WERNER ENTERPRISES INC Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (the “MD&A”) summarizes the financial statements from management’s
perspective with respect to our financial condition, results of operations,
liquidity and other factors that may affect actual results. The MD&A is
organized in the following sections:
•Overview
•COVID-19
•Results of Operations •Liquidity and Capital Resources •Regulations •Critical Accounting Estimates
The MD&A should be read in conjunction with our 2021 Form 10-K.
Overview:
We have two reportable segments,Truckload Transportation Services ("TTS") and Werner Logistics, and we operate in the truckload and logistics sectors of the transportation industry. In the truckload sector, we focus on transporting consumer nondurable products that generally ship more consistently throughout the year. In the logistics sector, besides managing transportation requirements for individual customers, we provide additional sources of truck capacity, alternative modes of transportation, a North American delivery network and systems analysis to optimize transportation needs. Our success depends on our ability to efficiently and effectively manage our resources in the delivery of truckload transportation and logistics services to our customers. Resource requirements vary with customer demand, which may be subject to seasonal or general economic conditions. Our ability to adapt to changes in customer transportation requirements is essential to efficiently deploy resources and make capital investments in tractors and trailers (with respect to our TTS segment) or obtain qualified third-party capacity at a reasonable price (with respect to our Werner Logistics segment). We may also be affected by our customers' financial failures or loss of customer business. Revenues for our TTS segment operating units (Dedicated and One-Way Truckload) are typically generated on a per-mile basis and also include revenues such as stop charges, loading and unloading charges, equipment detention charges and equipment repositioning charges. To mitigate our risk to fuel price increases, we recover additional fuel surcharge revenues from our customers that generally recoup a majority of the increased fuel costs; however, we cannot assure that current recovery levels will continue in future periods. Because fuel surcharge revenues fluctuate in response to changes in fuel costs, we identify them separately and exclude them from the statistical calculations to provide a more meaningful comparison between periods. The key statistics used to evaluate trucking revenues, net of fuel surcharge, are (i) average revenues per tractor per week, (ii) average percentage of empty miles (miles without trailer cargo), (iii) average trip length (in loaded miles) and (iv) average number of tractors in service. General economic conditions, seasonal trucking industry freight patterns and industry capacity are important factors that impact these statistics. Our TTS segment also generates a small amount of revenues categorized as non-trucking revenues, which consist primarily of the intra-Mexico portion of cross-border shipments delivered to or fromMexico where the TTS segment utilizes a third-party capacity provider. We exclude such revenues from the statistical calculations. Our most significant resource requirements are company drivers, independent contractors, tractors and trailers. Independent contractors supply their own tractors and drivers and are responsible for their operating expenses. Our financial results are affected by company driver and independent contractor availability and the markets for new and used revenue equipment. We are self-insured for a significant portion of bodily injury, property damage and cargo claims; workers' compensation claims; and associate health claims (supplemented by premium-based insurance coverage above certain dollar levels). For that reason, our financial results may also be affected by driver safety, medical costs, weather, legal and regulatory environments and insurance coverage costs to protect against catastrophic losses. The operating ratio is a common industry measure used to evaluate our profitability and that of our TTS segment operating fleets. The operating ratio consists of operating expenses expressed as a percentage of operating revenues. The most significant variable expenses that impact the TTS segment are driver salaries and benefits, fuel, fuel taxes (included in taxes and licenses expense), payments to independent contractors (included in rent and purchased transportation expense), supplies and maintenance and insurance and claims. As discussed further in the comparison of operating results for first quarter 2022 to first quarter 2021, several industry-wide issues have caused, and could continue to cause, costs to increase in future periods. These issues include shortages of drivers or independent contractors, changing fuel prices, compliance with new or proposed regulations and tightening of the commercial truck liability insurance market. Our main fixed costs include depreciation expense for tractors and trailers and equipment licensing fees (included in taxes and licenses expense). The TTS segment requires substantial cash expenditures for tractor and trailer purchases. We fund these purchases with net cash from operations and financing available under our existing credit facilities, as management deems necessary. 17
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We provide non-trucking services primarily through the three operating units
within our Werner Logistics segment (Truckload Logistics, Intermodal, and Final
Mile). In first quarter 2021, we completed the sale of the Werner Global
Logistics ("WGL") freight forwarding services for international ocean and air
shipments to Scan Global Logistics Group . WGL had annual revenues of $53 million
in 2020, and we realized a $1.0 million gain from the sale in first quarter
2021. At the end of the twelve month period, the full earnout was achieved.
Unlike our TTS segment, the Werner Logistics segment is less asset-intensive and
is instead dependent upon qualified associates, information systems and
qualified third-party capacity providers. The largest expense item related to
the Werner Logistics segment is the cost of purchased transportation we pay to
third-party capacity providers. This expense item is recorded as rent and
purchased transportation expense. Other operating expenses consist primarily of
salaries, wages and benefits, as well as depreciation and amortization, supplies
and maintenance, and other general expenses. We evaluate the Werner Logistics
segment's financial performance by reviewing operating expenses and operating
income expressed as a percentage of revenues. Purchased transportation expenses
as a percentage of revenues can be impacted by the rates charged to customers
and the costs of securing third-party capacity. We have a mix of contracted
long-term rates and variable rates for the cost of third-party capacity, and we
cannot assure that our operating results will not be adversely impacted in the
future if our ability to obtain qualified third-party capacity providers changes
or the rates of such providers increase.
COVID-19:
The COVID-19 pandemic continues to impact theU.S. and global economies and has resulted in ongoing supply chain challenges. During the pandemic, the transportation industry has been designated by theU.S. government as an essential industry for keeping theU.S. supply chain moving. We are monitoring and reacting to the evolving nature of the pandemic, governmental responses, and their impacts on our business, including employee availability. We are working hard to stay healthy while safely delivering our customers' freight on time. Throughout our offices and terminal network, we are closely following the safety guidelines set forth by the Centers for Disease Control andPrevention (CDC) andWorld Health Organization (WHO ). Over the past several years, we have repositioned Werner to increase our ability to execute through different macroeconomic environments. We believe our freight base, which is heavily weighted toward customers delivering essential products that are continually being restocked in today's economy, enabled us to more effectively manage through the difficult economic environment created by the pandemic. While there remain significant uncertainties related to COVID-19 and its effect on the economy, we believe that demand for our services will continue to be strong during the remainder of 2022. 18
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Results of Operations:
The following table sets forth the consolidated statements of income in dollars
and as a percentage of total operating revenues and the percentage increase or
decrease in the dollar amounts of those items compared to the prior year.
Three Months Ended (3ME) Percentage Change in
March 31, Dollar Amounts
2022 2021 3ME
(in thousands) $ % $ % %
Operating revenues $ 764,605 100.0 $ 616,446 100.0 24.0
Operating expenses:
Salaries, wages and benefits 241,996 31.6 204,853 33.2 18.1
Fuel 88,421 11.6 50,838 8.2 73.9
Supplies and maintenance 57,025 7.5 46,147 7.5 23.6
Taxes and licenses 23,833 3.1 23,233 3.8 2.6
Insurance and claims 27,492 3.6 22,056 3.6 24.6
Depreciation and amortization 67,229 8.8 63,951 10.4 5.1
Rent and purchased transportation 185,237 24.2 146,493 23.8 26.4
Communications and utilities 3,926 0.5 3,022 0.5 29.9
Other (14,065) (1.8) (6,618) (1.1) 112.5
Total operating expenses 681,094 89.1 553,975 89.9 22.9
Operating income 83,511 10.9 62,471 10.1 33.7
Total other expense, net 11,043 1.4 583 0.1 1,794.2
Income before income taxes 72,468 9.5 61,888 10.0 17.1
Income tax expense 17,433 2.3 15,396 2.5 13.2
Net income 55,035 7.2 46,492 7.5 18.4
Net income attributable to
noncontrolling interest (1,286) (0.2) - N/A N/A
Net income attributable to Werner $ 53,749 7.0 $ 46,492 7.5 15.6
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The following tables set forth the operating revenues, operating expenses and
operating income for the TTS segment and certain statistical data regarding our
TTS segment operations, as well as statistical data for the One-Way Truckload
and Dedicated operating units within TTS.
Three Months Ended
March 31,
2022 2021
TTS segment (in thousands) $ % $ %
Trucking revenues, net of fuel surcharge $ 472,361 $
410,652
Trucking fuel surcharge revenues 79,815
47,459
Non-trucking and other operating revenues 6,241 4,838 Operating revenues 558,417 100.0 462,949 100.0 Operating expenses 482,324 86.4 405,321 87.6 Operating income$ 76,093 13.6$ 57,628 12.4 Three Months Ended March 31, TTS segment 2022 2021 % Change Average tractors in service 8,238 7,790 5.8 % Average revenues per tractor per week (1)$ 4,411 $ 4,055 8.8 %
Total tractors (at quarter end)
Company 7,960 7,360 8.2 % Independent contractor 265 375 (29.3) % Total tractors 8,225 7,735 6.3 % Total trailers (at quarter end) 26,185 22,710 15.3 % One-Way Truckload Trucking revenues, net of fuel surcharge (in 000's)$ 186,760 $ 156,839 19.1 % Average tractors in service 3,064 2,856 7.3 % Total tractors (at quarter end) 3,040 2,815 8.0 % Average percentage of empty miles 11.75 % 11.35 % 3.5 % Average revenues per tractor per week (1)$ 4,690 $ 4,224 11.0 % Average % change in revenues per total mile (1) 20.8 % 9.5 % Average % change in total miles per tractor per week (8.1) % (7.7) % Average completed trip length in miles (loaded) 716 853 (16.1) %
Dedicated
Trucking revenues, net of fuel surcharge (in 000’s)
$ 253,813 12.5 % Average tractors in service 5,174 4,934 4.9 % Total tractors (at quarter end) 5,185 4,920 5.4 % Average revenues per tractor per week (1)$ 4,247 $ 3,957 7.3 %
(1)Net of fuel surcharge revenues.
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The following tables set forth the Werner Logistics segment's revenues,
purchased transportation expense, other operating expenses (primarily salaries,
wages and benefits expense), total operating expenses, and operating income, as
well as certain statistical data regarding the Werner Logistics segment.
Three Months Ended
March 31,
2022 2021
Werner Logistics segment (in thousands) $ % $ %
Operating revenues $ 189,008 100.0 $ 137,853 100.0
Operating expenses:
Purchased transportation expense 157,521 83.3 120,527 87.4
Other operating expenses 22,806 12.1 12,752 9.3
Total operating expenses 180,327 95.4 133,279 96.7
Operating income $ 8,681 4.6 $ 4,574 3.3
Three Months Ended
March 31,
Werner Logistics segment 2022 2021 % Change
Average tractors in service 53 39 35.9 %
Total tractors (at quarter end) 54 39 38.5
%
Total trailers (at quarter end) 1,605 1,440 11.5
%
Three Months Ended
Operating Revenues
Operating revenues increased 24.0% for the three months endedMarch 31, 2022 , compared to the same period of the prior year. When comparing first quarter 2022 to first quarter 2021, TTS segment revenues increased$95.5 million , or 20.6%, and Werner Logistics revenues increased$51.2 million , or 37.1%. Our results in first quarter 2022 reflect strong freight market conditions in a very challenging driver market. Our One-Way Truckload fleet experienced strong freight demand in January and February, which then moderated in March from strong to very good, relative to March freight demand over the last five years. In our Dedicated fleet, freight demand remained strong in first quarter 2022. Strong consumer demand, combined with several factors that are limiting industry capacity, including a very competitive driver market and ongoing new tractor production delays, resulted in a robust first quarter freight market. During April, Dedicated freight demand remained strong and One-Way Truckload demand remained very good. Trucking revenues, net of fuel surcharge, increased 15.0% in first quarter 2022 compared to first quarter 2021 due to a 5.8% increase in the average number of tractors in service and an 8.8% increase in average revenues per tractor per week, net of fuel surcharge. The increase in average revenues per tractor was due primarily to improved pricing in both Dedicated and One-Way Truckload, offset by a decline in miles per tractor caused by fleet mix changes, tractors down due to equipment parts shortages, more drivers unavailable to work due to COVID quarantine protocols and other factors. We currently expect average revenues per total mile, net of fuel surcharge, for the One-Way Truckload fleet for the second quarter 2022 to increase in a range of 14% to 17% when compared to second quarter 2021, and we currently expect Dedicated average revenues per tractor per week, net of fuel surcharge, to increase in a range of 4% to 6% in 2022 compared to 2021. The average number of tractors in service in the TTS segment increased 5.8% to 8,238 in first quarter 2022 from 7,790 in first quarter 2021, primarily resulting from the nearly 500 tractors acquired in theECM Associated, LLC ("ECM") acquisition. We ended first quarter 2022 with 8,225 tractors in the TTS segment, a year-over-year increase of 490 tractors compared to the end of first quarter 2021, and a sequential decrease of 115 tractors compared to the end of fourth quarter 2021. Within TTS, our Dedicated unit ended first quarter 2022 with 5,185 tractors (or 63% of our total TTS segment tractors) compared to 4,920 tractors (or 64%) a year ago. We expect our tractor count at the end of 2022 to be in a range of 2% to 5% higher when compared to the fleet size at year end 2021. We cannot predict whether future driver shortages, if any, will adversely affect our ability to grow our fleet size. If such a driver shortage were to occur, it could result in a fleet size reduction, and our results of operations could be adversely affected. Trucking fuel surcharge revenues increased 68.2% to$79.8 million in first quarter 2022 from$47.5 million in first quarter 2021 due primarily to higher average diesel fuel prices in first quarter 2022. These revenues represent collections from customers for the increase in fuel and fuel-related expenses, including the fuel component of our independent contractor cost (recorded as rent and purchased transportation expense) and fuel taxes (recorded in taxes and licenses expense), when diesel fuel prices rise. 21
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Conversely, when fuel prices decrease, fuel surcharge revenues decrease. To lessen the effect of fluctuating fuel prices on our margins, we collect fuel surcharge revenues from our customers for the cost of diesel fuel and taxes in excess of specified base fuel price levels according to terms in our customer contracts. Fuel surcharge rates generally adjust weekly based on an independentU.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 tractor idle time. Fuel prices that change rapidly in short time periods also impact our recovery because the surcharge rate in most programs only changes once per week. Werner Logistics revenues are generated by its three operating units, following the sale of its WGL freight forwarding services for international ocean and air shipments in first quarter 2021. Werner Logistics revenues exclude revenues for full truckload shipments transferred to the TTS segment, which are recorded as trucking revenues by the TTS segment. Werner Logistics also recorded revenue and brokered freight expense of$722 thousand in first quarter 2022 and$134 thousand in first quarter 2021 for Intermodal drayage movements performed by the TTS segment (also recorded as trucking revenue by the TTS segment), and these transactions between reporting segments are eliminated in consolidation. In first quarter 2022, Werner Logistics revenues increased$51.2 million , or 37.1%. Excluding WGL revenues from first quarter 2021, Logistics revenues in first quarter 2022 increased 55%. Truckload Logistics revenues (67% of total Logistics revenues) increased by 46% in first quarter 2022. Truckload Logistics volume increased 19% in first quarter 2022, and revenues per shipment increased 24%. Intermodal revenues (23% of Logistics revenues) increased 29% in first quarter 2022, due to 37% higher revenues per shipment, partially offset by a decrease in volume of 6% due primarily to a decline in rail velocity, chassis shortages and increased dwell throughout the rail and customer networks. Final Mile revenues (10% of total Logistics revenues) increased$18.1 million in first quarter 2022, primarily due to growth from theNovember 2021 acquisition ofNEHDS Logistics, LLC ("NEHDS"). The Werner Logistics operating margin percentage of 4.6% in first quarter 2022 increased from 3.3%, while operating income increased to$8.7 million . We continue to expect our Werner Logistics segment to achieve inflated growth through this capacity-constrained period.
Operating Expenses
Our operating ratio (operating expenses expressed as a percentage of operating revenues) was 89.1% for the three months endedMarch 31, 2022 and 89.9% for the three months endedMarch 31, 2021 . Expense items that impacted the overall operating ratio are described on the following pages. The tables on pages 19 through 21 show the consolidated statements of income in dollars and as a percentage of total operating revenues and the percentage increase or decrease in the dollar amounts of those items compared to the same quarter of the prior year, as well as the operating ratios, operating margins, and certain statistical information for our two reportable segments, TTS and Werner Logistics. Salaries, wages and benefits increased$37.1 million or 18.1% in first quarter 2022 compared to first quarter 2021 and decreased 1.6% as a percentage of operating revenues to 31.6%. The higher dollar amount of salaries, wages and benefits expense in the first quarter of 2022 was due primarily to increased driver pay, including: (i) driver pay rate increases, (ii) incentive recruiting bonuses, (iii) minimum pay guarantees, and (iv) the impact of 4.0 million more company tractor miles in the first quarter of 2022. InJanuary 2021 , we implemented driver pay increases of approximately$10 million annually in our One-Way Truckload fleet, and another pay increase inAugust 2021 of approximately$11 million annually. We continue to implement driver pay increases as needed. The increase in salaries, wages and benefits was also due to an increase in the number of non-driver employees and higher benefits. Non-driver salaries, wages and benefits in our non-trucking Werner Logistics segment increased 47.3% as a result of increased employees to support the 37% growth of Logistics revenues and higher pay rates per employee. We renewed our workers' compensation insurance coverage onApril 1, 2022 . Our coverage levels are the same as the prior policy year. We continue to maintain a self-insurance retention of$2.0 million per claim. Our workers' compensation insurance premiums for the policy year beginningApril 2022 are$0.4 million higher than the premiums for the previous policy year. Strong consumer demand combined with a severely constrained driver market is presenting labor challenges for customers and carriers alike and remained challenging in first quarter 2022, as the strong freight market caused increased competition for the finite number of experienced drivers that meet our hiring standards. Several ongoing market factors persisted including a declining number of, and increased competition for, driver training school graduates, aging truck driver demographics and increased truck safety regulations. We continue to take significant actions to strengthen our driver recruiting and retention as we strive to be the truckload employer of choice, including raising driver pay, providing a modern tractor and trailer fleet with the latest safety equipment and technology, investing and expanding our driver training school network and offering a wide variety of driving positions including daily and weekly home time opportunities. We are unable to predict whether we will experience future driver shortages or maintain our current driver retention rates. If such a driver shortage were to occur and additional 22
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driver pay rate increases became necessary to attract and retain drivers, our results of operations would be negatively impacted to the extent that we could not obtain corresponding freight rate increases. Fuel increased$37.6 million or 73.9% in first quarter 2022 compared to first quarter 2021 and increased 3.4% as a percentage of operating revenues to 11.6% due to higher average diesel fuel prices and 4.0 million more company tractor miles in first quarter 2022. Average diesel fuel prices were$1.27 per gallon higher in first quarter 2022 than in first quarter 2021 and were64 cents per gallon higher than in fourth quarter 2021. We continue to employ measures to improve our fuel mpg such as (i) limiting tractor engine idle time, (ii) optimizing the speed, weight and specifications of our equipment and (iii) implementing mpg-enhancing equipment changes to our fleet including new tractors, more aerodynamic tractor features, idle reduction systems, trailer tire inflation systems, trailer skirts and automated manual transmissions to reduce our fuel gallons purchased. However, fuel savings from mpg improvement is partially offset by higher depreciation expense and the additional cost of diesel exhaust fluid. Although our fuel management programs require significant capital investment and research and development, we intend to continue these and other environmentally conscious initiatives, including our active participation as anEPA SmartWay Transport Partner.The SmartWay Transport Partnership is a national voluntary program developed by theEPA and freight industry representatives to reduce greenhouse gases and air pollution and promote cleaner, more efficient ground freight transportation.
For
higher than the average diesel fuel price per gallon in
approximately
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 ofMarch 31, 2022 , we had no derivative financial instruments to reduce our exposure to fuel price fluctuations. Supplies and maintenance increased$10.9 million or 23.6% in first quarter 2022 compared to first quarter 2021 and remained flat as a percentage of operating revenues. Supplies and maintenance expense increased due to increases in tractor and trailer parts and labor, tires, tolls, driving school costs, travel, and driver advertising. Insurance and claims increased$5.4 million or 24.6% in first quarter 2022 compared to first quarter 2021 and remained flat as a percentage of operating revenues due primarily to a higher amount of unfavorable reserve development on small dollar claims, higher liability insurance premiums of$1.9 million , and increased claims. We also incurred insurance and claims expense of$1.3 million in both first quarter 2022 and first quarter 2021 for accrued interest related to a previously-disclosed adverse jury verdict renderedMay 17, 2018 , which we are appealing (see Note 8 in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report). Interest is accrued at$0.4 million per month, until such time as the outcome of our appeal is finalized. The majority of our insurance and claims expense results from our claim experience and claim development under our self-insurance program; the remainder results from insurance premiums for claims in excess of our self-insured limits. We renewed our liability insurance policies onAugust 1, 2021 and are responsible for the first$10.0 million per claim on all claims with an annual$10.0 million aggregate for claims between$10.0 million and$15.0 million . For the policy year that beganAugust 1, 2020 , we were responsible for the first$10.0 million per claim with no aggregates. We maintain liability insurance coverage with insurance carriers in excess of the$10.0 million per claim. Our liability insurance premiums for the policy year that beganAugust 1, 2021 are$7.0 million higher than premiums for the previous policy year. Depreciation and amortization expense increased$3.3 million or 5.1% in first quarter 2022 compared to first quarter 2021 and decreased 1.6% as a percentage of operating revenues due primarily to depreciation and amortization on tangible and intangible assets recorded in the ECM and NEHDS acquisitions, partially offset by the impact of a change in accounting estimate effectiveJanuary 1, 2022 , which decreased depreciation expense by$3.1 million in first quarter 2022. During the first quarter of 2022, we increased the estimated salvage value of our trailers by$5,000 per trailer due to the ongoing stronger used trailer market and the increasing cost of new trailers. The average age of our tractor fleet was 2.3 years as ofMarch 31, 2022 , and the average age of our trailers was 4.6 years. We are continuing to invest in new tractors and trailers and our terminals in 2022 to improve our driver experience, increase operational efficiency and more effectively manage our maintenance, safety and fuel costs. During the remainder of 2022, we expect the average age of our tractor and trailer fleet to remain at or near current levels, subject to potential delays in receiving new equipment.
Rent and purchased transportation expense increased
first quarter 2022 compared to first quarter 2021 and increased 0.4% as a
percentage of operating revenues. Rent and purchased transportation expense
consists mostly of
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payments to third-party capacity providers in the Werner Logistics segment and other non-trucking operations and payments to independent contractors in the TTS segment. The payments to third-party capacity providers generally vary depending on changes in the volume of services generated by the Werner Logistics segment. Werner Logistics rent and purchased transportation expense increased$37.0 million , and as a percentage of Werner Logistics revenues decreased to 83.3% in first quarter 2022 from 87.4% in first quarter 2021. Rent and purchased transportation expense for the TTS segment increased$1.5 million in first quarter 2022 compared to first quarter 2021 due primarily to an increase in the per-mile settlement rate for certain independent contractors due to higher average diesel fuel prices. The higher expense was mostly offset by fewer independent contractor miles in first quarter 2022. Independent contractor miles decreased approximately 4.1 million miles in first quarter 2022 and as a percentage of total miles were 4.5% in first quarter 2022 compared to 6.7% in first quarter 2021. Because independent contractors supply their own tractors and drivers and are responsible for their operating expenses, the decrease in independent contractor miles as a percentage of total miles shifted costs from the rent and purchased transportation category to other expense categories, including (i) salaries, wages and benefits, (ii) fuel, (iii) depreciation, (iv) supplies and maintenance and (v) taxes and licenses. Challenging operating conditions continue to make independent contractor recruitment and retention difficult. Such conditions include inflationary cost increases that are the responsibility of independent contractors and a shortage of financing available to independent contractors for equipment purchases. Historically we have been able to add company tractors and recruit additional company drivers to offset any decrease in the number of independent contractors. If a shortage of independent contractors and company drivers occurs, further increases in per-mile settlement rates (for independent contractors) and driver pay rates (for company drivers) may become necessary to attract and retain these drivers. These rate increases could negatively affect our results of operations to the extent that we would not be able to obtain corresponding freight rate increases. Other operating expenses decreased$7.4 million in first quarter 2022 compared to first quarter 2021 and decreased 0.7% as a percentage of operating revenues. Gains on sales of assets (primarily used tractors and trailers) are reflected as a reduction of other operating expenses and are reported net of sales-related expenses (which include costs to prepare the equipment for sale). Gains on sales of assets were$20.5 million in first quarter 2022, compared to$10.5 million in first quarter 2021. We realized substantially higher average gains per tractor and trailer due to significantly improved pricing in the market for our used equipment, which we believe is a temporary result of increased demand for previously used equipment because of production delays limiting availability of new equipment in the industry. We sold fewer tractors and trailers in first quarter 2022 than in first quarter 2021.
Other Expense (Income)
Other net expenses increased$10.5 million in first quarter 2022 compared to first quarter 2021 due primarily to a$9.8 million unrealized loss recognized on our investments in equity securities (see Note 6 in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report) and a$0.6 million increase in interest expense. Interest expense increased due to higher average debt outstanding, partially offset by a decrease in the average effective interest rate incurred on our debt.
Income Tax Expense
Our effective income tax rate (income taxes expressed as a percentage of income before income taxes) was 24.1% in first quarter 2022 compared to 24.9% in first quarter 2021. The lower income tax rate in first quarter 2022 was attributed primarily to a higher amount of favorable discrete income tax items in the first quarter 2022 and the income tax effect of the noncontrolling interest.
Liquidity and Capital Resources:
We closely manage our liquidity and capital resources. Our liquidity requirements depend on key variables, including the level of investment needed to support business strategies, the performance of the business, capital expenditures, borrowing arrangements, and working capital management. Capital expenditures, stock repurchases, and dividend payments are components of our cash flow and capital management strategy, which to a large extent, can be adjusted in response to economic and other changes in the business environment. Management's approach to capital allocation focuses on investing in key priorities that support our business and growth strategies and providing shareholder returns, while funding ongoing operations. Management believes our financial position atMarch 31, 2022 is strong. As ofMarch 31, 2022 , we had$125.9 million of cash and cash equivalents and over$1.3 billion of stockholders' equity. Cash is invested primarily in government portfolio money market funds. In addition, we have two$300.0 million revolving credit facilities, for which our total available borrowing capacity was$316.1 million as ofMarch 31, 2022 (see Note 7 in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report for information regarding our credit agreements). We believe our liquid assets, cash generated from operating activities, and borrowing capacity under our existing credit facilities will provide sufficient funds to meet our cash requirements and our planned shareholder returns for the foreseeable future. 24
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Item 7 of Part II of our 2021 Form 10-K includes our disclosure of material cash requirements as ofDecember 31, 2021 . OnMarch 25, 2022 , we entered into a new credit agreement, replacing a previous credit agreement, and we amended an existing credit agreement. These changes increased our borrowing capacity by$200.0 million . See Note 7 in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I of this report for further details regarding our debt and the timing of expected future principal payments. Except for the changes related to our credit agreements, there were no other material changes in the nature of these items during the three months endedMarch 31, 2022 .
Cash Flows
During the three months endedMarch 31, 2022 , we generated cash flow from operations of$155.0 million , a 14.1% or$19.1 million increase in cash flows compared to the same three-month period a year ago. The increase in net cash provided by operating activities was due primarily to increased cash flows from working capital and higher net income. We were able to make net capital expenditures, repay debt, pay dividends and repurchase company stock with the net cash provided by operating activities and existing cash balances. Net cash used in investing activities was$34.5 million for the three-month period endedMarch 31, 2022 compared to$41.3 million during the same period in 2021. Net property additions (primarily revenue equipment) were$37.1 million for the three-month period endedMarch 31, 2022 , compared to$37.9 million during the same period of 2021. We currently estimate net capital expenditures (primarily revenue equipment) in 2022 to be in the range of$250 million to$300 million , compared to net capital expenditures in 2021 of$193.0 million . We intend to fund these net capital expenditures through cash flow from operations and financing available under our existing credit facilities, if necessary. As ofMarch 31, 2022 , we were committed to property and equipment purchases of approximately$182.3 million . Net financing activities used$49.0 million during the three months endedMarch 31, 2022 , compared to$40.4 million during the same period in 2021. We had net repayments on our debt of$1.3 million during the three months endedMarch 31, 2022 , reducing our outstanding debt atMarch 31, 2022 to$426.3 million , and repaid$25.0 million of debt during the same period in 2021. We paid dividends of$7.9 million in the three-month period endedMarch 31, 2022 and$6.1 million during the same period in 2021. We currently plan to continue paying our quarterly dividend, which we have paid quarterly since 1987. Financing activities for the three months endedMarch 31, 2022 , also included common stock repurchases of 845,100 shares at a cost of$36.2 million . The Company has repurchased, and may continue to repurchase, shares of the Company's common stock. The timing and amount of such purchases depend upon economic and stock market conditions and other factors. As ofMarch 31, 2022 , the Company had purchased 1,822,986 shares pursuant to our current Board of Directors repurchase authorization and had 4,177,014 shares remaining available for repurchase.
Regulations:
Item 1 of Part I of our 2021 Form 10-K includes a discussion of pending proposed regulations that may have an effect on our operations if they become adopted and effective as proposed. There have been no material changes in the status of the proposed regulations previously disclosed in the 2021 Form 10-K.
Critical Accounting Estimates:
The preparation of consolidated financial statements in conformity with accounting principles generally accepted inthe United States of America requires us to make estimates and assumptions that affect the (i) reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and (ii) reported amounts of revenues and expenses during the reporting period. We evaluate these estimates on an ongoing basis as events and circumstances change, utilizing historical experience, consultation with experts and other methods considered reasonable in the particular circumstances. Actual results could differ from those estimates and may significantly impact our results of operations from period to period. It is also possible that materially different amounts would be reported if we used different estimates or assumptions. Information regarding our Critical Accounting Estimates can be found in our 2021 Form 10-K. Estimates of accrued liabilities for insurance and claims for bodily injury, property damage and workers' compensation is a critical accounting estimate that requires us to make significant judgments and estimates and affects our financial statements.
There have been no material changes to this critical accounting estimate from
that discussed in our 2021 Form 10-K.
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