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 September 30, 1997
[ ] 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 (910) 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 November 6, 1997, there were 8,310,596 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 Nine Months Ended
-------------------------------- -------------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1997 1996 1997 1996
(In thousands, except share and per share data) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
- ------------------------------------------------------------ --------------- --------------- -------------- ---------------
Revenue from operations $ 88,275 $ 77,279 $ 246,356 $ 220,403
Operating expenses:
Salaries, wages and benefits 51,792 42,519 144,266 121,937
Purchased transportation 4,209 5,972 11,306 17,387
Operating supplies and expenses 7,787 7,736 22,817 22,685
Depreciation and amortization 4,396 4,155 12,513 11,938
Building and office equipment rents 1,728 1,736 5,191 5,203
Operating taxes and licenses 3,625 3,311 10,520 9,604
Insurance and claims 2,455 2,738 7,659 7,832
Communications and utilities 1,623 1,331 4,529 4,256
General supplies and expenses 3,190 2,500 9,152 8,022
Miscellaneous expenses 968 772 2,626 1,941
--------------- --------------- -------------- ---------------
Total operating expenses 81,773 72,770 230,579 210,805
--------------- --------------- -------------- ---------------
Operating income 6,502 4,509 15,777 9,598
Other deductions:
Interest expense, net 932 851 2,654 2,046
Other expense, net 118 143 269 327
--------------- --------------- -------------- ---------------
Total other deductions 1,050 994 2,923 2,373
--------------- --------------- -------------- ---------------
Income before income taxes 5,452 3,515 12,854 7,225
Provision for income taxes 2,099 1,335 4,949 2,745
--------------- --------------- -------------- ---------------
Net income $ 3,353 $ 2,180 $ 7,905 $ 4,480
=============== =============== ============== ===============
Income per common share:
Net income $0.40 $0.26 $0.95 $0.54
Weighted average number of shares outstanding 8,308,287 8,345,608 8,311,968 8,345,608
The accompanying notes are an integral part of these financial statements.
2
OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1997 1996
(In thousands, except share data) (Unaudited) (Audited)
- --------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 798 $ 1,353
Customer receivables, less allowances of $6,133 and
$5,699 at September 30, 1997, and December 31, 48,132 39,983
1996, respectively
Other receivables 615 890
Tires on equipment 4,704 4,514
Prepaid expenses 4,101 6,899
Deferred income taxes 2,625 2,625
----------------- ------------------
Total current assets 60,975 56,264
Property and equipment:
Revenue equipment 144,413 127,443
Land and structures 40,442 36,459
Other equipment 19,472 15,718
Leasehold improvements 677 479
----------------- ------------------
Total property and equipment 205,004 180,099
Less accumulated depreciation and amortization (78,528) (70,924)
----------------- ------------------
Net property and equipment 126,476 109,175
Other assets, less insurance policy loans
of $1,815 at September 30, 1997,
and December 31, 1996 5,958 5,287
----------------- ------------------
Total assets $ 193,409 $ 170,726
================= ==================
The accompanying notes are an integral part of these financial statements.
3
OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
September 30, December 31,
1997 1996
(In thousands, except share data) (Unaudited) (Audited)
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,631 $ 14,860
Compensation and benefits 10,558 6,919
Claims and insurance accruals 9,636 8,918
Other accrued liabilities 2,324 1,509
Income taxes payable - -
Current maturities of long-term debt 4,838 3,659
----------------- ------------------
Total current liabilities 39,987 35,865
Long-term debt 45,222 39,482
Other non-current liabilities 8,111 7,074
Deferred income taxes 16,741 13,377
----------------- ------------------
Total long-term liabilities 70,074 59,933
Stockholders' equity:
Common stock - $.10 par value, 25,000,000 shares
authorized, 8,308,596 and 8,345,608 shares
outstanding at September 30, 1997, and
December 31, 1996, respectively 831 835
Capital in excess of par value 23,871 23,352
Retained earnings 58,646 50,741
----------------- ------------------
Total stockholders' equity 83,348 74,928
Commitments and contingencies -- --
----------------- ------------------
Total liabilities and stockholders' equity $ 193,409 $ 170,726
================= ==================
The accompanying notes are an integral part of these financial statements.
4
OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
-----------------------------------------
1997 1996
(In thousands) (Unaudited) (Unaudited)
- ------------------------------------------------------------------------ ------------------- ------------------
Cash flows from operating activities:
Net income $ 7,905 $ 4,480
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 12,513 11,938
Deferred income taxes 3,364 2,443
(Gain) Loss on sale of property and equipment (227) 130
Changes in assets and liabilities:
Receivables, net (7,874) (5,963)
Tires on equipment (190) (29)
Prepaid expenses and other assets 2,127 1,029
Accounts payable (2,229) 1,268
Compensation, benefits and other accrued liabilities 4,454 3,084
Estimated liability for claims 718 778
Income taxes payable -- 477
Other liabilities 1,037 (1,095)
------------------- ------------------
Net cash provided by operating activities 21,598 18,540
------------------- ------------------
Cash flows from investing activities:
Purchase of property and equipment (31,127) (37,296)
Proceeds from sale of property and equipment 1,540 710
------------------- ------------------
Net cash used by investing activities (29,587) (36,586)
------------------- ------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 9,000 38,112
Principal payments under debt and capital lease agreements (3,746) (12,416)
Net proceeds (payments) on short-term revolving line of credit 1,665 (6,925)
Net effect of restricted stock distribution 511 --
Proceeds from conversion of stock options 4 --
------------------- ------------------
Net cash provided by financing activities 7,434 18,771
------------------- ------------------
(Decrease) Increase in cash and cash equivalents (555) 725
Cash and cash equivalents at beginning of period 1,353 986
------------------- ------------------
Cash and cash equivalents at end of period $ 798 $ 1,711
=================== ==================
The accompanying notes are an integral part of these financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The consolidated 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. Certain prior year amounts have been
reclassified to conform with the current year presentation. 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, 1996. The results of
operations for the nine months ended September 30, 1997, are not necessarily
indicative of the results for the entire fiscal year ending December 31, 1997.
There have been no significant changes in the accounting policies of the
Company. There were no significant changes in the Company's commitments and
contingencies as previously described in the 1996 Annual Report to Shareholders
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.
PENDING ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. The impact of Statement 128 on the calculation of earnings per share in
the current period and those leading up to the date of adoption and thereafter
is not expected to be material.
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments of
an Enterprise and Related Information, which requires that a publicly-held
company report financial and descriptive information about its operating
segments in financial statements issued to shareholders for interim and annual
periods. The Statement also requires additional disclosures with respect to
products and services, geographic areas of operations and major customers. The
Company expects to adopt Statement No. 131 in the first quarter of 1998.
6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations for the Three Months and Nine Months Ended September 30,
1997, Compared to September 30, 1996
Expenses as a Percentage of Revenue from Operations
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ -------------------------------
1997 1996 1997 1996
------------- ------------ ------------- -------------
Revenue from operations 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Salaries, wages and benefits 58.7 55.0 58.6 55.3
Purchased transportation 4.8 7.7 4.6 7.9
Operating supplies and expenses 8.8 10.0 9.3 10.3
Depreciation and amortization 5.0 5.4 5.1 5.4
Building and office equipment rents 2.0 2.3 2.1 2.4
Operating taxes and licenses 4.1 4.3 4.3 4.4
Insurance and claims 2.8 3.5 3.1 3.6
Communications and utilities 1.8 1.7 1.8 1.9
General supplies and expenses 3.6 3.3 3.7 3.6
Miscellaneous expenses 1.0 1.0 1.0 0.8
------------- ------------ ------------- -------------
Total operating expenses 92.6 94.2 93.6 95.6
------------- ------------ ------------- -------------
Operating income 7.4 5.8 6.4 4.4
Interest expense, net 1.1 1.1 1.1 0.9
Other expense, net 0.1 0.2 0.1 0.2
------------- ------------ ------------- -------------
Income before income taxes 6.2 4.5 5.2 3.3
Provision for income taxes 2.4 1.7 2.0 1.3
------------- ------------ ------------- -------------
Net income 3.8% 2.8% 3.2% 2.0%
============= ============ ============= =============
7
RESULTS OF OPERATIONS
Three Months Ended September 30, 1997, Compared to Three Months Ended September
30, 1996
Net revenue for the third quarter of 1997 was $88,275,000, an increase of 14.2%,
compared to $77,279,000 for the same quarter of 1996. Less-than-truckload
("LTL") tonnage increased 10.2% during the quarter while total tonnage increased
8.3%. LTL and total shipments increased 16.4% and 16.3%, respectively, compared
to the same quarter of 1996. While the Company has added four new service
centers since the third quarter of 1996, most of the tonnage is a direct result
of the Company's focus on improving market share and density within existing
markets.
Average LTL revenue per shipment increased .6% to $116.32 in the current quarter
compared to $115.57 for the same quarter of 1996. This increase was a result of
an increase in average LTL revenue per hundredweight offset by a decrease in
weight per shipment. Average LTL revenue per hundredweight was $11.63 for the
current quarter compared to $10.91 for the third quarter of 1996, an increase of
6.6%. This improvement reflects an improved revenue yield as a result of the
January 1, 1997, rate increases on public tariffs and increases on private
tariffs which have been negotiated throughout the year. The increased revenue
per shipment was offset by a 5.6% decrease in LTL weight per shipment to 1,000
lbs. from 1,059 lbs. The decrease was due mainly to a 22.4% increase in minimum
weight shipments , as compared to normal shipment levels, incurred during the
strike in August by the International Brotherhood of Teamsters against United
Parcel Service. The Company believes the additional revenue generated from this
strike had little impact on profitability, as these shipments resulted in higher
operating costs.
Operating expenses as a percentage of net revenue ("operating ratio") were 92.6%
for the third quarter of 1997 compared to 94.2% for the same quarter of 1996.
The decrease in operating ratio was due primarily to decreases in purchased
transportation and operating supplies and expenses, which combined were 4.1
operating points lower than the comparable quarter of 1996. In addition,
depreciation and amortization, building and office equipment rents, operating
taxes and licenses and insurance and claims decreased as a percent of revenue
compared to the same period the previous year. Combined, these expenses were
13.9% of revenue for the current quarter compared to 15.5% of revenue for the
same period of 1996.
Purchased transportation decreased to 4.8% percent of revenue in the third
quarter of 1997 from 7.7% for the same quarter last year. This decrease was the
result of higher use of Company personnel and equipment for pickup and delivery
operations previously performed by cartage agents. Operating supplies and
expenses decreased to 8.8% of revenue from 10.0% for the same quarter last year
due mainly to reductions in vehicle repair and maintenance costs compared to the
previous comparable quarter.
Building and office equipment rents decreased to 2.0% of revenue in the third
quarter of 1997 from 2.3% for the same quarter of 1996 as a result of the
Company's purchase of service centers that were previously leased. Insurance and
claims decreased to 2.8% from 3.5% for the comparable quarter of 1996. This
decrease is primarily attributed a reduction in cargo claims expense to 1.4% of
revenue from 2.2% for the same quarter of 1996. This reduction reflects a
Company-wide focus on continuous improvement in freight handling processes and
equipment.
Depreciation and amortization and operating taxes and licenses, combined,
decreased to 9.1% of revenue during the third quarter of 1997 compared to 9.7%
for the third quarter of 1996. These decreases can be attributed to the
Company's effort to leverage revenue growth against fixed and administrative
costs.
These decreases were offset slightly by increases in salaries, wages and
benefits, communications and utilities and general supplies and expenses.
Salaries, wages and benefits increased to 58.7% of revenue from 55.0% for
the previous quarter of 1996 as a result of reduced use of cartage agents
replaced by Company personnel and equipment and the planned addition of 38
new sales personnel in 1997. Combined, general supplies and expenses and
communications and utilities increased slightly to 5.4% of revenue for the
third quarter of 1997 from 5.0% for the same quarter of 1996. These increases
are attributed to administrative costs associated with the addition of the new
sales personnel in 1997 and to improvements in the Company's communications
infrastructure.
8
Net income was $3,353,000 for the quarter, an increase of 53.8%, compared to
$2,180,000 for the same quarter of the previous year. The effective tax rate was
38.5% and 38.0% for the third quarters of 1997 and 1996, respectively.
Nine Months Ended September 30, 1997, Compared to Nine Months Ended September
30, 1996
Net revenue for the nine months ended September 30, 1997, was $246,356,000, an
increase of 11.8%, compared to $220,403,000 for the same period of 1996. LTL
tonnage increased 9.4% during the same comparable periods. These increases
reflect both the Company's focus in 1997 to improve the yield of the revenue
base and increase market share in existing areas of operations.
Average LTL revenue per shipment increased 2.8% to $119.22 during current the
nine-month period compared to $115.92 for the same period of 1996. This increase
was caused by two factors. First, average LTL revenue per hundredweight
increased 3.1% to $11.38 compared to $11.04. This improvement reflects improved
revenue yield generated from an increase on public tariffs which became
effective on January 1, 1997, and increases on private tariffs which are
re-negotiated as they expire. The increased revenue per hundredweight was offset
by a slight .2% decrease in LTL weight per shipment to 1,048 lbs. from 1,050
lbs. The decrease in shipment weight was due in part to the Teamsters strike
against United Parcel Service which caused minimum weight shipments to increase
22.4% in August of 1997 compared to normal levels.
The operating ratio was 93.6% for the nine months ended September 30, 1997,
compared to 95.6% for the same period of 1996. The decrease in operating ratio
was primarily due to a decrease in purchased transportation to 4.6% from 7.9%
and a decrease in operating supplies and expenses to 9.3% from 10.3%.
Depreciation and amortization, building and office equipment rents, operating
taxes and licenses, insurance and communications decreased as a percent of
revenue to 16.4% for the current nine-month period from 17.7% for the same
period last year.
The decrease in purchased transportation was the result of the Company
continuing to replace cartage agents with Company equipment and personnel. The
decrease in operating supplies and expenses was due mainly to reductions in
both fuel and vehicle repair and maintenance costs as compared to the same
period for 1996.
Building and office equipment rents decreased to 2.1% of revenue for the first
nine months of 1997 from 2.4% for the same period of 1996 as a result of the
Company's purchase of service centers that were previously leased. Insurance and
claims decreased to 3.1% from 3.6% for the comparable period of 1996. This
decrease is primarily attributed to a reduction in cargo claims expense to 1.6%
of revenue from 2.2% for the same period of 1996. This reduction reflects a
Company-wide focus of continuous improvement to freight handling processes and
equipment.
Depreciation and amortization and operating taxes and licenses, combined,
decreased to 9.4% of revenue during the first nine months of 1997 compared to
9.8% for the comparable period of 1996. These decreases can be attributed to the
Company's effort to leverage revenue growth against fixed and administrative
costs.
These decreases were partially offset by increases in salaries, wages and
benefits to 58.6% from 55.3% caused by a reduction in the use of cartage agents,
which were replaced by Company personnel, and to the planned addition of 38 new
sales personnel in 1997. These are in conjunction with the Company's strategy to
increase service center density and increase market share within existing
markets.
Interest expense increased to 1.1% of revenue from .9% for the same period last
year. The increase was due mainly to a higher average outstanding debt for the
1997 period.
Net income was $7,905,000 for the nine-month period, an increase of 76.5%,
compared to $4,480,000 for the previous year. The effective tax rate was 38.5%
for the current period compared to 38.0% for the same period last year.
9
LIQUIDITY AND CAPITAL RESOURCES
Expansion in both the size and number of service center facilities, as well as
the routine tractor and trailer turnover cycle, have required continued
investment in property and equipment. The Company anticipates capital
expenditures of approximately $34,000,000 for the year ending December 31, 1997.
This investment will be financed principally by internally generated cash flows,
supplemented with borrowings. Capital expenditures were approximately
$11,564,000 and $31,127,000 during the quarter and nine months ended September
30, 1997, respectively. Long-term debt, including current maturities, increased
$6,919,000 to $50,060,000 at September 30, 1997, from $43,141,000 at December
31, 1996. The Company financed 77.8% of its nine-month year-to-date 1997 capital
expenditures through internally generated cash flows from operations.
Expenditures related to the year 2000 conversion are not expected to be of a
material nature and therefore will not adversely affect the Company.
The Company generally meets its working capital needs with cash generated from
operations. Working capital requirements are generally higher during the first
and fourth quarters because of seasonal declines in revenue and annual payments
of property taxes, equipment tags and licenses. On April 22, 1997, the Company
amended the $32,500,000 uncollateralized committed agreement to consist of a
$17,500,000 line of credit and a $15,000,000 letter of credit facility. Interest
on the line of credit is charged at rates that can vary based upon a certain
financial performance ratio and the stated period of time the borrowings are
outstanding. The applicable interest rate is based upon LIBOR plus .75% for
periods of 30-180 days and prime minus 1% for periods less than 30 days. The
Company has also entered into a separate International Swap Dealers Association
Agreement that hedges the interest rate on a portion of the outstanding amount
on the credit line over a specified term. Pursuant to this agreement, as of
September 30, 1997, the Company had fixed $3,500,000 of the outstanding credit
line at a rate of 6.54% through June 19, 1998. A fee of .2% is charged on the
unused portion of the $32,500,000 line of credit and letter of credit facility,
and a fee of .75% is charged on the outstanding letters of credit. At September
30, 1997, there was $7,555,000 outstanding on the line of credit and $9,325,500
outstanding on the letter of credit facility, which is required for self-insured
retention reserves for bodily injury, property damage and workers' compensation
insurance. The Company believes that there are sufficient credit lines and
capacity to meet seasonal and long-term financing needs.
INFLATION
Most of the Company's expenses are affected by inflation, which will generally
result in increased costs. During the third quarter and for the nine months
ended September 30, 1997, 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 trucking
industry. Operating results in the first and fourth quarters are normally lower
due to reduced shipments during the winter months. 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 ("UST's"). The
Company is in compliance with all applicable environmental laws and regulations
relating to UST's and does not believe that the cost of future compliance would
have a material adverse effect on the Company's operations or financial
condition.
10
FORWARD-LOOKING INFORMATION
Forward-looking 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) the
Company's goals, strategies and expectations 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 and other
significant resources; (5) the impact of various regulatory bodies; and (6)
other risks and uncertainties indicated from time to time in the Company's
filings with the Securities and Exchange Commission.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
Exhibit No. Description
------------- -------------
27 Financial Data Schedule
b) Reports on Form 8-K: No reports on Form 8-K were filed during the
quarter ended September 30, 1997.
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: November 6, 1997 J. WES FRYE
----------------- --------------
J. Wes Frye
Sr. V.P. - Finance and Chief Financial Officer
(Principal Financial Officer)
DATE: November 6, 1997 JOHN P. BOOKER III
--------------- --------------------
John P. Booker III
V.P. - Controller (Principal Accounting Officer)
11