Significant Accounting Policies
|12 Months Ended|
Dec. 31, 2011
|Significant Accounting Policies [Abstract]|
|Significant Accounting Policies||
Note 1. Significant Accounting Policies
Old Dominion is a leading, less-than-truckload ("LTL"), union-free motor carrier providing regional, inter-regional and national LTL service and value-added logistics services from a single integrated organization. In addition to our core LTL services, we offer our customers a broad range of logistics services including ground and air expedited transportation, supply chain consulting, transportation management, truckload brokerage, container delivery and warehousing services. Through marketing and carrier relationships, we also offer door-to-door international freight services to and from all of North America, Central America, South America and the Far East.
We have one operating segment and no single customer that exceeds 10% of our revenue.
Basis of Presentation
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Certain amounts in prior years have been reclassified to conform prior years' financial statements to the current presentation.
Unless the context requires otherwise, references in these Notes to "Old Dominion," the "Company," "we," "us" and "our" refer to Old Dominion Freight Line, Inc.
Revenue and Expense Recognition
We recognize revenue based upon when our transportation services have been completed in accordance with the bill of lading contract, our general tariff provisions or contractual agreements with our customers. Generally, this occurs when we complete the delivery of a shipment. For transportation services not completed at the end of a reporting period, we use a percentage of completion method to allocate the appropriate revenue to each separate reporting period. Under this method, we develop a factor for each uncompleted shipment by dividing the actual number of days in transit at the end of a reporting period by that shipment's standard delivery time schedule. This factor is applied to the total revenue for that shipment and revenue is allocated between reporting periods accordingly.
Expenses are recognized when incurred.
Allowances for Uncollectible Accounts and Revenue Adjustments
We maintain an allowance for uncollectible accounts for estimated losses resulting from the inability of our customers to make required payments. We estimate this allowance by analyzing the aging of our customer receivables, our historical loss experience and other trends and factors affecting the credit risk of our customers. Write-offs occur when we determine an account to be uncollectible and could differ from our allowance estimate as a result of factors such as changes in the overall economic environment or risks surrounding our customers. Additional allowances may be required if the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments. We periodically review the underlying assumptions in our estimate of the allowance for uncollectible accounts to ensure that the allowance reflects the most recent trends and factors.
We also maintain an allowance for estimated revenue adjustments resulting from future billing corrections, customer allowances, money-back service guarantees and other miscellaneous revenue adjustments. These revenue adjustments are recorded in our revenue from operations. We use historical experience, trends and current information to update and evaluate these estimates.
Financial instruments that potentially subject us to concentrations of credit risk consist principally of customer receivables. We perform initial and ongoing credit evaluations of our customers to minimize credit risk. We generally do not require collateral but may require prepayment of our services under certain circumstances. Credit risk is generally diversified due to the large number of entities comprising our customer base and their dispersion across many different industries and geographic regions. We are also exposed to credit risk associated with Company-owned life insurance contracts on certain employees. We utilize a third-party to manage these assets and minimize our exposure to fluctuations in equity markets related to these variable life insurance contracts.
Cash and Cash Equivalents
We consider cash on hand and deposits in banks along with certificates of deposit and short-term marketable securities with original maturities of three months or less as cash and cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Major additions and improvements are capitalized, while maintenance and repairs that do not improve or extend the lives of the respective assets are charged to expense as incurred. We capitalize the cost of tires mounted on purchased revenue equipment as a part of the total equipment cost. Subsequent replacement tires are expensed at the time those tires are placed in service.
Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the related assets. The following table provides the estimated useful lives by asset type:
Depreciation expense, which includes the amortization of capital leases, was $89.9 million, $79.4 million and $93.9 million for 2011, 2010 and 2009, respectively.
During the first quarter of 2010, we completed an evaluation of the estimated useful lives and salvage values for our equipment and determined that the actual period of service of certain revenue equipment exceeded that of our previously estimated useful lives. As a result, we extended the estimated useful lives of most of our tractors to 9 years from 7 years and extended the estimated useful lives of our trailers to 15 years from 12. In addition, we reduced the estimated salvage values associated with this equipment to more accurately reflect the value we believe such equipment will have at the end of its respective useful life. We made similar changes to the estimated useful lives and salvage values for certain of our other equipment but the results of these changes have less of an impact on our future depreciation expense. As a result of the impact on depreciation from these changes that were effective January 1, 2010, income from continuing operations and net income in 2010 increased by approximately $12.7 million and $7.7 million, respectively.
Goodwill and Other Intangible Assets
Intangible assets have been acquired in connection with business combinations and are comprised of goodwill and other intangible assets. Goodwill is calculated as the excess cost over the fair value of assets acquired and is not subject to amortization. We review our goodwill balance annually for impairment, unless circumstances dictate more frequent assessments. In 2011, we adopted Accounting Standards Update ("ASU") 2011-08, Testing Goodwill for Impairment, which allows us to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under this amendment, we would not be required to calculate the fair value of a reporting unit unless we determine, based on the qualitative review, that it is more likely than not that its fair value is less than its carrying amount. The amendment includes events and circumstances for us to consider when conducting the qualitative assessment. In the fourth quarter of 2011, we performed the qualitative assessment of goodwill and determined it was more likely than not that the fair value of our reporting unit would be greater than its carrying amount. Therefore, we determined it was not necessary to perform the two-step goodwill impairment test. There has been no historical impairment of our goodwill balance since the acquisition of the goodwill.
Other intangible assets include the value of acquired customer lists and related non-compete agreements and are amortized on a straight-line basis over their estimated useful lives, none of which exceeds ten years. The gross carrying amount of our other intangible assets totaled $8.1 million as of December 31, 2011 and 2010. Accumulated amortization for these assets was $4.7 million and $3.8 million as of December 31, 2011 and 2010, respectively. The net carrying amounts of our other intangible assets are included in "Other assets" on our Balance Sheets. Amortization expense was $0.9 million for 2011, 2010 and 2009. Annual amortization expense for the next five years for these intangible assets is estimated to be:
We assess the realizable value of our long-lived assets and evaluate such assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
Claims and Insurance Accruals
We are self-insured for bodily injury and property damage ("BIPD") claims up to $2.75 million per occurrence. Cargo loss and damage claims are self-insured up to $100,000 per occurrence. We are exposed to workers' compensation claims up to $1.0 million per occurrence, through either self-insurance or insurance deductibles. In 2011, we self-insured our group health claims up to $375,000 per occurrence plus an aggregate $200,000 over this retention level. We self-insured long-term disability claims to a maximum of $3,000 per month for our salaried and non-salaried employees until April 2, 2010 and July 1, 2011, respectively. We subsequently began to offer elective coverage to our employees and, therefore, we have no liability for new long-term disability claims after those dates.
Claims and insurance accruals reflect the estimated cost of claims for cargo loss and damage, BIPD, workers' compensation, long-term disability, group health and dental not covered by insurance. These accruals include amounts for future claim development and claims incurred but not reported, which are primarily based on historical claims development experience. The related costs for cargo loss and damage and BIPD are charged to insurance and claims expense, while the related costs for workers' compensation, long-term disability, group health and dental are charged to employee benefits expense.
We reserved $86.0 million and $79.3 million at December 31, 2011 and 2010, respectively, for self-insured claims and insurance reserves. The long-term portions of those reserves were $50.1 million and $45.4 million for 2011 and 2010, respectively, which were included in "Other non-current liabilities" on our Balance Sheets.
The costs of advertising our services are expensed as incurred and are included in "General supplies and expenses" on our Statements of Operations. Advertising costs charged to expense totaled $8.3 million, $6.3 million and $4.1 million for 2011, 2010 and 2009, respectively.
Fair Values of Financial Instruments
At December 31, 2011 and 2010, the carrying values of financial instruments, such as cash and cash equivalents, customer and other receivables and trade payables, approximate their fair value due to the short maturities of these instruments. The cash surrender value relating to Company-owned life insurance contracts is included in "Other assets" on our Balance Sheets and totaled $27.6 million and $25.8 million at December 31, 2011 and 2010, respectively, which approximates fair value. The fair value of the senior notes included in our long-term debt was estimated to be $270.3 million and $212.3 million at December 31, 2011 and 2010, respectively. The fair value of these senior notes is based on undiscounted cash flows at market interest rates for similar issuances of private debt.
Earnings Per Share
Earnings per common share is computed using the weighted-average number of common shares outstanding during the period.
Common Stock Split
On July 30, 2010, our Board of Directors approved a three-for-two common stock split for shareholders of record as of the close of business on August 9, 2010. On August 23, 2010, those shareholders received one additional share of common stock for every two shares owned. In lieu of fractional shares, shareholders received a cash payment based on the average of the high and low sales prices of the common stock on the record date.
All references in this report to shares outstanding, weighted average shares outstanding and earnings per share amounts have been restated retroactively to reflect this stock split.
Recent Accounting Pronouncements
In September 2011, the Financial Accounting Standards Board issued ASU 2011-08, Testing Goodwill for Impairment, which provides amendments to the existing two-step goodwill impairment test as described in Topic 350, Intangibles—Goodwill and Other. The amendments permit a first assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The qualitative assessment is optional, allowing companies to go directly to the quantitative assessment. Although amendments of ASU 2011-08 are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, early adoption was permitted. We adopted the provisions of ASU 2011-08 in the fourth quarter of 2011 without a material impact on our financial position, results of operations or cash flows.
The entire disclosure for all significant accounting policies of the reporting entity.
Reference 1: http://www.xbrl.org/2003/role/presentationRef