and Commercial Commitments). Assuming this level of borrowing, a hypothetical one-percentage point increase in
the LIBOR interest rate would increase our annual interest expense by $1.5 million.
Due to uncertainty surrounding the suitability and sustainability of the London Interbank Offered Rate (LIBOR), central banks
and global regulators have called for financial market participants to prepare for the discontinuation of LIBOR by the end of 2021.
LIBOR is a widely-referenced benchmark rate, and our unsecured credit facilities are referenced to LIBOR. We are communicating
with our banks regarding the eventual transition to a new benchmark rate.
23
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Werner Enterprises, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Werner Enterprises, Inc. and subsidiaries (the Company) as of
December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, stockholders’ equity, and
cash flows for each of the years in the three year period ended December 31, 2019, and the related notes and financial statement
schedule II listed in the Index in Item 15(a)(2) (collectively, the consolidated financial statements). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and
2018, and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 2019,
in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated February 27, 2020 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Changes in Accounting Principles
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases as of
January 1, 2019 due to the adoption of ASC Topic 842, Leases.
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for revenues as
of January 1, 2018 due to the adoption of ASC Topic 606, Revenue from Contracts with Customers.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
24
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgment. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on
the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of insurance and claims accruals
The insurance and claims accruals were $298,028,000 as of December 31, 2019. As described in note 1 to the consolidated
financial statements, the Company estimates the insurance and claims accruals related to bodily injury, property damage,
workers’ compensation, cargo loss and group health. The accruals specifically for bodily injury, property damage, and
workers’ compensation (claims reserves) are based upon individual case estimates and actuarial estimates of incurred-
but-not-reported losses using loss development factors based upon past experience. In order to determine the loss
development factors, the Company makes judgments relating to the comparability of historical claims to current incurred-
but-not-reported losses. These judgments consider the nature, frequency, severity and age of claims, and industry,
regulatory, and company-specific trends impacting the development of claims. The Company has an independent actuary
review their calculation of the undiscounted claims reserves.
We identified the evaluation of the Company’s insurance and claims accruals related to bodily injury, property damage,
and workers’ compensation as a critical audit matter. Specifically, evaluating the assumptions related to the determination
of the loss development factors used to determine the incurred-but-not-reported losses involved a high degree of
complexity and subjectivity. Changes in the assumptions could have a significant impact on the amount accrued. In
addition, specialized skills were needed to evaluate the Company’s calculation of the undiscounted claims reserves.
The primary procedures we performed to address this critical audit matter included the following. We tested certain
internal controls over the Company’s claims reserves processes, including controls to determine loss development factors
used to determine the incurred-but-not-reported loss accrual. We involved actuarial professionals with specialized skills
and knowledge who assisted in:
•
•
•
assessing the calculations used by the Company to determine its incurred-but-not-reported losses for consistency
with generally accepted actuarial standards;
assessing the determination of loss development factors used in the calculations for consistency with historical
Company data and industry, regulatory, and company-specific trends; and
developing an independent expectation of the Company’s claims reserves and comparing to the Company’s estimate.
We tested historical claims paid and reported (not paid) used as an input to the calculations for consistency with data
used in the prior year. We tested actual claims paid and claims reported (not paid) for the current year used as an input
to the calculations for consistency with the Company’s actual claims paid and claims reported (not paid). We compared
the Company’s prior period claims reserves to actual claims in the current period to assess the Company’s ability to
accurately estimate costs.
We have served as the Company’s auditor since 1999.
Omaha, Nebraska
February 27, 2020
/s/ KPMG LLP
25
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Operating revenues
Operating expenses:
Salaries, wages and benefits
Fuel
Supplies and maintenance
Taxes and licenses
Insurance and claims
Depreciation
Rent and purchased transportation
Communications and utilities
Other
Total operating expenses
Operating income
Other expense (income):
Interest expense
Interest income
Other
Total other expense (income)
Income before income taxes
Income tax expense (benefit)
Net income
Earnings per share:
Basic
Diluted
Weighted-average common shares outstanding:
Basic
Diluted
Years Ended December 31,
2019
2018
2017
$ 2,463,701
$ 2,457,914
$ 2,116,737
818,487
235,928
182,909
95,525
88,913
249,527
549,438
15,303
2,199
2,238,229
225,472
6,854
(3,326)
38
3,566
221,906
54,962
166,944
2.40
2.38
69,567
70,026
$
$
$
$
$
$
781,064
254,564
185,074
87,318
98,133
230,151
589,002
16,063
(7,670)
2,233,699
224,215
2,695
(2,737)
376
334
223,881
55,733
168,148
2.35
2.33
71,694
72,057
681,547
198,745
164,325
86,768
79,927
217,639
509,573
16,105
18,288
1,972,917
143,820
2,243
(3,308)
328
(737)
144,557
(58,332)
202,889
2.81
2.80
72,270
72,558
$
$
$
See Notes to Consolidated Financial Statements.
26
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive income (loss):
Foreign currency translation adjustments
Change in fair value of interest rate swaps, net of tax
Other comprehensive income (loss)
Comprehensive income
Years Ended December 31,
2019
2018
2017
$
166,944
$
168,148
$
202,889
1,996
(651)
1,345
$
168,289
$
(493)
255
(238)
167,910
483
599
1,082
$
203,971
See Notes to Consolidated Financial Statements.
27
WERNER ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, trade, less allowance of $7,921 and $8,613, respectively
Other receivables
Inventories and supplies
Prepaid taxes, licenses and permits
Other current assets
Total current assets
Property and equipment, at cost:
Land
Buildings and improvements
Revenue equipment
Service equipment and other
Total property and equipment
Less – accumulated depreciation
Property and equipment, net
Other non-current assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Current portion of long-term debt
Insurance and claims accruals
Accrued payroll
Other current liabilities
Total current liabilities
Long-term debt, net of current portion
Other long-term liabilities
Insurance and claims accruals, net of current portion
Deferred income taxes
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value, 200,000,000 shares authorized; 80,533,536 shares
issued; 69,244,525 and 70,441,973 shares outstanding, respectively
Paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost; 11,289,011 and 10,091,563 shares, respectively
Total stockholders’ equity
Total liabilities and stockholders’ equity
See Notes to Consolidated Financial Statements.
28
December 31,
2019
2018
$
26,418
$
33,930
322,846
337,927
52,221
9,243
16,757
38,849
26,545
10,060
16,619
31,577
466,334
456,658
63,244
199,734
59,103
188,174
1,812,186
1,750,290
268,372
250,010
2,343,536
2,247,577
817,260
760,015
1,526,276
1,487,562
151,254
139,284
$ 2,143,864
$ 2,083,504
$
94,634
$
75,000
69,810
38,347
31,049
308,840
225,000
21,129
228,218
249,669
97,781
75,000
67,304
40,271
30,004
310,360
50,000
10,911
214,030
233,450
805
805
112,649
107,455
1,294,608
(14,728)
(282,326)
1,111,008
1,413,746
(16,073)
(241,180)
1,264,753
$ 2,143,864
$ 2,083,504
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Years Ended December 31,
2018
2019
2017
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
166,944
$
168,148
$
202,889
Depreciation
Deferred income taxes
Gain on disposal of property and equipment
Non-cash equity compensation
Insurance and claims accruals, net of current portion
Other
Changes in certain working capital items:
Accounts receivable, net
Other current assets
Accounts payable
Other current liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Additions to property and equipment
Proceeds from sales of property and equipment
Decrease in notes receivable
Issuance of notes receivable
Net cash used in investing activities
Cash flows from financing activities:
Repayments of short-term debt
Proceeds from issuance of short-term debt
Repayments of long-term debt
Proceeds from issuance of long-term debt
Change in net checks issued in excess of cash balances
Dividends on common stock
Repurchases of common stock
Tax withholding related to net share settlements of restricted stock awards
Stock options exercised
Net cash used in financing activities
Effect of exchange rate fluctuations on cash
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of period
Cash, cash equivalents and restricted cash, end of period(1)
Supplemental disclosures of cash flow information:
Interest paid
Income taxes paid
Supplemental schedule of non-cash investing activities:
Notes receivable issued upon sale of property and equipment
Change in fair value of interest rate swaps
Property and equipment acquired included in accounts payable
Property and equipment disposed included in other receivables
Dividends accrued but not yet paid at end of period
249,527
16,401
(21,557)
8,077
14,188
(3,360)
15,081
975
(7,537)
(12,095)
426,644
(420,748)
136,873
11,566
—
(272,309)
—
—
(100,000)
275,000
—
(286,190)
(42,301)
(1,899)
171
(155,219)
396
(488)
33,930
33,442
6,441
49,599
6,764
(651)
21,138
18,600
6,232
230,151
37,694
(24,898)
7,394
26,570
(4,774)
(33,753)
(9,979)
7,559
14,047
418,159
(519,872)
170,900
20,898
(3,300)
(331,374)
(40,000)
40,000
(20,000)
70,000
(21,539)
(23,013)
(72,165)
(1,371)
476
(67,612)
(374)
18,799
15,131
33,930
2,690
11,355
13,140
255
16,748
674
6,340
$
$
$
217,639
(100,948)
(6,798)
4,546
(5,605)
(11,957)
(42,802)
20,173
5,831
(140)
282,828
(316,343)
117,498
20,037
(5,000)
(183,808)
(45,000)
—
(60,000)
—
21,539
(18,784)
—
(1,632)
2,461
(101,416)
50
(2,346)
17,477
15,131
2,491
22,088
5,816
599
3,227
654
5,069
$
$
$
$
$
$
(1) The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the Consolidated
Balance Sheets
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents
Restricted cash included in other current assets
Total cash, cash equivalents and restricted cash
$
$
26,418
7,024
33,442
$
$
33,930
—
33,930
$
$
13,626
1,505
15,131
See Notes to Consolidated Financial Statements.
29
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share and per share
amounts)
BALANCE, December 31, 2016
Comprehensive income
Dividends on common stock ($0.27
per share)
Equity compensation activity,
242,253 shares
Non-cash equity compensation
expense
Cumulative effect of accounting
change
BALANCE, December 31, 2017
Comprehensive income
Purchase of 2,077,101 shares of
common stock
Dividends on common stock ($0.34
cents per share)
Equity compensation activity,
109,852 shares
Non-cash equity compensation
expense
Cumulative effect of accounting
change
BALANCE, December 31, 2018
Comprehensive income
Purchase of 1,300,000 shares of
common stock
Dividends on common stock ($4.11
per share)
Equity compensation activity,
102,552 shares
Non-cash equity compensation
expense
BALANCE, December 31, 2019
Common
Stock
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Stockholders’
Equity
$
805
$
101,035
$ 1,084,796
$
(16,917) $ (174,932) $
994,787
202,889
1,082
—
—
—
—
—
805
—
—
—
—
—
—
805
—
—
—
—
—
—
—
(3,481)
4,546
463
102,563
—
—
—
(2,502)
7,394
(19,523)
—
—
(291)
1,267,871
168,148
—
(24,284)
—
—
—
2,011
107,455
1,413,746
—
—
—
166,944
—
(286,082)
(2,883)
8,077
—
—
—
—
—
—
—
—
—
—
—
203,971
(19,523)
4,310
829
—
4,546
—
(15,835)
(238)
—
(170,622)
172
1,184,782
—
167,910
(72,165)
(72,165)
—
(24,284)
1,607
(895)
—
(16,073)
1,345
—
(241,180)
—
—
7,394
2,011
1,264,753
168,289
—
—
—
(42,301)
(42,301)
—
(286,082)
1,155
(1,728)
—
8,077
(14,728) $ (282,326) $ 1,111,008
—
$
805
$
112,649
$ 1,294,608
$
See Notes to Consolidated Financial Statements.
30
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business: Werner Enterprises, Inc. (the “Company”) is a truckload transportation and logistics company operating
under the jurisdiction of the U.S. Department of Transportation, similar governmental transportation agencies in the foreign
countries in which we operate and various U.S. state regulatory authorities. For the years ended December 31, 2019, 2018 and
2017, our ten largest customers comprised 41%, 45% and 43%, respectively, of our revenues. No single customer generated more
than 9% of the Company’s total revenues in 2019, 2018, and 2017.
Principles of Consolidation: The accompanying consolidated financial statements include the accounts of Werner Enterprises,
Inc. and our wholly-owned subsidiaries. All significant intercompany accounts and transactions relating to these wholly-owned
entities have been eliminated.
Use of Management Estimates: The preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management 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. The most significant estimates
that affect our financial statements include the accrued liabilities for insurance and claims, useful lives and salvage values of
property and equipment, estimates for income taxes and the allowance for doubtful accounts. Actual results could differ from those
estimates.
Cash and Cash Equivalents: We consider all highly liquid investments, purchased with a maturity of three months or less, to be
cash equivalents. Accounts at banks with an aggregate excess of the amount of checks issued over cash balances are included in
current liabilities in the Consolidated Balance Sheets, and changes in such accounts are reported as a financing activity in the
Consolidated Statements of Cash Flows.
Trade Accounts Receivable: We record trade accounts receivable at the invoiced amounts, net of an allowance for doubtful
accounts for potentially uncollectible receivables. We review the financial condition of customers for granting credit and determine
the allowance based on analysis of individual customers’ financial condition, historical write-off experience and national economic
conditions. We evaluate the adequacy of our allowance for doubtful accounts quarterly. Past due balances over 90 days and
exceeding a specified amount are reviewed individually for collectibility. Account balances are charged off against the allowance
after all means of collection have been exhausted and the potential for recovery is considered remote. We do not have any off-
balance-sheet credit exposure related to our customers.
Inventories and Supplies: Inventories and supplies are stated at the lower of average cost and net realizable value and consist
primarily of revenue equipment parts, tires, fuel and supplies. Tires placed on new revenue equipment are capitalized as a part of
the equipment cost. Replacement tires are expensed when placed in service.
Property, Equipment, and Depreciation: Additions and improvements to property and equipment are capitalized at cost, while
maintenance and repair expenditures are charged to operations as incurred. Gains and losses on the sale or exchange of equipment
are recorded in other operating expenses.
Depreciation is calculated based on the cost of the asset, reduced by the asset’s estimated salvage value, using the straight-line
method. Accelerated depreciation methods are used for income tax purposes. The lives and salvage values assigned to certain
assets for financial reporting purposes are different than for income tax purposes. For financial reporting purposes, assets are
generally depreciated using the following estimated useful lives and salvage values:
Building and improvements
Tractors
Trailers
Service and other equipment
Lives
30 years
80 months
12 years
3-10 years
Salvage Values
0%
0%
$1,000
0%
During fourth quarter 2016, due to the weak used truck market, we reduced the estimated life of certain trucks to more rapidly
depreciate the trucks to their residual values. The effect of this change in accounting estimate was to increase 2017 depreciation
expense and decrease operating income by $3.4 million. We completed the sale of these specific trucks in 2017.
31
Long-Lived Assets: We review our long-lived assets for impairment whenever events or circumstances indicate the carrying
amount of a long-lived asset may not be recoverable. An impairment loss would be recognized if the carrying amount of the long-
lived asset is not recoverable and the carrying amount exceeds its fair value. For long-lived assets classified as held and used, the
carrying amount is not recoverable when the carrying value of the long-lived asset exceeds the sum of the future net cash flows.
We do not separately identify assets by operating segment because tractors and trailers are routinely transferred from one operating
fleet to another. As a result, none of our long-lived assets have identifiable cash flows from use that are largely independent of the
cash flows of other assets and liabilities. Thus, the asset group used to assess impairment would include all of our assets.
Insurance and Claims Accruals: Insurance and claims accruals (both current and non-current) reflect the estimated cost (including
estimated loss development and loss adjustment expenses) for (i) cargo loss and damage, (ii) bodily injury and property damage,
(iii) group health and (iv) workers’ compensation claims not covered by insurance. The costs for cargo, bodily injury and property
damage insurance and claims are included in insurance and claims expense in the Consolidated Statements of Income; the costs
of group health and workers’ compensation claims are included in salaries, wages and benefits expense. The insurance and claims
accruals are recorded at the estimated ultimate payment amounts. The accruals for bodily injury, property damage and and workers’
compensation are based upon individual case estimates and actuarial estimates of incurred-but-not-reported losses using loss
development factors based upon past experience. In order to determine the loss development factors, we make judgments relating
to the comparability of historical claims to current incurred-but-not-reported losses. These judgments consider the nature, frequency,
severity, and age of claims, and industry, regulatory, and company-specific trends impacting the development of claims. Actual
costs related to insurance and claims have not differed materially from estimated accrued amounts for all years presented. An
independent actuary reviews our calculation of the undiscounted self-insurance reserves for bodily injury and property damage
claims and workers’ compensation claims at year-end.
We renewed our liability insurance policies on August 1, 2019 with the same deductibles and aggregates that first became effective
with the August 1, 2017 renewal. Our self-insured retention (“SIR”) and deductible amount continues to be $3.0 million, plus
administrative expenses, for each occurrence involving bodily injury or property damage. We also have an annual $6.0 million
aggregate for claims between $3.0 million and $5.0 million and an additional $5.0 million deductible per claim for each claim
between $5.0 million and $10.0 million. Our SIR/deductible was $2.0 million for policy years from August 1, 2004 through July
31, 2017, and we were also responsible for varying annual aggregate amounts of liability for claims in excess of the SIR/deductible
(see page 10). Liability claims in excess of these aggregates are covered under premium-based policies (issued by insurance
companies) to coverage levels that our management considers adequate. We are also responsible for administrative expenses for
each occurrence involving bodily injury or property damage.
Our SIR for workers’ compensation claims is $1.0 million per claim, with premium-based insurance coverage for claims exceeding
this amount. We also maintain a $26.6 million bond for the State of Nebraska and a $10.4 million bond for our workers’ compensation
insurance carrier.
Under these insurance arrangements, we maintained $32.7 million in letters of credit as of December 31, 2019.
Revenue Recognition: The Consolidated Statements of Income reflect recognition of operating revenues (including fuel surcharge
revenues) and related direct costs 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. For shipments where a third-party capacity
provider (including independent contractors under contract with us) is utilized to provide some or all of the service, we evaluate
whether we are the principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis).
Foreign Currency Translation: Local currencies are generally considered the functional currencies outside the United States.
Assets and liabilities are translated at year-end exchange rates for operations in local currency environments. Foreign revenues
and expense items denominated in the functional currency are translated at the average rates of exchange prevailing during the
year. Foreign currency translation adjustments reflect the changes in foreign currency exchange rates applicable to the net assets
of the foreign operations. Foreign currency translation adjustments are recorded in accumulated other comprehensive loss within
stockholders’ equity in the Consolidated Balance Sheets and as a separate component of comprehensive income in the Consolidated
Statements of Comprehensive Income.
Income Taxes: Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred income tax assets and liabilities are measured using the enacted tax rates that are expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets
and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
In accounting for uncertain tax positions, we recognize the tax benefit from an uncertain tax position only if it is more likely than
not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.
The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a
32
greater than 50% likelihood of being realized upon ultimate settlement. We recognize interest and penalties directly related to
income tax matters in income tax expense.
Common Stock and 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).
Net income
Weighted average common shares outstanding
Dilutive effect of stock-based awards
Shares used in computing diluted earnings per share
Basic earnings per share
Diluted earnings per share
2019
Years Ended December 31,
2018
2017
$
$
$
166,944
$
168,148
$
69,567
459
70,026
2.40
2.38
$
$
71,694
363
72,057
2.35
2.33
$
$
202,889
72,270
288
72,558
2.81
2.80
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.
Equity Compensation: We have an equity compensation plan that provides for grants of non-qualified stock options, restricted
stock and units (“restricted awards”), performance awards and stock appreciation rights to our associates and directors. We apply
the fair value method of accounting for equity compensation awards. Issuances of stock upon an exercise of stock options or
vesting of restricted stock are made from treasury stock; shares reacquired to satisfy tax withholding obligations upon vesting of
restricted stock are recorded as treasury stock. Grants of stock options, restricted stock, and performance awards vest in increments,
and we recognize compensation expense over the requisite service period of each award. We accrue compensation expense for
performance awards for the estimated number of shares expected to be issued using the most current information available at the
date of the financial statements. If the performance objectives are not met, no compensation expense will be recognized, and any
previously recognized compensation expense will be reversed.
Comprehensive Income: Comprehensive income consists of net income and other comprehensive income (loss). Other
comprehensive income (loss) refers to revenues, expenses, gains and losses that are not included in net income, but rather are
recorded directly in stockholders’ equity. For the years ended December 31, 2019, 2018 and 2017, comprehensive income consists
of net income, foreign currency translation adjustments and change in fair value of interest rate swaps.
New Accounting Pronouncements Adopted: In May 2014, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which requires an entity to
recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.
The Company adopted ASU 2014-09 and related amendments, which is also known as Accounting Standards Codification (“ASC”)
Topic 606, as of January 1, 2018 using the modified retrospective transition method. Results for periods beginning January 1,
2018 and later are presented under ASC Topic 606, while prior period amounts are not adjusted and continue to be reported in
accordance with the Company’s historical accounting policy for revenue recognition.
We recorded a $2.0 million net increase to the opening balance of retained earnings as of January 1, 2018, for the cumulative
impact of adopting the new guidance. The impact primarily related to the change in accounting for shipments in transit as of
December 31, 2017. ASC Topic 606 requires us to recognize revenue and related direct costs over time as the shipment is being
delivered. Prior to adopting the new guidance, we recognized revenue and related direct costs when the shipment was delivered.
Under the modified retrospective method of adoption, we are required to disclose the impact to our financial statements had we
continued to follow our accounting policies under the previous revenue recognition guidance. Had we continued to recognize
revenues and direct costs upon delivery, our operating revenues and operating expenses for the year ended December 31, 2019,
would have been higher by approximately $1.4 million and $1.0 million, respectively, and for the year ended December 31, 2018,
would have been higher by approximately $0.5 million and $0.7 million, respectively. Additionally, under ASC Topic 606, we
recorded a $14.1 million reduction of revenues for the year ended December 31, 2019, and a $14.3 million reduction of revenues
33
for the year ended December 31, 2018, related to our driver training schools that would have been reported as bad debt expense
prior to the new standard.
In February 2016, the FASB issued ASU No. 2016-02, “Leases,” to increase transparency and comparability by recognizing a
right-of-use asset and a lease liability on the balance sheet and disclosing key information about leasing arrangements. On January
1, 2019, we adopted ASU No. 2016-02 and related amendments, which is also known as ASC Topic 842, using the transition
approach, which applies the provisions of the new guidance at the effective date without adjusting the comparative periods presented.
We 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, we 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.
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 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. Based on our evaluation, the adoption of this standard will not have a material effect on our consolidated
financial statements.
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. Based on our evaluation, the adoption of this standard will not have a material effect on our consolidated
financial statements 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. Based on our evaluation, the adoption of this standard will not have a material effect on our consolidated
financial statements.
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income
Taxes,” which reduces complexity in accounting for income taxes by removing certain exceptions to the general principles stated
in Topic 740 and by clarifying and amending existing guidance to improve consistent application of and simplify other areas of
Topic 740. The provisions of this update are effective for fiscal years beginning after December 15, 2020. Although we are
evaluating the impact of adopting ASU No. 2019-12 on our financial position, results of operations and cash flows, we do not
expect a material effect upon adoption.
34
(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):
Truckload Transportation Services
Werner Logistics
Inter-segment eliminations
Transportation services
Other revenues
Total revenues
Years Ended December 31,
2019
1,909,776
489,729
(243)
2,399,262
64,439
2,463,701
$
$
2018
1,881,323
518,078
(1,149)
2,398,252
59,662
2,457,914
$
$
$
$
2017
1,635,244
417,639
(829)
2,052,054
64,683
2,116,737
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.
United States
Mexico
Other
Total revenues
Transportation Services
Years Ended December 31,
2019
2,191,560
197,470
74,671
2,463,701
$
$
2018
2,145,098
233,116
79,700
2,457,914
$
$
2017
1,837,525
210,228
68,984
2,116,737
$
$
We generate nearly all of our revenues by transporting truckload freight shipments for our customers. Transportation services are
carried out by our Truckload Transportation Services (“TTS”) segment and our Werner Logistics (“Logistics”) segment. The TTS
segment utilizes company-owned and independent contractor trucks to deliver shipments, while the Logistics segment uses third-
party capacity providers.
We generate revenues from billings for transportation services under contracts with customers, generally on a rate per mile or per
shipment, based on origin and destination of the shipment. Our performance obligation arises when we receive a shipment order
to transport a customer’s freight and is satisfied upon delivery of the shipment. The transaction price may be defined in a
transportation services agreement or negotiated with the customer prior to accepting the shipment order. A customer may submit
several shipment orders for transportation services at various times throughout a service agreement term, but each shipment
represents a distinct service that is a separately identified performance obligation. We often provide additional or ancillary services
as part of the shipment (such as loading/unloading and stops in transit) which are not distinct or are not material in the context of
the contract; therefore the revenues for these services are recognized with the freight transaction price. The average transit time
to complete a shipment is approximately 3 days. Invoices for transportation services are typically generated soon after shipment
delivery and, while payment terms and conditions vary by customer, are generally due within 30 days after the invoice date.
The Consolidated Statements of Income reflect recognition of transportation revenues (including fuel surcharge revenues) and
related direct costs over time as the shipment is being delivered. We use distance shipped (for the TTS segment) and transit time
(for the Logistics segment) to measure progress and the amount of revenues recognized over time, as the customer simultaneously
receives and consumes the benefit. Determining a measure of progress requires us to make judgments that affect the timing of
revenues recognized. We have determined that the methods described provide a faithful depiction of the transfer of services to the
customer.
For shipments where a third-party capacity provider (including independent contractors under contract with us) is utilized to
provide some or all of the service, we evaluate whether we are the principal (i.e., report revenues on a gross basis) or agent (i.e.,
report revenues on a net basis). Generally, we report such revenues on a gross basis, that is, we recognize both revenues for the
35
service we bill to the customer and rent and purchased transportation expense for transportation costs we pay to the third-party
provider. Where we are the principal, we control the transportation service before it is provided to our customers, which is supported
by us being primarily responsible for fulfilling the shipment obligation to the customer and having a level of discretion in establishing
pricing with the customer.
During 2019 and 2018, revenues recognized from performance obligations related to prior periods (for example, due to changes
in transaction price) were not material.
Other Revenues
Other revenues include revenues from our driver training schools, transportation-related activities such as third-party equipment
maintenance and equipment leasing, and other business activities. These revenues are generally recognized over time and accounted
for 3% of our total revenues in 2019 and 2% of our total revenues in 2018. Revenues from our driver training schools require us
to make judgments regarding price concessions in determining the amount of revenues to recognize.
Contract Balances and Accounts Receivable
A receivable is an unconditional right to consideration and is recognized when shipments have been completed and the related
performance obligation has been fully satisfied. At December 31, 2019 and 2018, the accounts receivable, net, balance was $322.8
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 December 31, 2019 and 2018, the balance
of contract assets was $5.9 million and $7.4 million, respectively. We have recognized contract assets within the other current
assets financial statement caption on the balance sheet. These contract assets are considered current assets as they will be settled
in less than 12 months.
Contract liabilities represent advance consideration received from customers and are recognized as revenues over time as the
related performance obligation is satisfied. At December 31, 2019 and 2018, the balance of contract liabilities was $1.3 million
and $1.7 million, respectively. The amount of revenues recognized in 2019 that was included in the December 31, 2018 contract
liability balance was $1.7 million. We have recognized contract liabilities within the accounts payable and other current liabilities
financial statement captions on the balance sheet. These contract liabilities are considered current liabilities as they will be settled
in less than 12 months.
Performance Obligations
We have elected to apply the practical expedient in ASC Topic 606 to not disclose the value of remaining performance obligations
for contracts with an original expected length of one year or less. Remaining performance obligations represent the transaction
price allocated to future reporting periods for freight shipments started but not completed at the reporting date that we expect to
recognize as revenues in the period subsequent to the reporting date; transit times generally average approximately 3 days.
(3) LEASES
We have entered into operating leases primarily for real estate. The leases have terms which range from 1 year to 11 years, and
some include options to renew. Renewal terms are included in the lease term when it is reasonably certain that we will exercise
the option to renew.
Operating leases are included in 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 our incremental borrowing rate because the rate implicit in each
lease in not readily determinable. We have certain contracts for real estate that may contain lease and non-lease components which
we have elected to treat as a single lease component. Lease expense for operating leases is recognized on a straight-line basis over
the lease term. Variable lease expense is recognized in the period in which the obligation for those payments is incurred. Lease
expense is reported in rent and purchase transportation on the consolidated statements of income.
36
The following table presents information about the amount, timing and uncertainty of cash flows arising from our operating leases
as of December 31, 2019.
(In thousands)
Maturity of Lease Liabilities
2020
2021
2022
2023
2024
Thereafter
Total undiscounted operating lease payments
Less: Imputed interest
Present value of operating lease liabilities
Balance Sheet Classification
Right-of-use assets (recorded in other non-current assets)
Current lease liabilities (recorded in other current liabilities)
Long-term lease liabilities (recorded in other long-term liabilities)
Total operating lease liabilities
Other Information
Weighted-average remaining lease term for operating leases
Weighted-average discount rate for operating leases
Cash Flows
$
$
$
$
$
$
December 31, 2019
3,920
3,063
2,148
1,225
1,179
1,093
12,628
(892)
11,736
11,376
3,583
8,153
11,736
4.36 years
3.5%
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 $6.1 million were recognized as non-cash asset additions that resulted from
new operating lease liabilities during the year ended December 31, 2019. Cash paid for amounts included in the present value of
operating lease liabilities was $3.8 million during the year ended December 31, 2019, and is included in operating cash flows.
Operating Lease Expense
Operating lease expense was $8.5 million during the year ended December 31, 2019. This expense included $3.8 million for the
year ended December 31, 2019 for long-term operating leases, with the remainder for variable and short-term lease expense.
Lessor Operating Leases
We are the lessor of tractors and trailers under operating leases with initial terms of 2 to 10 years. We recognize revenue for such
leases on a straight-line basis over the term of the lease, and revenues for the year ended December 31, 2019 were $13.9 million.
The following table presents information about the maturities of these operating leases as of December 31, 2019.
(In thousands)
2020
2021
2022
2023
2024
Thereafter
Total
December 31, 2019
9,306
715
62
—
—
—
10,083
$
$
37
(4) CREDIT FACILITIES
On May 14, 2019, we entered into new five-year, unsecured revolving credit facilities with Wells Fargo Bank, N.A. and BMO
Harris Bank N.A., replacing the previous credit facilities with both lenders. We replaced our previous $100.0 million credit facility
and $75.0 million term commitment with Wells Fargo Bank, N.A. with a $300.0 million credit facility which will expire on May 14,
2024. Also on May 14, 2019, we replaced our previous $75.0 million credit facility with BMO Harris Bank N.A. with a $200.0
million credit facility which will expire on May 14, 2024. We also have an unsecured line of credit of $75.0 million credit facility
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 December 31, 2019 and 2018, our outstanding debt totaled $300.0 million and $125.0 million, respectively. We had $150.0
million outstanding under the credit facilities at a weighted average variable interest rate of 2.33% as of December 31, 2019. We
had (i) an additional $75.0 million outstanding under the Wells Fargo Bank, N.A. credit facility at a variable rate of 2.39% as of
December 31, 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 2.40% as of December
31, 2019, which is effectively fixed at 2.36% with an interest rate swap agreement through May 14, 2024. Subsequent to the end
of the year, in February 2020, we repaid $50.0 million of debt using cash provided by working capital activities to-date in 2020.
The $575.0 million of borrowing capacity under our credit facilities at December 31, 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 December 31, 2019, we were in compliance with these
covenants.
At December 31, 2019, the aggregate future maturities of long-term debt by year are as follows (in thousands):
2020
2021
2022
2023
2024
Total
$ 75,000
—
—
—
225,000
$ 300,000
The carrying amounts of our long-term debt approximate fair value due to the duration of the notes and the variable interest rates.
(5) NOTES RECEIVABLE
We provide financing to some individuals who want to become independent contractors by purchasing a tractor from us and leasing
their services to us. We maintain a primary security interest in the tractor until the independent contractor pays the note balance
in full. Independent contractor notes receivable are included in other current assets and other non-current assets in the Consolidated
Balance Sheets. At December 31, notes receivable consisted of the following (in thousands):
Independent contractor notes receivable
Other notes receivable
Notes receivable
Less current portion
Notes receivable – non-current
December 31,
2019
2018
$
$
15,011
$
9,805
24,816
5,695
19,121
$
18,660
11,298
29,958
7,563
22,395
38
We also provide financing to some individuals who attended our driver training schools. The student notes receivable are included
in other receivables and other non-current assets in the Consolidated Balance Sheets. At December 31, student notes receivable
consisted of the following (in thousands):
Student notes receivable
Allowance for doubtful student notes receivable
Total student notes receivable, net of allowance
Less current portion, net of allowance
Student notes receivable – non-current
(6) INCOME TAXES
December 31,
2019
2018
$
$
$
61,078
(21,317)
39,761
11,152
28,609
$
53,025
(19,361)
33,664
8,393
25,271
The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was enacted on December 22, 2017, and lowered the federal corporate income
tax rate to 21% from 35% effective January 1, 2018. In accounting for income taxes, deferred income tax assets and liabilities are
recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using the
enacted tax rates that are expected to apply to taxable income in the years in which those temporary differences are expected to
be recovered or settled. As a result of the reduction of the federal corporate income tax rate under the Tax Act, the Company
revalued its ending net deferred income tax liabilities at December 31, 2017 and recognized a provisional $110.5 million income
tax benefit.
The SEC staff issued Staff Accounting Bulletin No. 118 to address the application of U.S. GAAP in situations when a registrant
does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain
income tax effects of the Tax Act. The Company recognized the provisional tax impact related to the revaluation of deferred income
tax assets and liabilities and included the amount in its consolidated financial statements for the year ended December 31, 2017.
During third quarter 2018, the Company filed its 2017 Federal Income Tax Return which resulted in an immaterial adjustment to
the deferred tax liability and the tax expense. Accordingly, the Company’s accounting for the federal rate reduction under the Tax
Act was completed in 2018.
Income tax expense consisted of the following (in thousands):
Years Ended December 31,
2019
2018
2017
Current:
Federal
State
Foreign
Deferred:
Federal
State
$
29,102
$
7,428
$
9,547
(88)
38,561
15,094
1,307
16,401
9,841
770
18,039
37,284
410
37,694
Total income tax expense (benefit)
$
54,962
$
55,733
$
38,535
3,979
102
42,616
(104,573)
3,625
(100,948)
(58,332)
39
The effective income tax rate differs from the federal corporate tax rate of 21% in 2019 and 2018 and 35% in 2017 as follows (in
thousands):
Years Ended December 31,
2019
2018
2017
Tax at statutory rate
Change in federal income tax rate
State income taxes, net of federal tax benefits
Non-deductible meals and entertainment
Income tax credits
Equity compensation
Other, net
$
46,600
$
47,015
$
—
8,575
1,117
(1,600)
(207)
477
—
8,098
1,044
(1,800)
(312)
1,688
Total income tax expense (benefit)
$
54,962
$
55,733
$
At December 31, deferred income tax assets and liabilities consisted of the following (in thousands):
50,595
(110,508)
4,943
1,495
(1,780)
(820)
(2,257)
(58,332)
Deferred income tax assets:
Insurance and claims accruals
Compensation-related accruals
Allowance for uncollectible accounts
Other
Gross deferred income tax assets
Deferred income tax liabilities:
Property and equipment
Prepaid expenses
Other
Gross deferred income tax liabilities
Net deferred income tax liability
December 31,
2019
2018
$
48,537
$
8,067
3,690
1,863
62,157
305,575
4,928
1,323
311,826
$
249,669
$
47,031
7,413
3,628
1,896
59,968
287,061
4,772
1,585
293,418
233,450
Deferred income tax assets are more likely than not to be realized as a result of future taxable income and reversal of deferred
income tax liabilities.
We recognized a $31 thousand decrease in the net liability for unrecognized tax benefits for the year ended December 31, 2019,
and a $240 thousand decrease for the year ended December 31, 2018. We accrued interest expense of $0.1 million during 2019
and 2018, excluding from both years the reversal of accrued interest related to the adjustment of uncertain tax positions. If
recognized, $2.0 million of unrecognized tax benefits as of December 31, 2019 and 2018 would impact our effective tax rate.
Interest of $0.4 million as of December 31, 2019 and 2018 has been reflected as a component of the total liability. We expect no
other significant increases or decreases for uncertain tax positions during the next twelve months. The reconciliations of beginning
and ending gross balances of unrecognized tax benefits for 2019 and 2018 are shown below (in thousands).
Unrecognized tax benefits, beginning balance
Gross increases – tax positions in prior period
Gross decreases – tax positions in prior period
Gross increases – current-period tax positions
Settlements
Unrecognized tax benefits, ending balance
40
December 31,
2019
2018
$
$
2,577
$
127
—
222
(385)
2,541
$
2,883
106
—
444
(856)
2,577
We file U.S. federal income tax returns, as well as income tax returns in various states and several foreign jurisdictions. The years
2016 and forward are open for examination by the U.S. Internal Revenue Service (“IRS”), and various years are open for examination
by state and foreign tax authorities. State and foreign jurisdictional statutes of limitations generally range from three to four years.
(7) EQUITY COMPENSATION AND EMPLOYEE BENEFIT PLANS
Equity Plan
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 December 31, 2019, there were 6,795,967 shares available for granting additional awards.
Equity compensation expense is included in salaries, wages and benefits within the Consolidated Statements of Income. As of
December 31, 2019, the total unrecognized compensation cost related to non-vested equity compensation awards was
approximately $8.8 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):
Stock options:
Pre-tax compensation expense
Tax benefit
Stock option expense, net of tax
Restricted awards:
Pre-tax compensation expense
Tax benefit
Restricted stock expense, net of tax
Performance awards:
Pre-tax compensation expense
Tax benefit
Performance award expense, net of tax
Years Ended December 31,
2019
2018
2017
$
$
$
$
$
$
— $
—
— $
4,943
1,258
3,685
3,156
803
2,353
$
$
$
$
— $
—
— $
4,143
1,056
3,087
3,152
804
2,348
$
$
$
$
6
2
4
3,244
1,265
1,979
1,459
569
890
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 2020.
41
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 and one day from the date of grant. No stock options are outstanding as of
December 31, 2019. The following table summarizes stock option activity for the year ended December 31, 2019:
Outstanding at beginning of period
Granted
Exercised
Forfeited
Expired
Outstanding at end of period
Exercisable at end of period
Number of
Options
(in thousands)
Weighted
Average
Exercise
Price ($)
Weighted
Average
Remaining
Contractual
Term
(Years)
Aggregate
Intrinsic Value
(in thousands)
$
9
—
(9)
—
—
—
—
19.02
—
19.02
—
—
—
—
0.00
0.00
$
$
—
—
We did not grant any stock options during the years ended December 31, 2019, 2018 and 2017. The fair value of stock option
grants is estimated using a Black-Scholes valuation model. The total intrinsic value of stock options exercised was as follows (in
thousands):
2019
2018
2017
$
136
484
1,722
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 year ended December 31, 2019:
Nonvested at beginning of period
Granted
Vested
Forfeited
Nonvested at end of period
Number of
Restricted
Awards (in
thousands)
Weighted
Average Grant
Date Fair
Value ($)
$
326
175
(113)
(19)
369
31.93
33.11
30.84
31.94
32.83
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 years ended December 31, 2019, 2018, and 2017
was $4.0 million, $3.1 million, and $4.4 million, respectively. We withheld shares based on the closing stock price on the vesting
date to settle the employees’ statutory obligation for the applicable income and other employment taxes. The shares withheld to
satisfy the tax withholding obligations were recorded as treasury stock.
42
Performance Awards
Performance awards entitle the recipient to shares of common stock upon attainment of performance objectives as pre-established
by the Compensation Committee. If the performance objectives are achieved, performance awards currently outstanding vest,
subject to continued employment, over periods ranging from 12 to 60 months from the grant date of the award. The performance
awards do not confer any voting or dividend rights to recipients until such shares vest and do not have any post-vesting sales
restrictions. The following table summarizes performance award activity for the year ended December 31, 2019:
Nonvested at beginning of period
Granted
Vested
Forfeited
Nonvested at end of period
Number of
Performance Awards (in
thousands)
Weighted
Average Grant
Date Fair
Value ($)
207
$
163
(35)
(8)
327
27.92
28.83
27.07
29.33
28.75
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. The 2018 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, 2018 to December 31, 2019.
Shares earned based on cumulative diluted earnings per share may be capped based on absolute total shareholder return during
the three-year period ended December 31, 2020. The 2018 performance awards will vest in one installment on the third anniversary
from the grant date. In January 2020, the Compensation Committee determined the 2017 fiscal year performance objectives were
achieved at a level above the target level, and the additional shares earned above the target are included in the granted shares in
the activity table above.
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 the performance awards vested during the years ended December 31, 2019, 2018 and 2017 was $1.2
million, $1.3 million and $1.0 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 are recorded as treasury stock.
Employee Stock Purchase Plan
Employee associates that meet certain eligibility requirements may participate in our Employee Stock Purchase Plan (the “Purchase
Plan”). Eligible participants designate the amount of regular payroll deductions and/or a single annual payment (each subject to
a yearly maximum amount) that is used to purchase shares of our common stock on the over-the-counter market. The maximum
annual contribution amount is currently $20,000. These purchases are subject to the terms of the Purchase Plan. We contribute an
amount equal to 15% of each participant’s contributions under the Purchase Plan. Interest accrues on Purchase Plan contributions
at a rate of 5.25% until the purchase is made. We pay the trading commissions and administrative charges related to purchases of
common stock under the Purchase Plan. Our contributions for the Purchase Plan were as follows (in thousands):
2019
2018
2017
$
265
239
208
43
401(k) Retirement Savings Plan
We have an Employees’ 401(k) Retirement Savings Plan (the “401(k) Plan”). Associates are eligible to participate in the 401(k)
Plan if they have been continuously employed with us or one of our subsidiaries for six months or more. We match a portion of
each associate’s 401(k) Plan elective deferrals. Salaries, wages and benefits expense in the accompanying Consolidated Statements
of Income includes our 401(k) Plan contributions and administrative expenses, which were as follows (in thousands):
2019
2018
2017
$
4,414
2,615
2,357
Nonqualified Deferred Compensation Plan
The Executive Nonqualified Excess Plan (the “Excess Plan”) is our nonqualified deferred compensation plan for the benefit of
eligible key managerial associates whose 401(k) Plan contributions are limited because of IRS regulations affecting highly
compensated associates. Under the terms of the Excess Plan, participants may elect to defer compensation on a pre-tax basis within
annual dollar limits we establish. At December 31, 2019, there were 45 participants in the Excess Plan. Although our current
intention is not to do so, we may also make matching credits and/or profit sharing credits to participants’ accounts as we so
determine each year. Each participant is fully vested in all deferred compensation and earnings; however, these amounts are subject
to general creditor claims until distributed to the participant. Under current federal tax law, we are not allowed a current income
tax deduction for the compensation deferred by participants, but we are allowed a tax deduction when a distribution payment is
made to a participant from the Excess Plan. The accumulated benefit obligation is included in other long-term liabilities in the
Consolidated Balance Sheets. We purchased life insurance policies to fund the future liability. The aggregate market value of the
life insurance policies is included in other non-current assets in the Consolidated Balance Sheets.
The accumulated benefit obligation and aggregate market value of the life insurance policies were as follows (in thousands):
Accumulated benefit obligation
Aggregate market value
(8) COMMITMENTS AND CONTINGENCIES
December 31,
2019
2018
$
9,588
$
8,284
7,202
6,588
We have committed to property and equipment purchases of approximately $113.4 million at December 31, 2019.
We are involved in certain claims and pending litigation, including those described herein, arising in the ordinary course of business.
The majority of these claims relate to bodily injury, property damage, cargo and workers’ compensation incurred in the transportation
of freight, as well as certain class action litigation related to personnel and employment matters. We accrue for the uninsured
portion of contingent losses from these and other pending claims when it is both probable that a liability has been incurred and
the amount of the loss can be reasonably estimated. Based on the knowledge of the facts, management believes the resolution of
claims and pending litigation, taking into account existing reserves, will not have a material adverse effect on our consolidated
financial statements. Moreover, the results of complex legal proceedings are difficult to predict, and our view of these matters
may change in the future as the litigation and related events unfold.
On May 17, 2018, in Harris County District Court in Houston, Texas, a jury rendered an adverse verdict against Werner Enterprises,
Inc. (the “Company”) in a lawsuit arising from a December 30, 2014 accident between a Werner tractor-trailer and a passenger
vehicle. On July 30, 2018, the court entered a final judgment against Werner for $92.0 million, including pre-judgment interest.
The Company has premium-based liability insurance to cover the potential outcome from this jury verdict. Under the Company’s
insurance policies in effect on the date of this accident, the Company’s maximum liability for this accident is $10.0 million (plus
pre-judgment and post-judgment interest) with premium-based coverage that exceeds the jury verdict amount. As a result of this
jury verdict, the Company had recorded a liability of $18.8 million as of December 31, 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 December 31, 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.
44
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 Career Track Program, related to short break time and
sleeper berth time. The period covered by this class action suit is August 2008 through March 2014. The case was tried to a jury
in May 2017, resulting in a verdict of $0.8 million in plaintiffs’ favor on the short break matter and a verdict in our favor on the
sleeper berth matter. As a result of various post-trial motions, the court awarded $0.5 million to the plaintiffs for attorney fees and
costs. As of December 31, 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 appealed the post-verdict amounts awarded by the trial court for fees, costs and
liquidated damages. The United States Court of Appeals for the Eighth Circuit denied Plaintiffs’ appeal and granted Werner’s
appeal, vacating the judgment in favor of the plaintiffs. The appellate court sent the case back to the trial court for proceedings
consistent with the appellate court’s opinion. The litigation of this matter will continue in the trial court.
We are also involved in certain class action litigation in which the plaintiffs allege claims for failure to provide meal and rest
breaks, unpaid wages, unauthorized deductions and other items. Based on the knowledge of the facts, management does not
currently believe the outcome of these class actions is likely to have a material adverse effect on our financial position or results
of operations. However, the final disposition of these matters and the impact of such final dispositions cannot be determined at
this time.
(9) RELATED PARTY TRANSACTIONS
The Company leases land from a trust in which the Company’s principal stockholder is the sole trustee. The annual rent payments
under this lease are $1.00 per year. The Company is responsible for all real estate taxes and maintenance costs related to the
property, which were $80,000 in 2019, $72,000 in 2018, and $72,000 in 2017 and are recorded as expenses in the Consolidated
Statements of Income. The Company has made leasehold improvements to the land for facilities used for business meetings and
customer promotion. The cost of these improvements was approximately $7.0 million , and the net book value (cost less accumulated
depreciation) at December 31, 2019 was approximately $2.6 million.
(10) 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; (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 tables below. “Corporate” includes revenues and expenses
that are incidental to our activities and are not attributable to any of our operating segments, including gains and losses on sales
of assets not attributable to our operating segments. We do not prepare separate balance sheets by segment and, as a result, assets
are not separately identifiable by segment. Inter-segment eliminations in the table below represent transactions between reporting
segments that are eliminated in consolidation.
45
The following table summarizes our segment information (in thousands):
Revenues
Truckload Transportation Services
Werner Logistics
Other
Corporate
Subtotal
Inter-segment eliminations
Total
Operating Income
Truckload Transportation Services
Werner Logistics
Other
Corporate
Total
Years Ended December 31,
2019
2018
2017
$
1,909,776
$
1,881,323
$
489,729
61,850
2,589
518,078
56,903
2,759
2,463,944
(243)
2,463,701
$
2,459,063
(1,149)
2,457,914
$
202,660
$
202,581
$
16,288
5,535
989
20,378
(453)
1,709
225,472
$
224,215
$
$
$
$
1,635,244
417,639
62,745
1,938
2,117,566
(829)
2,116,737
138,059
8,683
35
(2,957)
143,820
Information about the geographic areas in which we conduct business is summarized below (in thousands) as of and for the years
ended December 31, 2019, 2018 and 2017. 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.
Revenues
United States
Foreign countries
Mexico
Other
Total foreign countries
Total
Long-lived Assets
United States
Foreign countries
Mexico
Other
Total foreign countries
Total
2019
2018
2017
$
2,191,560
$
2,145,098
$
1,837,525
197,470
74,671
272,141
233,116
79,700
312,816
210,228
68,984
279,212
2,463,701
$
2,457,914
$
2,116,737
1,487,591
$
1,452,532
$
1,321,206
$
$
38,428
257
38,685
34,741
289
35,030
25,309
348
25,657
$
1,526,276
$
1,487,562
$
1,346,863
We generate substantially all of our revenues within the United States or from North American shipments with origins or destinations
in the United States. No customer generated more than 9% of our total revenues for 2019, 2018 and 2017.
46
(11) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share amounts)
2019:
Operating revenues
Operating income
Net income
Basic earnings per share
Diluted earnings per share
(In thousands, except per share amounts)
2018:
Operating revenues
Operating income
Net income
Basic earnings per share
Diluted earnings per share
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
596,117
$
627,533
$
618,264
$
48,019
36,086
0.51
0.51
58,442
43,318
0.62
0.62
53,357
39,044
0.56
0.56
621,787
65,654
48,496
0.70
0.70
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
562,684
$
619,130
$
629,735
$
35,115
27,807
0.38
0.38
50,783
38,264
0.53
0.53
63,386
47,514
0.67
0.66
646,365
74,931
54,563
0.77
0.77
47
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
No disclosure under this item was required within the two most recent fiscal years ended December 31, 2019, or any subsequent
period, involving a change of accountants or disagreements on accounting and financial disclosure.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure 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 Exchange Act Rule 15d-15(e). 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.
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.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control
over financial reporting is a process designed to provide reasonable assurance to our management and Board of Directors regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.
generally accepted accounting principles. Internal control over financial reporting includes (i) maintaining records that in
reasonable detail accurately and fairly reflect our transactions; (ii) providing reasonable assurance that transactions are recorded
as necessary for preparation of our financial statements; (iii) providing reasonable assurance that receipts and expenditures of
company assets are made in accordance with management authorization; and (iv) providing reasonable assurance that unauthorized
acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented
or detected on a timely basis.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
(i) changes in conditions may occur or (ii) the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2019. This assessment
is based on the criteria for effective internal control described in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, management concluded that our
internal control over financial reporting was effective as of December 31, 2019.
Management has engaged KPMG LLP (“KPMG”), the independent registered public accounting firm that audited the consolidated
financial statements included in this Form 10-K, to attest to and report on the effectiveness of our internal control over financial
reporting. KPMG’s report is included herein.
48
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Werner Enterprises, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Werner Enterprises, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of
December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements
of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended
December 31, 2019, and the related notes and financial statement schedule II listed in the Index in Item 15(a)(2) (collectively, the
consolidated financial statements), and our report dated February 27, 2020 expressed an unqualified opinion on those consolidated
financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Omaha, Nebraska
February 27, 2020
/s/ KPMG LLP
49
Changes in Internal Control over Financial Reporting
Management, under the supervision 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 the quarter ended December 31, 2019 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
OTHER INFORMATION
During fourth quarter 2019, no information was required to be disclosed in a report on Form 8-K, but not reported.
PART III
Certain information required by Part III is omitted from this Form 10-K because we will file a definitive proxy statement pursuant
to Regulation 14A (the “Proxy Statement”) not later than 120 days after the end of the fiscal year covered by this Form 10-K, and
certain information included therein is incorporated herein by reference. Only those sections of the Proxy Statement which
specifically address the items set forth herein are incorporated by reference.
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item, with the exception of the Code of Corporate Conduct discussed below, is incorporated
herein by reference to our Proxy Statement.
Code of Corporate Conduct
We adopted our Code of Corporate Conduct, which is our code of ethics, that applies to our principal executive officer, principal
financial officer, principal accounting officer and all other officers, employee associates and directors. The Code of Corporate
Conduct is available on our website, www.werner.com in the “Investors” section. We will post on our website any amendment to,
or waiver from, any provision of our Code of Corporate Conduct that applies to our Chief Executive Officer, Chief Financial
Officer or Chief Accounting Officer (if any) within four business days of any such event.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to our Proxy Statement.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by this Item, with the exception of the equity compensation plan information presented below, is
incorporated herein by reference to our Proxy Statement.
Equity Compensation Plan Information
The following table summarizes, as of December 31, 2019, information about compensation plans under which our equity securities
are authorized for issuance:
Number of Securities to
be Issued upon Exercise
of Outstanding Options,
Warrants and Rights
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(a)
696,463(1)
(b)
$0.00(2)
Number of Securities
Remaining Available for
Future Issuance under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
(c)
6,795,967
Plan Category
Equity compensation plans
approved by stockholders
Includes 695,648 shares to be issued upon vesting of outstanding restricted stock awards.
(1)
(2) As of December 31, 2019, we do not have any outstanding stock options.
We do not have any equity compensation plans that were not approved by stockholders.
50
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated herein by reference to our Proxy Statement.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item is incorporated herein by reference to our Proxy Statement.
PART IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
Financial Statements and Schedules.
(1) Financial Statements: See Part II, Item 8 hereof.
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders’ Equity
Notes to Consolidated Financial Statements
Page
24
26
27
28
29
30
31
(2) Financial Statement Schedules: The consolidated financial statement schedule set forth under the following caption is
included herein. The page reference is to the consecutively numbered pages of this report on Form 10-K.
Schedule II—Valuation and Qualifying Accounts
Page
55
Schedules not listed above have been omitted because they are not applicable or are not required or the information required to
be set forth therein is included in the Consolidated Financial Statements or Notes thereto.
51
(3) Exhibits: The Company has attached or incorporated by reference herein certain exhibits as specified below pursuant to
Rule 12b-32 under the Exchange Act.
Exhibit
Number
Description
Incorporated by Reference to:
3(i)
3(ii)
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
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
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
Description of Common Stock
Filed herewith
Werner Enterprises, Inc. Amended and
Restated Equity Plan
Exhibit 10.2 to the Company’s Quarterly Report on Form
10-Q for the quarter ended March 31, 2018
Non-Employee Director Compensation
Exhibit 10.2 to the Company’s Quarterly Report on Form
10-Q for the quarter ended March 31, 2017
The Executive Nonqualified Excess Plan of
Werner Enterprises, Inc., restated
Exhibit 10.3 to the Company’s Annual Report on Form 10-
K for the year ended December 31, 2017
Named Executive Officer Compensation
Lease Agreement, as amended February 8,
2007, between the Company and Clarence L.
Werner, Trustee of the Clarence L. Werner
Revocable Trust
License Agreement, dated February 8, 2007
between the Company and Clarence L.
Werner, Trustee of the Clarence L. Werner
Revocable Trust
Item 5.02 of the Company’s Current Report on Form 8-K
dated February 7, 2018; Item 5.02 of the Company’s
Current Report on Form 8-K dated February 11, 2019; Item
5.02 of the Company’s Current Report on Form 8-K dated
February 13, 2020
Exhibit 10.5 to the Company’s Annual Report on Form 10-
K for the year ended December 31, 2006
Exhibit 10.6 to the Company’s Annual Report on Form 10-
K for the year ended December 31, 2006
Form of Notice of Grant of Nonqualified
Stock Option
Exhibit 10.1 to the Company’s Current Report on Form 8-K
dated November 29, 2007
Form of Restricted Stock Award Agreement
Exhibit 10.1 to the Company’s Current Report on Form 8-K
dated December 1, 2009
Form of Performance-Based Restricted Stock
Award Agreement
Exhibit 10.1 to the Company’s Current Report on Form 8-K
dated February 10, 2014
10.10
Severance Agreement and Release between
the Registrant and Greg Werner
Exhibit 10.1 to the Company’s Quarterly Report on Form
10-Q for the quarter ended September 30, 2015
11
21
23.1
31.1
31.2
32.1
Statement Re: Computation of Per Share
Earnings
See Note 1 (Common Stock and Earnings Per Share) in the
Notes to Consolidated Financial Statements under item 8
herein
Subsidiaries of the Registrant
Consent of KPMG LLP
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)
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)
Certification of the Chief Executive Officer
pursuant to 18 U.S.C. Section 1350 (Section
906 of the Sarbanes-Oxley Act of 2002)
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Furnished herewith
52
Exhibit
Number
32.2
101
Description
Incorporated by Reference to:
Furnished herewith
Certification of the Chief Financial Officer
pursuant to 18 U.S.C. Section 1350 (Section
906 of the Sarbanes-Oxley Act of 2002)
The following audited financial information
from Werner Enterprises’ Annual Report on
Form 10-K for the year ended December 31,
2019, formatted in iXBRL (Inline Extensible
Business Reporting Language) includes: (i)
Consolidated Statements of Income for the
years ended December 31, 2019, December
31, 2018 and December 31, 2017, (ii)
Consolidated Statements of Comprehensive
Income for the years ended December 31,
2019, December 31, 2018 and December 31,
2017, (iii) Consolidated Balance Sheets as of
December 31, 2019 and December 31, 2018,
(iv) Consolidated Statements of Cash Flows
for the years ended December 31, 2019,
December 31, 2018 and December 31, 2017,
(v) Consolidated Statements of Stockholders’
Equity for the years ended December 31,
2019, December 31, 2018 and December 31,
2017, and (vi) the Notes to Consolidated
Financial Statements as of December 31,
2019.
104
The cover page from this Annual Report on
Form 10-K for the year ended December 31,
2019, formatted in Inline XBRL (included as
Exhibit 101).
ITEM 16.
FORM 10-K SUMMARY
Not applicable
53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 27th day of February, 2020.
WERNER ENTERPRISES, INC.
By:
/s/ Derek J. Leathers
Derek J. Leathers
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Position
Date
/s/ Clarence L. Werner
Clarence L. Werner
Executive Chairman and Director
February 27, 2020
/s/ Derek J. Leathers
President and Chief Executive Officer
February 27, 2020
Derek J. Leathers
(Principal Executive Officer)
/s/ Gregory L. Werner
Gregory L. Werner
Director
/s/ Kenneth M. Bird, Ed.D.
Kenneth M. Bird, Ed.D.
Director
/s/ Patrick J. Jung
Patrick J. Jung
Director
/s/ Dwaine J. Peetz, Jr., M.D.
Dwaine J. Peetz, Jr., M.D.
Director
/s/ Gerald H. Timmerman
Director
Gerald H. Timmerman
/s/ Diane K. Duren
Diane K. Duren
Director
/s/ Michael L. Gallagher
Michael L. Gallagher
Director
/s/ Jack A. Holmes
Jack A. Holmes
/s/ John J. Steele
John J. Steele
Director
Executive Vice President, Treasurer
and Chief Financial Officer (Principal Financial Officer)
/s/ James L. Johnson
James L. Johnson
Executive Vice President, Chief Accounting Officer
and Corporate Secretary (Principal Accounting Officer)
54
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
SCHEDULE II
WERNER ENTERPRISES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Year ended December 31, 2019:
Allowance for doubtful accounts
Year ended December 31, 2018:
Allowance for doubtful accounts
Year ended December 31, 2017:
Allowance for doubtful accounts
(In thousands)
Year ended December 31, 2019:
Allowance for doubtful student notes
Year ended December 31, 2018:
Allowance for doubtful student notes
Year ended December 31, 2017:
Allowance for doubtful student notes
Balance at
Beginning of
Period
Charged to
Costs and
Expenses
Write-offs
(Recoveries)
of Doubtful
Accounts
Balance at
End of
Period
$
$
$
$
$
$
8,613
8,250
9,183
Balance at
Beginning of
Period
19,361
21,026
15,682
$
$
$
$
$
$
219
672
184
Charged to
Costs and
Expenses (1)
19,834
17,858
15,917
$
$
$
$
$
$
911
309
1,117
Write-offs
(Recoveries)
of Doubtful
Accounts
17,878
19,523
10,573
$
$
$
$
$
$
7,921
8,613
8,250
Balance at
End of
Period
21,317
19,361
21,026
(1) Includes $14,067 and $14,277 for the years ended December 31, 2019 and 2018, respectively, recorded as a reduction of revenues after adopting the
new revenue recognition standard effective January 1, 2019.
See report of independent registered public accounting firm.
55
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)
EXHIBIT 31.1
I, Derek J. Leathers, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Werner Enterprises, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: February 27, 2020
/s/ Derek J. Leathers
Derek J. Leathers
President and Chief Executive Officer
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)
EXHIBIT 31.2
I, John J. Steele, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Werner Enterprises, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: February 27, 2020
/s/ John J. Steele
John J. Steele
Executive Vice President, Treasurer and Chief Financial Officer
EXHIBIT 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)
In connection with the Annual Report of Werner Enterprises, Inc. (the “Company”) on Form 10-K for the period ending December
31, 2019 (the “Report”), filed with the Securities and Exchange Commission, I, Derek J. Leathers, President and Chief Executive
Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that to the best of my knowledge:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
February 27, 2020
/s/ Derek J. Leathers
Derek J. Leathers
President and Chief Executive Officer
EXHIBIT 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)
In connection with the Annual Report of Werner Enterprises, Inc. (the “Company”) on Form 10-K for the period ending December
31, 2019 (the “Report”), filed with the Securities and Exchange Commission, I, John J. Steele, Executive Vice President, Treasurer
and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
February 27, 2020
/s/ John J. Steele
John J. Steele
Executive Vice President, Treasurer and
Chief Financial Officer
INFORMATION
GLOBAL HEADQUARTERS
Werner Enterprises, Inc.
14507 Frontier Road
P.O. Box 45308
Omaha, Nebraska 68145-0308
Telephone: 402.895.6640
werner.com
email: werner@werner.com
ANNUAL MEETING
The Annual Meeting will be held on
May 12, 2020 at 10 a.m. CDT,
at the Embassy Suites Omaha-LaVista
Hotel and Conference Center,
12520 Westport Parkway,
LaVista, Nebraska.
STOCK LISTING
The company’s common stock trades on The NASDAQ
Global Select MarketSM under the symbol WERN.
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG LLP
1212 North 96th Street, Suite 300
Omaha, Nebraska 68114-2274
STOCK TRANSFER AGENT AND REGISTRAR
Equiniti Trust Company
Shareowner Services
P.O. Box 64854
St. Paul, Minnesota 55164-0854
Telephone: 800.468.9716
shareowneronline.com
BOARD OF DIRECTORS
Clarence L. Werner, 82
Executive Chairman. Founder of the Company.
Served on Board since inception in 1986.
Gregory L. Werner, 60
Former Vice Chairman and Chief Executive Officer of the Company.
Served on Board since 1994.
Kenneth M. Bird, Ed.D., 72
President and Chief Executive Officer - Avenue Scholars.
Served on Board since 2002. (2) (3)
Patrick J. Jung, 72
Former Chief Operating Officer - Surdell & Partners LLC.
Served on Board since 2003. (1) (2)
Dwaine J. Peetz, Jr., M.D., 69
Former Thoracic Surgeon and Clinical Assistant Professor
of Surgery at Creighton University School of Medicine and
University of Nebraska Medical Center.
Served on Board since 2011. (2) (3)
Diane K. Duren, 60
Former Executive Vice President, Chief Administrative Officer
and Corporate Secretary of Union Pacific Corporation.
Served on Board since 2017. (1) (2) (3)
Gerald H. Timmerman, 80
President of Timmerman & Sons Feeding Co., Inc.
Served on Board since 2016. (1) (3)
Michael L. Gallagher, 75
Chairman Emeritus of the law firm Gallagher & Kennedy.
Served on Board since 2017. (1) (3)
Jack A. Holmes, 60
Vice Chairman of Emerge TMS; Former President of UPS Freight.
Served on Board since 2018. (1) (2) (3)
(1) Serves on audit committee. (2) Serves on compensation committee. (3) Serves on nominating and corporate governance committee.
EXECUTIVE OFFICERS
Clarence L. Werner, 82
Executive Chairman
Jim S. Schelble, 59
Executive Vice President and Chief Administrative Officer
Derek J. Leathers, 50
President and Chief Executive Officer
James L. Johnson, 56
Executive Vice President, Chief Accounting Officer and Corporate Secretary
H. Marty Nordlund, 58
Senior Executive Vice President and Chief Operating Officer
Craig T. Callahan, 46
Executive Vice President and Chief Commercial Officer
John J. Steele, 62
Executive Vice President, Treasurer and Chief Financial Officer
Nathan J. Meisgeier, 46
Executive Vice President and Chief Legal Officer
®
Werner.com l DriveWerner.com
Global Headquarters
14507 Frontier Road l P.O. Box 45308
Omaha, Nebraska l 68145-0308
402.895.6640 l 800.228.2240
Werner Enterprises, Inc. is a SmartWay© Transport partner
and honored to be named a 2019 SmartWay© High Performer
and recipient of the 2019 SmartWay© Excellence Award
by the United States Environmental Protection Agency (EPA)
for its efforts to produce more efficient and
sustainable supply chain transportation solutions.