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, 1999
[ ] 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 November 8, 1999, 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 NINE MONTHS ENDED
------------------------------ ---------------------------------------
SEPT. 30, Sept. 30, SEPT. 30, Sept. 30,
1999 1998 1999 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED) (Unaudited) (UNAUDITED) (Unaudited)
- ---------------------------------------------------------------------- -------------- ------------------- -------------------
Revenue from operations $ 108,527 $99,266 $314,068 $ 283,600
Operating expenses:
Salaries, wages and benefits 65,247 59,463 190,569 168,990
Purchased transportation 3,677 3,547 10,323 11,968
Operating supplies and expenses 9,479 7,613 26,060 23,361
Depreciation and amortization 6,317 5,734 18,934 15,551
Building and office equipment rents 1,790 1,853 5,473 5,431
Operating taxes and licenses 4,387 4,365 13,291 12,206
Insurance and claims 2,796 3,105 7,742 8,859
Communications and utilities 1,774 1,757 5,482 5,148
General supplies and expenses 4,044 3,982 12,035 11,545
Miscellaneous expenses 1,159 1,112 3,111 2,939
--------------- -------------- ------------------- -------------------
Total operating expenses 100,670 92,531 293,020 265,998
--------------- -------------- ------------------- -------------------
Operating income 7,857 6,735 21,048 17,602
Other deductions:
Interest expense, net 1,087 1,129 3,177 3,002
Other (income) expense, net (35) 87 206 263
--------------- -------------- ------------------- -------------------
Total other deductions 1,052 1,216 3,383 3,265
--------------- -------------- ------------------- -------------------
Income before income taxes 6,805 5,519 17,665 14,337
Provision for income taxes 2,586 2,097 6,713 5,448
--------------- -------------- ------------------- -------------------
Net income $ 4,219 $ 3,422 $ 10,952 $ 8,889
=============== ============== =================== ===================
Basic and diluted earnings per share: $ 0.51 $ 0.41 $ 1.32 $ 1.07
Weighted average shares outstanding:
Basic 8,312,595 8,312,196 8,312,329 8,311,633
Diluted 8,318,491 8,321,089 8,316,268 8,325,476
The accompanying notes are an integral part of these financial statements.
2
OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, December 31,
1999 1998
(IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) (Audited)
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 618 $ 659
Customer receivables, less allowances of $6,229
and $5,702, respectively 55,325 48,612
Other receivables 673 2,567
Tires on equipment 6,352 6,325
Prepaid expenses 4,686 9,413
Deferred income taxes 2,213 2,213
------------------ --------------------
Total current assets 69,867 69,789
Property and equipment:
Revenue equipment 177,759 172,783
Land and structures 56,860 51,803
Other equipment 34,878 27,739
Leasehold improvements 4,353 4,144
------------------ --------------------
Total property and equipment 273,850 256,469
Less accumulated depreciation and amortization (110,572) (97,471)
------------------ --------------------
Net property and equipment 163,278 158,998
Other assets 14,615 13,012
------------------ --------------------
Total assets $ 247,760 $ 241,799
================== ====================
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,
1999 1998
(IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) (Audited)
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 15,838 $ 21,350
Compensation and benefits 14,675 8,929
Claims and insurance accruals 12,594 11,961
Other accrued liabilities 3,524 2,649
Income taxes payable 529 499
Current maturities of long-term debt 16,213 9,093
------------------ --------------------
Total current liabilities 63,373 54,481
Long-term debt 45,705 61,496
Other non-current liabilities 10,788 9,636
Deferred income taxes 20,305 19,549
------------------ --------------------
Total long-term liabilities 76,798 90,681
Stockholders' equity:
Common stock - $.10 par value, 25,000,000 shares authorized,
8,312,840 and 8,312,196 shares outstanding,
respectively 831 831
Capital in excess of par value 23,907 23,907
Retained earnings 82,851 71,899
------------------ --------------------
Total stockholders' equity 107,589 96,637
Commitments and contingencies - -
------------------ --------------------
Total liabilities and stockholders' equity $247,760 $241,799
================== ====================
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 SEPT. 30,
----------------------------------
1999 1998
(IN THOUSANDS) (UNAUDITED) (Unaudited)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 10,952 $ 8,889
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 18,934 15,551
Deferred income taxes 756 2,724
Loss on sale of property and equipment 237 3
Changes in assets and liabilities:
Customer and other receivables, net (4,819) (4,662)
Tires on equipment (27) (244)
Prepaid expenses and other assets 3,884 2,452
Accounts payable (5,512) 487
Compensation, benefits and other accrued liabilities 6,621 6,140
Claims and insurance accruals 1,241 3,253
Income taxes payable 30 44
Other liabilities 544 258
--------------- ---------------
Net cash provided by operating activities 32,841 34,895
--------------- ---------------
Cash flows from investing activities:
Acquisition of business assets, net (1,100) (19,299)
Purchase of property and equipment (25,885) (38,871)
Proceeds from sale of property and equipment 2,774 1,224
--------------- ---------------
Net cash used by investing activities (24,211) (56,946)
--------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt - 20,990
Principal payments under long-term debt agreements (6,536) (3,485)
Net (payments) proceeds on revolving line of credit (2,135) 4,600
Proceeds from conversion of stock options - 16
--------------- ---------------
Net cash (used in) provided by financing activities (8,671) 22,121
--------------- ---------------
(Decrease) increase in cash and cash equivalents (41) 70
Cash and cash equivalents at beginning of period 659 674
--------------- ---------------
Cash and cash equivalents at end of period $ 618 $ 744
=============== ===============
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. 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, 1998. The results of operations for the quarter
ended September 30, 1999, are not necessarily indicative of the results for the
entire fiscal year ending December 31, 1999.
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 1998 Annual Report to Stockholders and related
annual report to the Securities and Exchange Commission on Form 10-K.
RECLASSIFICATIONS
Certain amounts in prior years have been reclassified to conform with the
current period presentation.
EARNINGS PER SHARE
Net income per share of common stock is based on the weighted average number of
shares outstanding during each period.
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,
1999, COMPARED TO THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998
EXPENSES AS A PERCENTAGE OF REVENUE FROM OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ----------------------------------
1999 1998 1999 1998
-------------- -------------- --------------- --------------
Revenue from operations 100.0% 100.0% 100.0% 100.0%
-------------- -------------- --------------- --------------
Operating expenses:
Salaries, wages and benefits 60.1 59.9 60.7 59.6
Purchased transportation 3.4 3.6 3.3 4.2
Operating supplies and expenses 8.7 7.7 8.3 8.2
Depreciation and amortization 5.8 5.8 6.0 5.5
Building and office equipment rents 1.7 1.9 1.8 1.9
Operating taxes and licenses 4.1 4.4 4.2 4.3
Insurance and claims 2.6 3.1 2.5 3.1
Communications and utilities 1.6 1.8 1.7 1.8
General supplies and expenses 3.7 4.0 3.8 4.1
Miscellaneous expenses 1.1 1.0 1.0 1.1
-------------- -------------- --------------- --------------
Total operating expenses 92.8 93.2 93.3 93.8
-------------- -------------- --------------- --------------
Operating income 7.2 6.8 6.7 6.2
Interest expense, net 1.0 1.2 1.0 1.1
Other expense, net (0.1) 0.1 0.1 0.1
-------------- -------------- --------------- --------------
Income before income taxes 6.3 5.5 5.6 5.0
Provision for income taxes 2.4 2.1 2.1 1.9
-------------- -------------- --------------- --------------
Net income 3.9% 3.4% 3.5% 3.1%
============== ============== =============== ==============
7
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999, COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
During the third quarter of 1999, the Company had continued success in
implementing its strategy to build market share in existing areas of operations,
improve revenue yield and improve operating efficiencies. The Company achieved
its revenue growth without significant additional investments in property and
equipment, which resulted in operating synergies that improved profitability.
While implementing similar objectives during the third quarter of 1998, the
Company took advantage of consolidation pressures in the industry by acquiring
selected assets of Goggin Truck Line Company, Inc., a regional
less-than-truckload ("LTL") carrier operating primarily in the southeastern
region of the country. This acquisition not only increased market share at
existing facilities but also allowed the Company to open eight additional
service centers in targeted markets in the southeast.
Net revenue for the third quarter of 1999 was $108,527,000, an increase of 9.3%,
compared to $99,266,000 for the third quarter of 1998. LTL tonnage increased
5.3% during the quarter while LTL shipments increased 2.4%. Revenue, tonnage and
shipment growth for the current quarter were slightly lower than results for the
first half of the year and reflect the impact of Hurricane Floyd on the
Company's operations along the Atlantic coast in September 1999. Also, the third
quarter of 1998 included certain revenue and tonnage secured as a result of the
Goggin acquisition that was subsequently identified as unprofitable and was
discontinued.
Average revenue per LTL shipment increased 9.2% to $127.67 in the current
quarter from $116.89 for the same quarter in 1998. This increase was due to a
6.0% increase in LTL revenue per hundredweight to $11.81 from $11.14 combined
with a 3.1% increase in LTL weight per shipment to 1,081 lbs. from 1,049 lbs.
The increase in LTL revenue per hundredweight was a result of the implementation
of a general rate increase on the Company's public tariffs on September 13,
1999, and the continuing efforts to improve overall revenue quality by
identifying and increasing rates on marginal and unprofitable traffic. The
Company's average length of haul decreased .5% to 844 miles per shipment from
848 in the third quarter of 1998. The decrease in average length of haul was a
result of higher growth in the Company's regional markets compared to its longer
haul inter-regional markets. In the third quarter of 1999, regional traffic
accounted for 31% of total revenue compared to 29% in the third quarter of 1998.
Operating expenses as a percentage of net revenue, the operating ratio,
decreased to 92.8% for the third quarter of 1999 from 93.2% for the same period
of 1998. The Company experienced slight cost reductions in many expense
classifications but significant reductions were achieved in insurance and claims
expense, which decreased to 2.6% of revenue from 3.1% in the third quarter of
1998. While the operating ratio improved, operating supplies and salaries, wages
and benefits, when combined, increased to 68.8% of revenue from 67.6%.
Insurance and claims expense decreased primarily as a result of favorable
experience in self-insured auto liability claims to .66% of revenue from 1.1%.
This improvement, combined with improvements in self-insured cargo claims,
allowed the Company to obtain lower excess premiums for both auto liability and
cargo claims to .2% of revenue from .4% in the third quarter of 1998. In
addition, general supplies and expenses and operating taxes and licenses, when
combined, decreased to 7.8% of net revenue from 8.4% as a result of the Company
successfully leveraging its existing assets to provide economies of scale and
higher profitability.
While the operating ratio declined, the Company experienced an increase in
operating supplies to 8.7% of revenue from 7.7% from the prior year quarter.
Fuel, which is included in operating supplies, increased to 3.9% of revenue from
3.1%. To partially offset that increase, the Company implemented a fuel
surcharge during the third quarter of 1999, which was recorded as additional
revenue.
The increase in salary, wages and benefits to 60.1% of net revenue from 59.9%
was a result of the Company's continuing efforts to replace purchased
transportation with Company labor and equipment. By increasing market share and
expanding the service center network, the Company can economically justify more
direct service to its customers. The increase in salary, wages and benefits was
offset by a
8
corresponding decrease in purchased transportation to 3.4% of revenue from 3.6%
for the third quarter of 1998.
Interest expense was 1.0% of revenue for the third quarter of 1999 compared to
1.2% for the same period of 1998 due to a reduction in average outstanding debt
between the comparable quarters.
Net income was $4,219,000 for the quarter, an increase of 23.3%, compared to
$3,422,000 for the same quarter of the previous year. The effective tax rate was
38.0% for both periods.
NINE MONTHS ENDED SEPTEMBER 30, 1999, COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1998
Net revenue for the nine months ended September 30, 1999, was $314,068,000, an
increase of 10.7%, compared to $283,600,000 for the same period of 1998. LTL
tonnage increased 7.1% due to a 4.8% increase in LTL shipments and a 2.1%
increase 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 areas of operations and service center network. This
growth strategy was complemented with the acquisition of certain assets of
Fredrickson Motor Express, Goggin Truck Line and Skyline Transportation in
January 1998, August 1998 and January 1999, respectively. These companies
conducted LTL operations primarily in the southeastern United States, an area
the Company has served for over 65 years.
Average revenue per LTL shipment for the first nine months of 1999 increased
6.7% to $125.96 from $118.08 for the comparable period of 1998. This increase
was due to a 4.4% increase in LTL revenue per hundredweight to $11.69 from
$11.20 and a 2.1% increase in LTL weight per shipment. The increase in LTL
revenue per shipment was achieved although the Company's average length of haul
decreased 1.3% to 840 miles from 851, a trend that generally lowers revenue per
shipment. The reduction in average length of haul is due to the growth of the
Company's regional, or shorter haul, business.
Operating expenses as a percentage of net revenue, the operating ratio, in the
first nine months of 1999 improved to 93.3% compared with 93.8% for the first
nine months of 1998. By focusing on growth within its existing geographic
service center network, the Company was able to replace outside purchased
transportation with direct service by Company personnel and equipment. As a
result, salaries, wages and benefits increased to 60.7% of revenue from 59.6%. A
portion of that increase was due to an increase in group health expenses to 3.4%
of revenue from 2.8%. Depreciation and amortization expense increased to 6.0% of
revenue from 5.5%, primarily due to increases in the Company's equipment fleet
and to investments in information systems.
These increased expenses were offset by decreases in purchased transportation
and insurance and claims expense, which improved on a combined basis to 5.8% of
revenue from 7.3%. Purchased transportation decreased due to a reduction in
cartage expense, or outside local pickup and delivery services, to 1.2% of
revenue from 2.2%. Revenue growth in existing areas of operation and the opening
and operation of eight additional service centers in the third quarter of 1998
allowed the Company to provide more direct service to its customers. The Company
intends to continue this trend of reducing purchased transportation, which
generally results in improvements in on-time service and profitability.
Insurance and claims expense decreased to 2.5% of revenue from 3.1% due to
reductions in cargo claims, bodily injury and property damage expense. The
Company maintains an ongoing focus on cargo claims prevention and provides
extensive safety training that resulted in a reduction in claims and accidents
in the current year. The Company also self-insures a portion of these claims and
limits these liabilities with excess insurance coverage. Due to favorable claims
experience, excess insurance rates were reduced by approximately 40% in 1999
over the prior year.
During the first nine months of 1999, the Company also benefited from reductions
in general supplies and expenses, building and office equipment rents, operating
taxes and licenses, communication and utilities and miscellaneous expenses which
as a group were 12.5% of revenue as compared to 13.2% for the previous
comparable period. These reductions reflect the strategy of leveraging the
Company's assets to provide for more efficient and profitable operations.
9
Net interest expense was 1.0% of revenue for the first nine months of 1999 from
1.1% for the comparable period in 1998. This decrease was due to a lower average
amount of debt outstanding during the current year.
Net income was $10,952,000 for the nine months ended September 30, 1999, an
increase of 23.2%, compared to $8,889,000 for the same nine-month period the
previous year. The effective tax rate was 38.0% for both periods.
LIQUIDITY AND CAPITAL RESOURCES
Expansion in both the size and number of service center facilities, the planned
tractor and trailer replacement cycle and revenue growth have required continued
investment in property and equipment. In order to support these requirements,
the Company incurred net capital expenditures of $24,211,000 during the first
nine months of 1999. Cash flows generated internally were sufficient to fund
100% of the required capital expenditures through the third quarter of the year.
At September 30, 1999, long-term debt including current maturities decreased to
$61,918,000 from $70,589,000 at December 31, 1998.
The Company estimates capital expenditures to be approximately $47,000,000 to
$50,000,000 for the year ending December 31, 1999. Of that, approximately
$28,000,000 will be used for purchases of larger replacement service centers or
expansion of existing service centers, approximately $13,000,000 will be used to
purchase revenue equipment, approximately $5,000,000 will be used for
investments in technology and the remaining balance will be used to purchase
other assets. The Company plans to fund these expenditures through cash flows
from operations supplemented by additional borrowings.
The Company maintains a $32,500,000 uncollateralized credit facility that
consists of a $17,500,000 line of credit commitment and a $15,000,000 letter of
credit commitment. Interest on the line of credit is charged at rates that vary
based upon a certain financial performance ratio and the stated period of time
that the borrowings are outstanding. The applicable interest rate for the first
nine months of 1999 was based upon LIBOR plus .75% for periods of 30-180 days
and prime minus 1% for periods less than 30 days. A fee of .25% 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 outstanding letters of credit. At
September 30, 1999, there were $6,175,000 outstanding borrowings on the line of
credit and $11,385,000 outstanding on the 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 90% 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 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.
IMPACT OF THE YEAR 2000
Some of the Company's internally generated software, third party software,
information technology ("IT") systems and non-IT systems were written or
designed using two digits rather than four to define the applicable year. As a
result, that software or system is likely to interpret a date using "00" as the
year 1900 rather than the year 2000. This could possibly cause a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in normal business activities.
The Company has completed an assessment of its software to ensure that its
computer systems will function properly with respect to dates in the year 2000
and thereafter. The Company has successfully completed modifications to all
internally generated software and is currently utilizing the modified software
in production. The total cost to complete this phase of the year 2000 project
was approximately $500,000. All third party software requiring modification has
been identified and those modifications have been successfully completed, tested
and placed into production. Each software vendor performed the
10
necessary modifications to the third party software for year 2000 compliance and
the costs were included in the annual maintenance fees charged to the Company.
Actual costs to the Company were minimal.
During 1998, the Company successfully completed modifications to its IT hardware
for year 2000 compliance at a cost of approximately $100,000. Most of this
expense was for the replacement of all the Company's older model personal
computers. While this hardware was tested to the extent possible and is
currently being used in production, failure of one or large groups of these
personal computers would not have a critical impact on the Company.
Old Dominion is approximately 95% complete in its evaluation of non-IT systems,
such as telephone switches and security systems, to identify systems that
require modification. As each system or component is identified, a plan to make
appropriate modifications is initiated. The Company believes there is minimal
risk in this area, and the cost of these modifications or upgrades, if any, is
expected to be less than $50,000. These evaluations and subsequent modifications
to non-IT hardware are scheduled to be completed by November 30, 1999.
The Company is currently 90% complete in its evaluation phase of its major
customers and suppliers to determine if they have taken adequate measures to
ensure that necessary modifications are made to their software and hardware
prior to the year 2000. The completion of the supplier evaluation phase, which
is scheduled for November 30, 1999, will determine the actions the Company will
take in securing alternate suppliers by year-end 1999. The Company is actively
assisting customers in achieving year 2000 compliance in their electronic data
interchange applications that are used to communicate with the Company in their
normal course of business. If these systems fail, the Company plans to convert
to traditional methods of communication such as mail, phone and fax, which it
currently uses with the majority of its customer base. In addition, the
Company's existing systems could be used to provide customers with freight
tracing and documentation requirements if their systems fail. The process of
monitoring customers and suppliers for year 2000 compliance may well extend
until 2000, as those companies execute their year 2000 plans. The Company's
largest customer in 1998 accounted for only 2.8% of revenue; therefore, the
Company is not dependent on any one customer. Critical supplies such as fuel and
parts are generally available from multiple sources and the Company's physical
locations are not dependent on one provider of utilities. However, failure by
any large groups of suppliers or customers to make necessary year 2000
modifications could result in a material adverse impact on the Company. The
Company has incurred approximately $20,000 to date in monitoring customer and
supplier compliance and expects to incur an additional $5,000 by year-end 1999.
In order to avoid problems that could arise in the year 2000, all modifications
to internally generated software were simulated in a year 2000 test environment
and subjected to comprehensive quality standards prior to being placed into
production. Similar IT hardware testing, to the extent possible, has been
performed. The Company's contingency plan, in the event hardware or software
failures occur in early 2000, is to have its internal IT staff and external IT
support resources available to address these potential problems as they are
identified. The Company believes today that the most likely worst case scenario
would involve (1) malfunctions in computer software at the corporate
headquarters, (2) temporary disruptions in the delivery of services and products
to the Company, primarily communications, utilities and fuel, and (3) temporary
disruptions in payments from customers. The Company expects that these events
would result in increased expense and lost revenue, and would adversely affect
the Company's cash flow.
The total cost incurred to date for year 2000 compliance is approximately
$620,000 and the Company may incur an additional $55,000 by year-end 1999.
The cost of the project and the date on which the Company believes it will
complete the year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer code, the ability of the Company's customers
and suppliers to address their year 2000 compliance problems and similar
uncertainties.
11
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
ending September 30, 1999, 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 weather
conditions can also adversely impact the Company's performance by reducing
demand and increasing operating expenses. The second and third quarters are
generally 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 believes it is in compliance with applicable environmental laws and
regulations, including those relating to UST's, 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, service centers 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 availability and cost of personnel
trained in year 2000 compliance issues, the Company's ability to locate and
correct relevant IT and non-IT problems and the ability of the Company's
customers and suppliers to address their year 2000 compliance problems; 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.
12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit No. Description
----------- --------------------------------------------
10.9.2 Extension of E & J Enterprises Trailer Lease
Agreement, Effective August 1, 1999
27 Financial Data Schedule
b) Reports on Form 8-K: No reports on Form 8-K were filed during the
quarter ended September 30, 1999.
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 8, 1999 J. WES FRYE
---------------------- ----------------------------------------------
J. Wes Frye
Sr. V.P. - Finance and Chief Financial Officer
(Principal Financial Officer)
DATE: November 8, 1999 JOHN P. BOOKER III
--------------------- ------------------------------------------------
John P. Booker III
V.P. - Controller (Principal Accounting Officer)
13