FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to _________. Commission File Number: 0-19582 OLD DOMINION FREIGHT LINE, INC. (Exact name of registrant as specified in its charter) VIRGINIA 56-0751714 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1730 Westchester Drive High Point, NC 27262 (Address of principal executive offices) Telephone Number (336) 889-5000 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 X . No . --- --- As of August 9, 2000, there were 8,312,840 shares of the registrant's Common Stock ($.10 par value) outstanding. PART I. FINANCIAL INFORMATION Item 1. Financial Statements OLD DOMINION FREIGHT LINE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended ------------------------------ --------------------------------------- June 30, June 30, June 30, June 30, 2000 1999 2000 1999 (In thousands, except share and per share data) (Unaudited) (Unaudited) (Unaudited) (Unaudited) - ---------------------------------------------------------------------- -------------- ------------------- ------------------- Revenue from operations $ 120,144 $ 106,195 $ 232,943 $ 205,541 Operating expenses: Salaries, wages and benefits 70,766 64,444 138,510 125,322 Purchased transportation 4,905 3,327 9,655 6,646 Operating supplies and expenses 11,555 8,570 24,052 16,581 Depreciation and amortization 6,635 6,303 13,090 12,617 Building and office equipment rents 1,777 1,829 3,686 3,683 Operating taxes and licenses 4,778 4,478 9,404 8,904 Insurance and claims 3,112 2,398 5,882 4,946 Communications and utilities 2,141 1,783 4,241 3,708 General supplies and expenses 4,792 4,236 8,998 7,991 Miscellaneous expenses 1,068 1,124 2,087 1,952 --------------- -------------- ------------------- ------------------- Total operating expenses 111,529 98,492 219,605 192,350 --------------- -------------- ------------------- ------------------- Operating income 8,615 7,703 13,338 13,191 Other deductions: Interest expense, net 1,033 829 1,932 2,090 Other expense (income), net 80 (4) 89 241 --------------- -------------- ------------------- ------------------- Total other deductions 1,113 825 2,021 2,331 --------------- -------------- ------------------- ------------------- Income before income taxes 7,502 6,878 11,317 10,860 Provision for income taxes 2,926 2,614 4,414 4,127 --------------- -------------- ------------------- ------------------- Net income $ 4,576 $ 4,264 $ 6,903 $ 6,733 =============== ============== =================== =================== Basic and diluted earnings per share: $ 0.55 $ 0.51 $ 0.83 $ 0.81 Weighted average shares outstanding: Basic 8,312,840 8,312,196 8,312,840 8,312,196 Diluted 8,313,228 8,315,254 8,314,891 8,315,156
The accompanying notes are an integral part of these financial statements. OLD DOMINION FREIGHT LINE, INC. CONSOLIDATED BALANCE SHEETS
June 30, December 31, 2000 1999 (In thousands, except share data) (Unaudited) (Audited) - ------------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 873 $ 781 Customer receivables, less allowances of $5,942 and $6,495, respectively 58,485 55,077 Other receivables 786 1,067 Tires on equipment 6,169 6,428 Prepaid expenses 6,032 10,631 Deferred income taxes 2,270 2,270 ------------------ -------------------- Total current assets 74,615 76,254 Property and equipment: Revenue equipment 181,957 178,301 Land and structures 69,653 68,972 Other equipment 50,566 31,557 Leasehold improvements 4,395 4,381 ------------------ -------------------- Total property and equipment 306,571 283,211 Less accumulated depreciation and amortization (124,511) (116,249) ------------------ -------------------- Net property and equipment 182,060 166,962 Other assets 14,711 14,363 ------------------ -------------------- Total assets $ 271,386 $ 257,579 ================== ====================
The accompanying notes are an integral part of these financial statements. OLD DOMINION FREIGHT LINE, INC. CONSOLIDATED BALANCE SHEETS (CONTINUED)
June 30, December 31, 2000 1999 (In thousands, except share data) (Unaudited) (Audited) - ------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 18,456 $ 22,944 Compensation and benefits 13,928 11,352 Claims and insurance accruals 13,465 12,548 Other accrued liabilities 2,810 2,927 Income taxes payable 609 - Current maturities of long-term debt 10,018 21,811 ------------------ -------------------- Total current liabilities 59,286 71,582 Long-term debt 61,809 43,059 Other non-current liabilities 11,552 11,102 Deferred income taxes 20,798 20,798 ------------------ -------------------- Total long-term liabilities 94,159 74,959 Stockholders' equity: Common stock - $.10 par value, 25,000,000 shares authorized, 8,312,840 outstanding 831 831 Capital in excess of par value 23,907 23,907 Retained earnings 93,203 86,300 ------------------ -------------------- Total stockholders' equity 117,941 111,038 Commitments and contingencies - - ------------------ -------------------- Total liabilities and stockholders' equity $271,386 $ 257,579 ================== ====================
The accompanying notes are an integral part of these financial statements. OLD DOMINION FREIGHT LINE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, ---------------------------------- 2000 1999 (In thousands) (Unaudited) (Unaudited) - ------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income $ 6,903 $ 6,733 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 13,090 12,617 Deferred income taxes 756 (Gain) loss on sale of property and equipment (28) 149 Changes in assets and liabilities: Customer and other receivables, net (3,127) 380 Tires on equipment 259 155 Prepaid expenses and other assets 4,037 4,471 Accounts payable (4,488) (6,034) Compensation, benefits and other accrued liabilities 2,459 6,130 Claims and insurance accruals 1,162 666 Income taxes payable 609 (257) Other liabilities 205 404 --------------- --------------- Net cash provided by operating activities 21,081 26,170 --------------- --------------- Cash flows from investing activities: Acquisition of business assets, net - (1,100) Purchase of property and equipment (28,763) (14,527) Proceeds from sale of property and equipment 817 1,894 --------------- --------------- Net cash used in investing activities (27,946) (13,733) --------------- --------------- Cash flows from financing activities: Proceeds from issuance of long-term debt 1,626 - Principal payments under long-term debt agreements (6,494) (4,766) Net proceeds (payments) on revolving line of credit 11,825 (7,685) --------------- --------------- Net cash used in financing activities 6,957 (12,451) --------------- --------------- Increase (decrease) in cash and cash equivalents 92 (14) Cash and cash equivalents at beginning of period 781 659 --------------- --------------- Cash and cash equivalents at end of period $ 873 $ 645 =============== ===============
The accompanying notes are an integral part of these financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BASIS OF PRESENTATION The consolidated interim financial statements are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. The results of operations for the quarter ended June 30, 2000, are not necessarily indicative of the results for the entire fiscal year ending December 31, 2000. There have been no significant changes in the accounting policies of the Company, or significant changes in the Company's commitments and contingencies as previously described in the 1999 Annual Report to Stockholders and related annual report to the Securities and Exchange Commission on Form 10-K. EARNINGS PER SHARE Net income per share of common stock is based on the weighted average number of shares outstanding during each period SUBSEQUENT EVENTS None Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations for the Three Months and Six Months Ended June 30, 2000, Compared to the Three Months and Six Months Ended June 30, 1999
Expenses as a Percentage of Revenue from Operations Three Months Ended Six Months Ended June 30, June 30, --------------------------------- ---------------------------------- 2000 1999 2000 1999 -------------- -------------- --------------- -------------- Revenue from operations 100.0% 100.0% 100.0% 100.0% -------------- -------------- --------------- -------------- Operating expenses: Salaries, wages and benefits 58.9 60.7 59.5 61.0 Purchased transportation 4.1 3.1 4.1 3.2 Operating supplies and expenses 9.6 8.1 10.3 8.1 Depreciation and amortization 5.5 5.9 5.6 6.1 Building and office equipment rents 1.5 1.7 1.6 1.8 Operating taxes and licenses 4.0 4.2 4.0 4.3 Insurance and claims 2.6 2.3 2.5 2.4 Communications and utilities 1.8 1.7 1.8 1.8 General supplies and expenses 4.0 4.0 3.9 3.9 Miscellaneous expenses .8 1.0 1.0 1.0 -------------- -------------- --------------- -------------- Total operating expenses 92.8 92.7 94.3 93.6 -------------- -------------- --------------- -------------- Operating income 7.2 7.3 5.7 6.4 Interest expense, net .9 .8 .8 1.0 Other expense, net .1 - - 0.1 -------------- -------------- --------------- -------------- Income before income taxes 6.2 6.5 4.9 5.3 Provision for income taxes 2.4 2.5 1.9 2.0 -------------- -------------- --------------- -------------- Net income 3.8% 4.0% 3.0% 3.3% ============== ============== =============== ==============
RESULTS OF OPERATIONS Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999 Net revenue for the second quarter of 2000 was $120,144,000, an increase of 13.1% from $106,195,000 for the second quarter of 1999. Less-than-truckload ("LTL") tonnage increased 4.9% from the prior-year quarter while total tonnage increased 3.0%. Both LTL shipments and total shipments increased 5.4%. These increases in freight volumes were a result of the Company's consistent focus on increasing market share in its existing areas of operation, a strategy that allows the Company to achieve its revenue growth objectives without significant additional investments in property and equipment, and also achieves operating synergies that improve profitability. As a component of that strategy, the Company expanded its full-state coverage east of the Mississippi River from 16 to 21 states with the addition of Illinois, Indiana, Ohio, Kentucky and West Virginia. The Company also experienced growth in its new guaranteed and expedited service product, Speed Service, which it initiated at the beginning of 2000. Speed Service is anticipated to grow significantly as more customers demand service sensitive and customized delivery services. In addition to increases in freight volume, average LTL revenue per shipment increased 8.4% to $135.44 from $124.92. This increase was a result of an 8.9% increase in LTL revenue per hundredweight that was partially offset by a .6% decrease in LTL weight per shipment. In addition, the Company's average length of haul increased 4.1% to 872 miles from 838 miles, which generally increases both LTL revenue per hundredweight and LTL revenue per shipment. The improvement in LTL revenue per hundredweight for the quarter to $12.71, compared to $11.67 for the second quarter of 1999, was a result of the Company's focus on improving pricing, specifically on unprofitable or marginal business, and the impact of a fuel surcharge, which was assessed during the quarter to offset the significantly higher cost of fuel during the quarter. The average price per gallon of diesel fuel increased 60.2% over the second quarter 1999. Other petroleum-related products, such as gasoline, oil, propane and lubricants, also incurred similar increases. Indirectly, the Company experienced increases in many other goods and services it purchases as a result of the increased transportation costs built into those products' prices. The fuel surcharge accounted for approximately 3.0% of net revenue for the second quarter of 2000, while there was no fuel surcharge for the comparable period of 1999. The operating ratio (operating expenses as a percentage of revenue) increased to 92.8% in the second quarter of 2000 from 92.7%. This increase in the Company's operating costs, while modest, reflects the impact of increased purchased transportation to 4.1% of revenue from 3.1% for the prior-year quarter. This increase was a result of the Company's utilization of more purchased linehaul services and cartage agents in lieu of Company equipment and personnel as reflected in the decrease in salaries, wages and benefits to 58.9% of revenue from 60.7% for the second quarter of 1999. Use of purchased linehaul services was primarily a result of an imbalance in transcontinental traffic patterns experienced during the quarter. The initial startup of full-state coverage in 21 states and expanded coverage to certain remote locations has resulted in an increase in outsourcing of pickup and delivery services through agent partners. As market share builds in these areas, Company personnel and equipment will replace these outside expenditures. The Company's strategy to grow existing markets resulted in improvements in asset utilization, which were reflected in decreases in certain fixed costs as a percent of revenue when compared to the prior-year quarter. Depreciation and amortization decreased to 5.5% of revenue from 5.9%, building and office equipment rents decreased to 1.5% from 1.7%, and operating taxes and licenses decreased to 4.0% from 4.2%. Net interest expense increased slightly to .9% of revenue from .8% for the prior-year period. This increase was a result of higher outstanding debt during the second quarter of 2000, which was partially offset by the capitalization of certain interest costs relating to major construction projects to build or expand the capacity of service center facilities. Net income for the second quarter of 2000 was $4,576,000, a 4.0% increase from $4,264,000 for the prior-year period. The effective tax rate was 39.0% and 38.0% for the second quarters of 2000 and 1999, respectively. Six Months Ended June 30, 2000, Compared to Six Months Ended June 30, 1999 Net revenue for the six months ended June 30, 2000, was $232,943,000, an increase of 13.3%, compared to $205,541,000 for the same period of 1999. LTL tonnage increased 5.8% due to a 7.3% increase in LTL shipments, which was partially offset by a 1.4% decrease in LTL weight per shipment. These increases in revenue and tonnage have been consistent with the Company's growth strategy to increase market share in its existing geographic area of operations and service center network. This growth strategy was complemented in the first half of 2000 with the implementation of full-state coverage in 21 states east of the Mississippi River. In addition, the Company added its new guaranteed and customized service product, Speed Service, in early 2000, which is expected to grow significantly as customers discover additional value in the time definite and customized service capabilities the Company offers. Average revenue per LTL shipment for the first six months of 2000 increased 7.1% to $133.96 from $125.06 for the comparable period of 1999. This increase was due to a 8.7% increase in LTL revenue per hundredweight to $12.64 from $11.63 and a 1.4% decrease in LTL weight per shipment. The increase in LTL revenue per shipment includes the impact of a fuel surcharge, which was implemented to offset the high cost of fuel. For the first half of 2000, the Company's average price for a gallon of diesel fuel increased 79.0% over the average price paid in the first half of 1999. In addition, the Company also incurred direct increases in other petroleum-related products such as gasoline, oil, propane and lubricants. Indirectly, the rising cost of fuel increased prices of other products and services that the Company uses in its normal course of business. The fuel surcharge accounted for approximately 2.8% of revenue for the first half of 2000, while there was no fuel surcharge for the comparable period of 1999. The operating ratio for the first half of 2000 was 94.3% compared with 93.6% for the first half of 1999. The increase in operating costs were primarily the result of the increased use of outside purchased transportation during the period and severe winter weather that hampered operating efficiencies and productivity in the first quarter. The increase in purchased transportation was the result of two factors. First, the Company's implementation of full-state coverage for 21 states required the Company to serve certain remote locations where it was initially more economical to use outside pickup and delivery services through partner agents. As the Company builds these markets, the use of these agents will diminish and be replaced by Company labor and equipment. In the first half of 2000, these expenditures were 1.9% of revenue compared to 1.1% for the same period of 1999. To some extent, the use of outside agents caused Company salary, wages and benefits to decrease to 59.5% of revenue from 61.0% in the previous year period. Second, the Company contracted for purchased linehaul services to offset an imbalance in transcontinental freight patterns during the first half of 2000. Purchased linehaul services increased to .29% of revenue from .05% for the prior-year period. Temporary imbalances in freight flows are common in the LTL industry, particularly for those carriers who are experiencing rapid growth in their markets. By concentrating growth in existing markets, the Company was successful in improving its utilization of facilities and equipment. Depreciation and amortization decreased to 5.6% of revenue from 6.1%, building and office equipment rents decreased to 1.6% from 1.8%, and operating taxes and licenses decreased to 4.0% from 4.3%. Net interest expense was .8% of revenue for the first six months of 2000 compared to 1.0% for the comparable period of 1999. This decrease was primarily due to the capitalization of $483,000 in interest costs relating to construction projects in the first half of 2000. The Company anticipates both its outstanding debt and related interest expense will increase in the remaining half of 2000 as it executes a significant portion of its capital budget for upgrades to its service centers and equipment fleet. Net income was $6,903,000 for the six months ended June 30, 2000, an increase of 2.5%, compared to $6,733,000 for the same six-month period the previous year. The effective tax rate was 39.0% and 38.0% for the second quarters of 2000 and 1999, respectively. LIQUIDITY AND CAPITAL RESOURCES Continued investment in property and equipment has resulted from expansion in the size and number of service center facilities, the planned tractor and trailer replacement cycle and revenue growth. In order to support these requirements, the Company incurred net capital expenditures of $19,538,000 during the second quarter of 2000. Cash flows generated internally funded 75.4% of the capital expenditures through the second quarter, the remainder of which was funded with additional borrowings. At June 30, 2000, long-term debt including current maturities increased to $71,827,000 from $64,870,000 at December 31, 1999. The Company estimates net capital expenditures to be approximately $64,000,000 to $68,000,000 for the year ending December 31, 2000. Of that, approximately $27,000,000 is allocated for purchases of larger replacement service centers or expansion of existing service centers, $29,000,000 is allocated for purchases of revenue equipment, $6,000,000 is allocated for enhancements to information systems and the remaining balance is allocated for purchases of other assets. The Company plans to fund these expenditures through cash flows from operations supplemented by additional borrowings. During 1999 and early 2000, the Company maintained a $32,500,000 uncollateralized credit facility that consisted of a $17,500,000 line of credit commitment and a $15,000,000 standby letter of credit commitment. Interest on the line of credit was charged at rates that vary based upon a certain financial performance ratio and the stated period of time that the borrowings were outstanding. On January 14, 2000, the Company amended this credit facility to consist of a $22,000,000 line of credit commitment and a $12,500,000 standby letter of credit commitment under the same terms and conditions as the previous agreement. The applicable interest rate for the second quarter of 2000 under this amended agreement was based upon LIBOR plus .60% for periods of 30-180 days and prime minus 1% for periods less than 30 days. A fee of .20% was charged on the unused portion of the line of credit and letter of credit facility and a fee of .60% to .75% was charged on outstanding letters of credit. On May 30, 2000, the Company terminated its existing credit agreement and entered into a new three-year agreement, which provides for a $62,500,000 uncollateralized credit facility that consists of a $50,000,000 line of credit commitment and a $12,500,000 standby letter of credit commitment. Interest on the line of credit is charged at rates that vary based upon a fixed charge coverage ratio, which was LIBOR plus .70% for the portion of the second quarter this agreement was in effect. Fees, which also vary based upon the fixed charge coverage ratio, are charged on the outstanding standby letters of credit and the unused portion of the line of credit facility and were .70% and .20%, respectively, for the applicable portion of the second quarter. No fee is charged upon the unused portion of the standby letter of credit facility. At June 30, 2000, there were $23,400,000 outstanding borrowings on the line of credit and $11,385,000 outstanding on the standby letter of credit facility. Letters of credit are primarily issued as collateral for self-insured reserves for bodily injury, property damage and workers' compensation claims. The Company believes that it has sufficient credit lines and capacity to meet seasonal and long-term financial needs. The Company has limited exposure to changes in interest rates from its long-term debt arrangements as approximately 67.4% of that debt has fixed interest rates. The Company does not currently use interest rate derivative instruments to manage exposure to interest rate changes. Also, the Company is not currently using any fuel hedging instruments as its tariff provisions generally allow for fuel surcharges to be implemented in the event that fuel prices exceed stipulated levels. INFLATION Most of the Company's expenses are affected by inflation, which will generally result in increased costs. For the quarter ending June 30, 2000, the effect of inflation on the Company's results of operations was minimal. SEASONALITY The Company's operations are subject to seasonal trends common in the motor carrier industry. Operating results in the first and fourth quarters are normally lower due to reduced shipments during the winter months. Harsh winter weather can also adversely impact the Company's performance by reducing demand and increasing operating expenses. The second and third quarters are stronger due to increased demand for services during the spring and summer months. ENVIRONMENTAL The Company is subject to federal, state and local environmental laws and regulations, particularly relative to underground storage tanks. The Company believes it is in compliance with applicable environmental laws and regulations, including those relating to underground storage tanks, and does not believe that the cost of future compliance will have a material adverse effect on the Company's operations or financial condition. FORWARD-LOOKING INFORMATION Forward-looking statements in this report, including, without limitation, statements relating to future events or the future financial performance of the Company appear in the preceding Management's Discussion and Analysis of Financial Condition and Results of Operations and in other written and oral statements made by or on behalf of the Company, including, without limitation, statements relating to the Company's goals, strategies, expectations, competitive environment, regulation and availability of resources. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties that could cause actual events and results to be materially different from those expressed or implied herein, including, but not limited to, the following: (1) changes in the Company's goals, strategies and expectations, which are subject to change at any time at the discretion of the Company; (2) the Company's ability to maintain a nonunion, qualified work force; (3) the competitive environment with respect to industry capacity and pricing; (4) the availability and cost of fuel, additional revenue equipment and other significant resources; (5) the impact of regulatory bodies; (6) various economic factors such as insurance costs, liability claims, interest rate fluctuations, the availability of qualified drivers or owner-operators, fluctuations in the resale value of revenue equipment, increases in fuel or energy taxes, economic recessions and downturns in customers' business cycles and shipping requirements; (7) the Company's inability to raise capital or borrow funds on satisfactory terms, which could limit growth and require the Company to operate its revenue equipment for longer periods of time; (8) the Company's ability to purchase, build or lease facilities suitable for its operations; and (9) other risks and uncertainties indicated from time to time in the Company's filings with the Securities and Exchange Commission. Item 3. Quantitative and Qualitative Disclosure of Market Risk The information called for by this item is provided under the caption "Liquidity and Capital Resources" under Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a) Exhibits: Exhibit No. Description ----------- ----------- 4.7.1 Credit Agreement between First Union National Bank and Old Dominion Freight Line, Inc., dated May 31, 2000 27 Financial Data Schedule b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter ended June 30, 2000. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OLD DOMINION FREIGHT LINE, INC. DATE: AUGUST 9, 2000 J. WES FRYE ----------------------------------- ----------- J. Wes Frye Senior Vice President - Finance (Principal Financial Officer) DATE: AUGUST 9, 2000 JOHN P. BOOKER III ----------------------------------- ------------------ John P. Booker III Vice President - Controller (Principal Accounting Officer)