WERNER ENTERPRISES INC [WERN] Filings

10-Q 1 wern-20220630.htm 10-Q wern-20220630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended June 30, 2022


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

Commission File Number: 0-14690

WERNER ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

Nebraska

47-0648386

(State or other jurisdiction of
incorporation or organization)

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

14507 Frontier Road

Post Office Box 45308

Omaha

Nebraska

68145-0308

(Address of principal executive offices)

(Zip Code)

(402) 895-6640

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 Par Value

WERN

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large Accelerated Filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

As of August 4, 2022, 63,418,047 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.

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WERNER ENTERPRISES, INC.

INDEX


		PAGE
PART I – FINANCIAL INFORMATION
	Cautionary Note Regarding Forward-Looking Statements	3
Item 1.	Financial Statements:	4
	Consolidated Statements of Income for the Three and Six Months Ended June 3 0 , 2022 and 2021	4
	Consolidated Statements of Comprehensive Income for the Three and Si x Months Ended June 3 0 , 2022 and 2021	5
	Consolidated Condensed Balance Sheets as of June 3 0 , 2022 and December 31, 2021	6
	Consolidated Statements of Cash Flows for the Six Months Ended June 3 0 , 2022 and 2021	7
	Consolidated Statements of Stockholders’ Equity and Temporary Equity - Redeemable Noncontrolling Interest for the Three and Six Months Ended June 3 0 , 2022 and June 3 0 , 2021	8
	Notes to Consolidated Financial Statements (Unaudited) as of June 3 0 , 2022	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	30
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 6.	Exhibits	32

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PART I

FINANCIAL INFORMATION

Cautionary Note Regarding Forward-Looking Statements:

This Quarterly Report on Form 10-Q contains historical information and forward-looking statements based on information currently available to our management. The forward-looking statements in this report, including those made in Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of Part I, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. These safe harbor provisions encourage reporting companies to provide prospective information to investors. Forward-looking statements can be identified by the use of certain words, such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project” and other similar terms and language. We believe the forward-looking statements are reasonable based on currently available information. However, forward-looking statements involve risks, uncertainties and assumptions, whether known or unknown, that could cause our actual results, business, financial condition and cash flows to differ materially from those anticipated in the forward-looking statements. A discussion of important factors relating to forward-looking statements is included in Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”). Readers should not unduly rely on the forward-looking statements included in this Form 10-Q because such statements speak only to the date they were made. Unless otherwise required by applicable securities laws, we undertake no obligation or duty to update or revise any forward-looking statements contained herein to reflect subsequent events or circumstances or the occurrence of unanticipated events.

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Item 1. Financial Statements.

WERNER ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except per share amounts)	2022		2021		2022		2021
Operating revenues	$	836,276	$	649,814	$	1,600,881	$	1,266,260
Operating expenses:
Salaries, wages and benefits	253,639		210,095		495,635		414,948
Fuel	125,446		58,503		213,867		109,341
Supplies and maintenance	62,656		49,414		119,681		95,561
Taxes and licenses	23,791		23,744		47,624		46,977
Insurance and claims	41,071		20,739		68,563		42,795
Depreciation and amortization	68,471		63,865		135,700		127,816
Rent and purchased transportation	197,116		150,920		382,353		297,413
Communications and utilities	3,781		3,333		7,707		6,355
Other	(14,618)		(7,662)		(28,683)		(14,280)
Total operating expenses	761,353		572,951		1,442,447		1,126,926
Operating income	74,923		76,863		158,434		139,334
Other expense (income):
Interest expense	1,787		701		3,226		1,539
Interest income	(313)		(334)		(588)		(631)
Gain on investments in equity securities, net	(24,095)		(20,191)		(14,289)		(20,191)
Other	126		54		199		96
Total other expense (income)	(22,495)		(19,770)		(11,452)		(19,187)
Income before income taxes	97,418		96,633		169,886		158,521
Income tax expense	23,809		24,601		41,242		39,997
Net income	73,609		72,032		128,644		118,524
Net income attributable to noncontrolling interest	(1,319)		—		(2,605)		—
Net income attributable to Werner	$	72,290	$	72,032	$	126,039	$	118,524
Earnings per share:
Basic	$	1.12	$	1.06	$	1.94	$	1.74
Diluted	$	1.12	$	1.06	$	1.93	$	1.74
Weighted-average common shares outstanding:
Basic	64,394		67,926		64,965		67,929
Diluted	64,726		68,216		65,327		68,237

See Notes to Consolidated Financial Statements (Unaudited).

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WERNER ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2022		2021		2022		2021
Net income	$	73,609	$	72,032	$	128,644	$	118,524
Other comprehensive income (loss):
Foreign currency translation adjustments	(47)		1,865		1,106		297
Change in fair value of interest rate swaps, net of tax	1,283		360		4,914		1,663
Other comprehensive income	1,236		2,225		6,020		1,960
Comprehensive income	74,845		74,257		134,664		120,484
Comprehensive income attributable to noncontrolling interest	(1,319)		—		(2,605)		—
Comprehensive income attributable to Werner	$	73,526	$	74,257	$	132,059	$	120,484

See Notes to Consolidated Financial Statements (Unaudited).

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WERNER ENTERPRISES, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS


(In thousands, except share amounts)	June 30, 2022		December 31, 2021
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	54,424	$	54,196
Accounts receivable, trade, less allowance of $9,976 and $9,169, respectively	482,006		460,518
Other receivables	165,205		24,449
Inventories and supplies	12,568		11,140
Prepaid taxes, licenses and permits	8,803		17,549
Other current assets	49,399		63,361
Total current assets	772,405		631,213
Property and equipment	2,703,628		2,557,825
Less – accumulated depreciation	1,032,948		944,582
Property and equipment, net	1,670,680		1,613,243
Goodwill	74,404		74,618
Intangible assets, net	52,597		55,315
Other non-current assets	278,501		229,324
Total assets	$	2,848,587	$	2,603,713
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY
Current liabilities:
Checks issued in excess of cash balances	$	6,032	$	—
Accounts payable	126,178		93,987
Current portion of long-term debt	5,000		5,000
Insurance and claims accruals	221,219		72,594
Accrued payroll	57,624		44,333

Accrued expenses	30,274		28,758
Other current liabilities	24,653		24,011
Total current liabilities	470,980		268,683
Long-term debt, net of current portion	440,000		422,500
Other long-term liabilities	43,782		43,314
Insurance and claims accruals, net of current portion	242,094		237,220

Deferred income taxes	269,307		268,499
Total liabilities	1,466,163		1,240,216
Commitments and contingencies
Temporary equity - redeemable noncontrolling interest	38,552		35,947
Stockholders’ equity:
Common stock, $0.01 par value, 200,000,000 shares authorized; 80,533,536 shares
issued; 63,415,565 and 65,790,112 shares outstanding, respectively	805		805
Paid-in capital	124,065		121,904
Retained earnings	1,777,092		1,667,104
Accumulated other comprehensive loss	(14,584)		(20,604)
Treasury stock, at cost; 17,117,971 and 14,743,424 shares, respectively	(543,506)		(441,659)
Total stockholders’ equity	1,343,872		1,327,550
Total liabilities, temporary equity and stockholders’ equity	$	2,848,587	$	2,603,713

See Notes to Consolidated Financial Statements (Unaudited).

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WERNER ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
(In thousands)	2022		2021
Cash flows from operating activities:
Net income	$	128,644	$	118,524
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	135,700		127,816
Deferred income taxes	(630)		15,036
Gain on disposal of property and equipment	(41,138)		(24,008)
Non-cash equity compensation	6,085		5,249
Insurance and claims accruals, net of current portion	4,874		4,632
Other	(4,142)		842
Gain on investments in equity securities, net	(14,289)		(20,191)
Changes in certain working capital items:
Accounts receivable, net	(21,125)		(49,978)
Other current assets	20,728		3,144
Accounts payable	30,091		16,639
Other current liabilities	22,729		(8,241)
Net cash provided by operating activities	267,527		189,464
Cash flows from investing activities:
Additions to property and equipment	(227,334)		(192,983)
Proceeds from sales of property and equipment	73,911		90,036
Net cash invested in acquisition	705		—
Investment in equity securities	(20,250)		(5,000)
Decrease in notes receivable	3,288		3,342
Net cash used in investing activities	(169,680)		(104,605)
Cash flows from financing activities:
Repayments of short-term debt	(2,500)		(25,000)
Proceeds from issuance of short-term debt	—		5,000
Repayments of long-term debt	(100,000)		—
Proceeds from issuance of long-term debt	120,000		120,000
Change in checks issued in excess of cash balances	6,032		—
Dividends on common stock	(15,702)		(12,906)
Repurchases of common stock	(102,113)		(5,507)
Tax withholding related to net share settlements of restricted stock awards	(3,658)		(3,740)



Net cash provided by (used in) financing activities	(97,941)		77,847
Effect of exchange rate fluctuations on cash	322		88
Net increase in cash and cash equivalents	228		162,794
Cash and cash equivalents, beginning of period	54,196		29,334
Cash and cash equivalents, end of period	$	54,424	$	192,128
Supplemental disclosures of cash flow information:
Interest paid	$	3,236	$	1,583
Income taxes paid	31,096		40,047
Supplemental schedule of non-cash investing and financing activities:
Notes receivable issued upon sale of property and equipment	$	2,350	$	2,646
Change in fair value of interest rate swaps	4,914		1,663
Property and equipment acquired included in accounts payable	8,431		6,715
Property and equipment disposed included in other receivables	1,205		32
Dividends accrued but not yet paid at end of period	8,244		8,151

See Notes to Consolidated Financial Statements (Unaudited).

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WERNER ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND

TEMPORARY EQUITY - REDEEMABLE NONCONTROLLING INTEREST

(Unaudited)


	Three Months Ended June 30, 2022
(In thousands, except share and per share amounts)	Common Stock		Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Stockholders’ Equity		Temporary Equity - Redeemable Noncontrolling Interest
BALANCE, March 31, 2022	$	805	$	121,157	$	1,713,046	$	(15,820)	$	(477,724)	$	1,341,464	$	37,233
Net income attributable to Werner	—		—		72,290		—		—		72,290		—
Net income attributable to noncontrolling interest	—		—		—		—		—		—		1,319
Other comprehensive income	—		—		—		1,236		—		1,236		—
Purchases of 1,650,000 shares of common stock	—		—		—		—		(65,933)		(65,933)		—
Dividends on common stock ($0.13 per share)	—		—		(8,244)		—		—		(8,244)		—
Equity compensation activity, 7,802 shares	—		(151)		—		—		151		—		—
Non-cash equity compensation expense	—		3,059		—		—		—		3,059		—
BALANCE, June 30, 2022	$	805	$	124,065	$	1,777,092	$	(14,584)	$	(543,506)	$	1,343,872	$	38,552


	Three Months Ended June 30, 2021
(In thousands, except share and per share amounts)	Common Stock		Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Stockholders’ Equity		Temporary Equity - Redeemable Noncontrolling Interest
BALANCE, March 31, 2021	$	805	$	114,588	$	1,478,616	$	(23,098)	$	(343,181)	$	1,227,730	$	—
Net income attributable to Werner	—		—		72,032		—		—		72,032		—

Other comprehensive income	—		—		—		2,225		—		2,225		—

Dividends on common stock ($0.12 per share)	—		—		(8,151)		—		—		(8,151)		—
Equity compensation activity, 13,725 shares	—		(266)		—		—		266		—		—
Non-cash equity compensation expense	—		2,747		—		—		—		2,747		—
BALANCE, June 30, 2021	$	805	$	117,069	$	1,542,497	$	(20,873)	$	(342,915)	$	1,296,583	$	—

See Notes to Consolidated Financial Statements (Unaudited).

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WERNER ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND

TEMPORARY EQUITY - REDEEMABLE NONCONTROLLING INTEREST (CONTINUED)

(Unaudited)


	Six Months Ended June 30, 2022
(In thousands, except share and per share amounts)	Common Stock		Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Stockholders’ Equity		Temporary Equity - Redeemable Noncontrolling Interest
BALANCE, December 31, 2021	$	805	$	121,904	$	1,667,104	$	(20,604)	$	(441,659)	$	1,327,550	$	35,947
Net income attributable to Werner	—		—		126,039		—		—		126,039		—
Net income attributable to noncontrolling interest	—		—		—		—		—		—		2,605
Other comprehensive income	—		—		—		6,020		—		6,020		—
Purchases of 2,495,100 shares of common stock	—		—		—		—		(102,113)		(102,113)		—
Dividends on common stock ($0.25 per share)	—		—		(16,051)		—		—		(16,051)		—
Equity compensation activity, 120,553 shares	—		(3,924)		—		—		266		(3,658)		—
Non-cash equity compensation expense	—		6,085		—		—		—		6,085		—
BALANCE, June 30, 2022	$	805	$	124,065	$	1,777,092	$	(14,584)	$	(543,506)	$	1,343,872	$	38,552


	Six Months Ended June 30, 2021
(In thousands, except share and per share amounts)	Common Stock		Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Stockholders’ Equity		Temporary Equity - Redeemable Noncontrolling Interest
BALANCE, December 31, 2020	$	805	$	116,039	$	1,438,916	$	(22,833)	$	(337,887)	$	1,195,040	$	—
Net income attributable to Werner	—		—		118,524		—		—		118,524		—

Other comprehensive income	—		—		—		1,960		—		1,960		—
Purchases of 130,446 shares of common stock	—		—		—		—		(5,507)		(5,507)		—
Dividends on common stock ($0.22 per share)	—		—		(14,943)		—		—		(14,943)		—
Equity compensation activity, 130,593 shares	—		(4,219)		—		—		479		(3,740)		—
Non-cash equity compensation expense	—		5,249		—		—		—		5,249		—
BALANCE, June 30, 2021	$	805	$	117,069	$	1,542,497	$	(20,873)	$	(342,915)	$	1,296,583	$	—

See Notes to Consolidated Financial Statements (Unaudited).

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WERNER ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1) Basis of Presentation and Recent Accounting Pronouncements

Basis of Presentation

The accompanying unaudited interim consolidated financial statements include the accounts of Werner Enterprises, Inc. and its controlled subsidiaries (collectively, the “Company” or “Werner”). Noncontrolling interest on the consolidated condensed balance sheets represents the portion of a consolidated entity in which we do not have a direct equity ownership. In these notes, the terms “we,” “us,” or “our” refer to Werner Enterprises, Inc. and its subsidiaries. All significant intercompany accounts and transactions relating to these entities have been eliminated.

These consolidated financial statements have been prepared in accordance with the U.S. Securities and Exchange Commission (SEC) instructions to Form 10-Q and, in the opinion of management, reflect all adjustments, which are all of normal recurring nature, necessary to present fairly the financial condition, results of operations and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles (“GAAP”). These consolidated financial statements do not include all information and footnotes required by GAAP for complete financial statements; although in management’s opinion, the disclosures are adequate so that the information presented is not misleading.

Operating results for the three-month and six-month periods ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. In the opinion of management, the information set forth in the accompanying consolidated condensed balance sheets is fairly stated in all material respects in relation to the consolidated balance sheets from which it has been derived.

These consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and accompanying notes contained in our 2021 Form 10-K.

New Accounting Pronouncements Adopted

In the first quarter 2022, we adopted Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848), which provides optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting. The provisions of this update are effective for all entities as of March 12, 2020 through December 31, 2022 and apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. The adoption of the new guidance did not have a material impact on our consolidated financial statements.

(2) Business Acquisitions

On July 1, 2021, we acquired an 80% ownership interest in ECM Associated, LLC ("ECM”) for a final purchase price of $141.3 million after net working capital changes and net of cash acquired. ECM, through its ECM Transport, LLC (“ECM Transport”) and Motor Carrier Service, LLC (“MCS”) subsidiaries, provides regional truckload carrier services in the Mid-Atlantic, Ohio, and Northeast regions of the United States. The results of operations for ECM are included in our consolidated financial statements beginning July 1, 2021, and the noncontrolling interest is presented as a separate component of the consolidated financial statements.

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

Amortization expense on intangible assets was $1.4 million and $2.7 million for the three and six months ended June 30, 2022.

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(3) Revenue

Revenue Recognition

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

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Truckload Transportation Services	$	613,616	$	491,200	$	1,172,033	$	954,149
Werner Logistics	203,861		141,673		392,869		279,526
Inter-segment eliminations	(625)		(193)		(1,347)		(327)
Transportation services	816,852		632,680		1,563,555		1,233,348
Other revenues	19,424		17,134		37,326		32,912
Total revenues	$	836,276	$	649,814	$	1,600,881	$	1,266,260

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
United States	$	770,849	$	602,146	$	1,481,753	$	1,157,385
Mexico	51,461		39,325		94,752		78,081
Other	13,966		8,343		24,376		30,794
Total revenues	$	836,276	$	649,814	$	1,600,881	$	1,266,260

Contract Balances and Accounts Receivable

A receivable is an unconditional right to consideration and is recognized when shipments have been completed and the related performance obligation has been fully satisfied. At June 30, 2022 and December 31, 2021, the accounts receivable, trade, net, balance was $482.0 million and $460.5 million, respectively. Contract assets represent a conditional right to consideration in exchange for goods or services and are transferred to receivables when the rights become unconditional. At June 30, 2022 and December 31, 2021, the balance of contract assets was $10.2 million and $9.0 million, respectively. We have recognized contract assets within the other current assets financial statement caption on the consolidated condensed balance sheets. These contract assets are considered current assets as they will be settled in less than 12 months.

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

Performance Obligations

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

During the six months ended June 30, 2022 and 2021, revenues recognized from performance obligations related to prior periods (for example, due to changes in transaction price) were not material.

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(4) Leases

We have entered into operating leases primarily for real estate. The leases have terms which range from 1 year to 18 years, and some include options to renew. Renewal terms are included in the lease term when it is reasonably certain that we will exercise the option to renew.

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

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


	June 30, 2022			December 31, 2021
Balance Sheet Classification
Right-of-use assets (recorded in other non-current assets)	$	34,143		$	28,458

Current lease liabilities (recorded in other current liabilities)	$	7,191		$	6,380
Long-term lease liabilities (recorded in other long-term liabilities)	28,042			22,634
Total operating lease liabilities	$	35,233		$	29,014

Other Information
Weighted-average remaining lease term for operating leases	7.40 years			7.63 years
Weighted-average discount rate for operating leases	2.6		%	2.7		%

The following table presents the maturities of operating lease liabilities as of June 30, 2022 (in thousands):


Maturity of Lease Liabilities
2022 (remaining)	$	4,145
2023	7,102
2024	6,146
2025	5,238
2026	4,230
Thereafter	11,883
Total undiscounted operating lease payments	$	38,744
Less: Imputed interest	(3,511)
Present value of operating lease liabilities	$	35,233

Cash Flows

During the six months ended June 30, 2022 and 2021, right-of-use assets of $11.2 million and $2.1 million, respectively, were recognized as non-cash asset additions that resulted from new operating lease liabilities. Cash paid for amounts included in the present value of operating lease liabilities was $3.8 million and $1.9 million for the six months ended June 30, 2022 and 2021, respectively, and are included in operating cash flows.

Operating Lease Expense

Operating lease expense was $5.3 million and $10.4 million for the three and six months ended June 30, 2022, respectively, and $3.5 million and $7.1 million for the three and six months ended June 30, 2021, respectively. This expense included $2.3 million and $4.4 million for the three and six months ended June 30, 2022, respectively, and $1.0 million and $2.0 million for the three and six months ended June 30, 2021, respectively, for long-term operating leases, with the remainder for variable and short-term lease expense.

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Lessor Operating Leases

We are the lessor of tractors and trailers under operating leases with initial terms of 1 to 10 years. We recognize revenue for such leases on a straight-line basis over the term of the lease. Revenues were $3.1 million and $6.3 million for the three and six months ended June 30, 2022, respectively, and $3.0 million and $6.1 million for the three and six months ended June 30, 2021, respectively. The following table presents information about the maturities of these operating leases as of June 30, 2022 (in thousands):


2022 (remaining)	$	4,267
2023	2,986
2024	—
2025	—
2026	—
Thereafter	—
Total	$	7,253

(5) Fair Value

Fair Value Measurement — Definition and Hierarchy

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

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

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

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

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

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

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

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


	Level in Fair Value Hierarchy	Fair Value
		June 30, 2022		December 31, 2021
Other non-current assets:
Equity securities (1)	1	$	2,818	$	17,166

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

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

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

Fair Value of Financial Instruments Not Recorded at Fair Value

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

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

(6) Investments

Equity Investments without Readily Determinable Fair Values

In 2020, we entered into a strategic partnership with MLSI, a transportation management systems company. We are collaborating with MLSI to develop a cloud-based transportation management system using MLSI's SaaS technology which we have agreed to license. In June 2022, we paid MLSI $20.0 million for additional shares of its preferred stock. This minority equity investment is being accounted for under ASC 321 using the measurement alternative, and is recorded in other noncurrent assets on the consolidated condensed balance sheets. As of June 30, 2022 and December 31, 2021, the value of our investment was $86.8 million and $38.2 million, respectively. We record changes in the value of this investment, based on events that occur that would indicate the value of our investment in MLSI has changed, in gain or loss on investments in equity securities on the consolidated statements of income. During second quarter 2022, investments by third-parties resulted in the remeasurement of our investment in MLSI, and in the three and six months ended June 30, 2022, we recognized an unrealized gain of $28.6 million. No gains or losses were recorded in the three and six months ended June 30, 2021. At June 30, 2022, cumulative unrealized gains on our investment in MLSI totaled $56.8 million.

Equity Investments with Readily Determinable Fair Values

We own strategic minority equity investments in autonomous technology companies, which are being accounted for under ASC 321 and are recorded in other noncurrent assets on the consolidated condensed balance sheets. We record changes in the value of these investments, based on the share prices reported by Nasdaq, in gain or loss on investments in equity securities on the consolidated statements of income. We recognized an unrealized loss of $4.5 million and $14.3 million on these investments for the three and six months ended June 30, 2022, respectively, and an unrealized gain of $20.2 million for the three and six months ended June 30, 2021. For additional information regarding the fair value of these equity investments, see Note 5 – Fair Value.

(7) Debt and Credit Facilities

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

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

On March 25, 2022, we also entered into a second amendment to our existing unsecured revolving line of credit agreement, dated May 14, 2019, with BMO Harris Bank N.A. (“BMO Harris”), expiring May 14, 2024 (“BMO Line of Credit”). The

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second amendment increased our BMO Line of Credit from $200.0 million to $300.0 million and changed the variable interest rate calculation by replacing the LIBOR with the SOFR. Amounts drawn under the BMO Line of Credit bear interest, for a selected interest period, at a variable rate based on the SOFR plus 0.10% and a margin ranging between 0.70% and 1.50%, based on our ratio of total funded debt to EBITDA, payable at the end of the applicable interest period. No changes were made to the annualized letter of credit fee, nonrefundable commitment fee, and financial covenants as a result of the second amendment. We also have a $100.0 million unsecured fixed-rate term loan commitment with BMO Harris, with quarterly principal payments of $1.25 million, which began on September 30, 2021, and a final payment of principal and interest due and payable on May 14, 2024 ("BMO Term Loan"). The outstanding principal balance of the BMO Term Loan bears interest at a fixed rate of 1.28%, payable quarterly in arrears.

As of June 30, 2022 and December 31, 2021, our outstanding debt totaled $445.0 million and $427.5 million, respectively. As of June 30, 2022, we had a total of $250.0 million outstanding under our revolving lines of credit, including (i) $100.0 million at a weighted average variable interest rate of 2.10%; (ii) $75.0 million at a variable interest rate of 1.93%, which is effectively fixed at 2.29% with an interest rate swap agreement through May 14, 2024; and (iii) $75.0 million at a variable interest rate of 1.96%, which is effectively fixed at 2.34% with an interest rate swap agreement through May 14, 2024. The total borrowing capacity of $600.0 million under our revolving lines of credit at June 30, 2022, is further reduced by $58.4 million in stand-by letters of credit under which we are obligated. In addition, as of June 30, 2022, we had $100.0 million outstanding under the Wells Term Loan at a variable interest rate of 2.23% and $95.0 million outstanding under the BMO Term Loan at a fixed interest rate of 1.28%. Availability of such funds under the debt agreements is conditional upon various customary terms and covenants. Such covenants include, among other things, financial covenants requiring us (i) to exceed a minimum ratio of earnings before interest, income taxes, depreciation and amortization to interest expense and/or (ii) not to exceed a maximum ratio of total funded debt to earnings before interest, income taxes, depreciation and amortization (as such terms are defined in each credit facility). As of June 30, 2022 we were in compliance with these covenants.

At June 30, 2022, the aggregate future maturities of long-term debt by year are as follows (in thousands):


2022 (remaining)	$	2,500
2023	5,000
2024	437,500
2025	—
2026	—
Total	$	445,000

(8) Commitments and Contingencies

We have committed to property and equipment purchases of approximately $182.4 million at June 30, 2022.

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

On May 17, 2018, in Harris County District Court in Houston, Texas, a jury rendered an adverse verdict against 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 $31.4 million as of June 30, 2022, and $28.8 million as of December 31, 2021. Under the terms of the Company’s insurance policies, the Company is the primary obligor of the verdict, and as such, the Company has also recorded a $79.2 million receivable from its third-party insurance providers in other non-current assets and a corresponding liability of the same amount in the long-term portion of insurance and claims accruals in the consolidated condensed balance sheets as of June 30, 2022 and December 31, 2021.

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

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In July 2022, the Hopkins County District Court in Sulphur Springs, Texas approved a $150.0 million settlement, voluntarily agreed to by the Company and its insurers, of a motor vehicle accident lawsuit in Texas arising from a May 24, 2020 accident between a Werner tractor-trailer and a passenger vehicle. 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 with premium-based coverage for the remainder of the settlement amount. As a result of this settlement, the Company recognized $9.5 million of insurance and claims expense for the three and six months ended June 30, 2022, and had recorded a liability of $10.0 million and $0.5 million as of June 30, 2022 and December 31, 2021, respectively. Under the terms of the Company’s insurance policies, the Company is the primary obligor of the settlement, and as such, the Company has also recorded a $140.0 million receivable from its third-party insurance providers in other current assets and a corresponding liability of the same amount in the current portion of insurance and claims accruals in the consolidated condensed balance sheets as of June 30, 2022.

We have been involved in class action litigation in the U.S. District Court for the District of Nebraska, in which the plaintiffs allege that we owe drivers for unpaid wages under the Fair Labor Standards Act (“FLSA”) and the Nebraska Wage Payment and Collection Act and that we failed to pay minimum wage per hour for drivers in our Career Track Program, related to short break time and sleeper berth time. The period covered by this class action suit is August 2008 through March 2014. The case was tried to a jury in May 2017, resulting in a verdict of $0.8 million in plaintiffs’ favor on the short break matter and a verdict 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. Plaintiffs appealed the post-verdict amounts awarded by the trial court for fees, costs and liquidated damages, and the Company filed a cross appeal on the verdict that was in plaintiffs’ favor. The United States Court of Appeals for the Eighth Circuit denied Plaintiffs’ appeal and granted Werner’s appeal, vacating the judgment in favor of the plaintiffs. The appellate court sent the case back to the trial court for proceedings consistent with the appellate court’s opinion. On June 22, 2020, the trial court denied Plaintiffs’ request for a new trial and entered judgment in favor of the Company, dismissing the case with prejudice. On July 21, 2020, Plaintiffs’ counsel filed a notice of appeal of that dismissal, and that appeal remains pending. As of June 30, 2022, we have an accrual for the jury’s award, attorney fees and costs in the short break matter and had not accrued for the sleeper berth matter.

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

(9) Earnings Per Share

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

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net income attributable to Werner	$	72,290	$	72,032	$	126,039	$	118,524
Weighted average common shares outstanding	64,394		67,926		64,965		67,929
Dilutive effect of stock-based awards	332		290		362		308
Shares used in computing diluted earnings per share	64,726		68,216		65,327		68,237