UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2020

or

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)

(336) 889-5000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒     No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of May 1, 2020 there were 117,948,168 shares of the registrant’s Common Stock ($0.10 par value) outstanding.

INDEX

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

OLD DOMINION FREIGHT LINE, INC.

CONDENSED BALANCE SHEETS

Note: The Condensed Balance Sheet at December 31, 2019 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements.

The accompanying notes are an integral part of these condensed financial statements.

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OLD DOMINION FREIGHT LINE, INC.

CONDENSED BALANCE SHEETS

(CONTINUED)

Note: The Condensed Balance Sheet at December 31, 2019 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements.

The accompanying notes are an integral part of these condensed financial statements.

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OLD DOMINION FREIGHT LINE, INC.

CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

The accompanying notes are an integral part of these condensed financial statements.

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OLD DOMINION FREIGHT LINE, INC.

CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

The accompanying notes are an integral part of these condensed financial statements.

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OLD DOMINION FREIGHT LINE, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

The accompanying notes are an integral part of these condensed financial statements.

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We are a leading, less-than-truckload (“LTL”), union-free motor carrier providing regional, inter-regional and national LTL services through a single integrated organization. Our service offerings, which include expedited transportation, are provided through an expansive network of service centers located throughout the continental United States. Through strategic alliances, we also provide LTL services throughout North America. In addition to our core LTL services, we offer a range of value-added services including container drayage, truckload brokerage and supply chain consulting. More than 97% of our revenue has historically been derived from transporting LTL shipments for our customers, whose demand for our services is generally tied to industrial production and the overall health of the U.S. domestic economy.

In analyzing the components of our revenue, we monitor changes and trends in our LTL volumes and LTL revenue per hundredweight.  While LTL revenue per hundredweight is a yield measurement, it is also a commonly-used indicator for general pricing trends in the LTL industry.  This yield metric is not a true measure of price, however, as it can be influenced by many other factors, such as changes in fuel surcharges, weight per shipment and length of haul.  As a result, changes in revenue per hundredweight do not necessarily indicate actual changes in underlying base rates.  LTL revenue per hundredweight and the key factors that can impact this metric are described in more detail below:

Our primary revenue focus is to increase density, which is shipment and tonnage growth within our existing infrastructure. Increases in density allow us to maximize our asset utilization and labor productivity, which we measure over many different functional areas of our operations including linehaul load factor, pickup and delivery (“P&D”) stops per hour, P&D shipments per hour, platform pounds handled per hour and platform shipments per hour. In addition to our focus on density and operating efficiencies, it is critical for us to obtain an appropriate yield, which is measured as revenue per hundredweight, on the shipments we handle to offset our cost inflation and support our ongoing investments in capacity and technology. We regularly monitor the components of our pricing, including base freight rates, accessorial charges and fuel surcharges. The fuel surcharge is generally designed to offset fluctuations in the cost of our petroleum-based products and is indexed to diesel fuel prices published by the U.S. Department of Energy, which reset each week. We believe our yield management process focused on individual account profitability, and ongoing improvements in operating efficiencies, are both key components of our ability to produce profitable growth.

Our primary cost elements are direct wages and benefits associated with the movement of freight, operating supplies and expenses, which include diesel fuel, and depreciation of our equipment fleet and service center facilities. We gauge our overall success in managing costs by monitoring our operating ratio, a measure of profitability calculated by dividing total operating expenses by revenue, which also allows for industry-wide comparisons with our competition.

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We regularly upgrade our technological capabilities to improve our customer service and lower our operating costs. Our technology provides our customers with visibility of their shipments throughout our network, increases the productivity of our workforce, and provides key metrics that we use to monitor and enhance our processes.

The following table sets forth, for the periods indicated, expenses and other items as a percentage of revenue from operations:

Results of Operations

Key financial and operating metrics for the three-month periods ended March 31, 2020 and 2019 are presented below:

All references in this report to shares outstanding, weighted average shares outstanding, earnings per share, and dividends per share amounts have been restated retroactively to reflect the three-for-two stock split effected in March 2020.

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Our financial results for the first quarter of 2020 reflect first-quarter Company records for operating income and earnings per diluted share, despite a slight decrease in revenue.  Although our revenue declined for the quarter, our trend for most of the quarter was consistent with the expectations we had at the beginning of the year.  The last half of March, however, was negatively affected by a decrease in demand that resulted from the widespread effects of the COVID-19 pandemic.  We maintained our disciplined approach to pricing throughout the quarter, however, and also continued to control our costs.   These efforts contributed to the 60 basis-point improvement in our operating ratio to 81.4% as compared to the same period last year, and a 0.9% increase in earnings per diluted share to $1.11.

Revenue

Revenue decreased $3.4 million, or 0.3%, during the first quarter of 2020 as compared to the first quarter of 2019. This decline reflects a decrease in LTL tons, which was partially offset by an increase in our LTL revenue per hundredweight. The decrease in LTL tons was primarily attributable to a decline in shipments that was partially offset by an increase in our LTL weight per shipment.

LTL revenue per hundredweight increased 2.6% in the first quarter of 2020 as compared to the first quarter of 2019, despite the downward pressure on this metric created by the increase in our LTL weight per shipment. Our LTL revenue and yield were also negatively impacted by a decrease in fuel surcharges in the first quarter of 2020 that resulted from a decrease in the average price of diesel fuel. Excluding fuel surcharges, our LTL revenue per hundredweight increased 3.3% as compared to the first quarter of 2019.  The consistency of our long-term yield performance has been critical for offsetting the effects of cost inflation while also supporting our capital expenditure program each year.  As a result, we intend to maintain our long-term and consistent approach to pricing.

April 2020 and COVID-19 Update

Revenue per day decreased 19.3% in April 2020 compared to the same month last year. LTL tons per day decreased 15.3%, due primarily to a 22.0% decrease in LTL shipments per day that was partially offset by an 8.5% increase in LTL weight per shipment. LTL revenue per hundredweight decreased approximately 4.8% as compared to the same month last year. LTL revenue per hundredweight, excluding fuel surcharges, decreased approximately 2.0% as compared to the same month last year.

We experienced a significant decrease in revenue during April due to the effects on the economy from the stay-at-home and similar orders issued throughout the country in response to the COVID-19 pandemic. After we implemented various measures to help ensure the safety and well-being of our OD Family of employees, following guidelines issued by the U.S. Centers for Disease Control and Prevention and the World Health Organization, we reaffirmed our commitment to our long-term strategic plan that has been effective in both good and bad economies.  The two most important elements of the plan – our employee culture and our ability to deliver superior service at a fair price – have differentiated us from our competition.

We provided a special bonus to all eligible non-executive employees in March that totaled $10.1 million as a way of thanking them for continuing to meet the transportation needs of our customers and our country.  Our employees helped us improve on our superior service standards in the first quarter, as on-time deliveries exceeded 99% and our cargo claims improved to a new Company record of 0.16%.  We will continue to deliver our consistent value proposition during this pandemic to support our customers that remain open for business. We are also communicating with our customers, including those that may currently be closed, to ensure that we will have the people, equipment and service center capacity in place to support them when the economy and business levels return to normal.

In response to this unprecedented decrease in business levels, we are making our best efforts to match our labor and other variable and semi-variable costs to the current revenue trend. In addition, we are controlling discretionary spending to help mitigate the deleveraging effect on our fixed costs associated with the reduction in revenue.  The ultimate impact of COVID-19 pandemic on our business and financial results will depend on the duration and severity of the resulting economic decline and when demand for our service is fully restored.  Despite the current challenges that we are facing, we believe the strength of our balance sheet and the resiliency of our employees will allow us to effectively manage through this economic downturn while also positioning the Company for long-term success.

Operating Costs and Other Expenses

Salaries, wages and benefits increased $2.1 million, or 0.4%, in the first quarter of 2020 as compared to the first quarter of 2019, due primarily to a $9.7 million increase in salaries and wages, partially offset by a $7.6 million decrease in employee benefit costs. The $9.7 million, or 2.5% increase in the costs attributable to salaries and wages, was primarily due to the $10.1 million special bonus paid to non-executive employees in March 2020 and an annual wage increase provided to our employees at the beginning of September 2019. These increases were partially offset by a reduction in salaries and wages due to a 5.2% decrease in our average number of full-time employees to align our headcount with current shipment volume trends. Our productive labor costs, which include wages for drivers, dock workers, and technicians, increased as a percent of revenue to 29.1% in the first quarter of 2020 as compared to 28.3% in the first quarter of 2019, due primarily to the special bonus. These costs would have otherwise been flat as a percent of revenue, as we continued to operate efficiently despite the decrease in volumes. Our other salaries and wages as a percent of revenue also increased to 11.1% in the first quarter of 2020 as compared to 10.7% in the first quarter of 2019 due primarily to the effect of the special bonus.

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Employee benefit costs decreased $7.6 million, or 5.6%, in the first quarter of 2020 as compared to the first quarter of 2019.  This decrease was primarily due to a reduction in expense related to our phantom stock plans as well as a reduction in our average number of employees. The phantom stock plans were amended in the fourth quarter of 2019 to allow the awards to be settled in stock and limit our ongoing benefits expense in future periods.  

Operating supplies and expenses decreased $13.7 million, or 11.3%, in the first quarter of 2020 as compared to the first quarter of 2019, due primarily to a decrease in our costs for fuel used in our vehicles. Our diesel fuel costs, excluding fuel taxes, represents the largest component of operating supplies and expenses, and can vary based on both average price per gallon and consumption. The decrease in our diesel fuel costs, excluding fuel taxes, was due primarily to a 14.6% decrease in our average cost per gallon of diesel as compared to the first quarter of 2019. In addition, our gallons consumed decreased 3.8% in the first quarter of 2020 as compared to the first quarter of 2019 due primarily to a 2.9% decrease in linehaul and P&D miles driven. We do not use diesel fuel hedging instruments; therefore, our costs are subject to market price fluctuations. Other operating supplies and expenses improved slightly as a percent of revenue between the periods compared.

Depreciation and amortization increased $2.4 million, or 3.7%, in the first quarter of 2020 as compared to the first quarter of 2019, due primarily to the assets acquired as part of our 2019 capital expenditure program. While our 2020 capital expenditure plan is lower than 2019, particularly with respect to tractors and trailers and real estate, we believe depreciation expense will continue to increase. While our investments in real estate, equipment, and technology can increase our costs in the short-term, we believe these investments are necessary to support our continued long-term growth and strategic initiatives.

Our effective tax rate for the first quarter of 2020 was 26.3%, as compared to 26.1% in the first quarter of 2019. Our effective tax rate generally exceeds the federal statutory rate due to the impact of state taxes and, to a lesser extent, certain other non-deductible items.

Liquidity and Capital Resources

A summary of our cash flows is presented below:

Cash flows provided by operating activities during the first quarter of 2020 were consistent with cash flows provided by operating activities during the first quarter of 2019.

The change in our cash flows used in investing activities during the first quarter of 2020 as compared to the first quarter of 2019 was primarily due to a reduction in planned capital expenditures for equipment as compared to 2019.  Changes in our capital expenditures are more fully described below in “Capital Expenditures.”

The change in our cash flows used in financing activities during the first quarter of 2020 as compared to the first quarter of 2019 was due primarily to increased share repurchases as well as an increase in dividends paid. Our return of capital to shareholders is more fully described below under “Stock Repurchase Program” and “Dividends to Shareholders”. Our financing arrangements are more fully described below under “Financing Arrangements.”

We have four primary sources of available liquidity: cash and cash equivalents, cash flows from operations, available borrowings under our second amended and restated credit agreement with Wells Fargo Bank, National Association serving as administrative agent for the lenders (the “Credit Agreement”), and our Note Purchase and Private Shelf Agreement entered into on May 4, 2020 with PGIM, Inc. (“Prudential”) and certain affiliates and managed accounts of Prudential (the “Note Agreement”). Our Credit Agreement and the Note Agreement are described below under “Financing Arrangements.” We believe we also have sufficient access to debt and equity markets to provide other sources of liquidity, if needed.

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Capital Expenditures

The table below sets forth our net capital expenditures for property and equipment for the three-month period ended March 31, 2020 and the years ended December 31, 2019, 2018 and 2017:

Our capital expenditures vary based upon the projected increase in the number and size of our service center facilities necessary to support our plan for long-term growth, our planned tractor and trailer replacement cycle, and forecasted tonnage and shipment growth. Expenditures for land and structures can be dependent upon the availability of land in the geographic areas where we are looking to expand. We expect to continue to maintain a high level of capital expenditures in order to support our long-term plan for market share growth.

We reduced our planned expenditures for real estate during the first quarter by approximately $50 million, as certain projects will be deferred to a future period due to the current trend for shipments. We currently estimate capital expenditures will be approximately $265 million for the year ending December 31, 2020. Approximately $195 million is allocated for the purchase of service center facilities, construction of new service center facilities or expansion of existing service center facilities, subject to the availability of suitable real estate and the timing of construction projects; approximately $50 million is allocated for investments in technology and other assets; and approximately $20 million is allocated for the purchase of tractors and trailers. We expect to fund these capital expenditures primarily through cash flows from operations, our existing cash and cash equivalents and the use of our Credit Agreement and Note Agreement. We believe our current sources of liquidity will be sufficient to satisfy our expected capital expenditures.

Stock Repurchase Program

On May 16, 2019, we announced that our Board of Directors had approved a two-year stock repurchase program authorizing us to repurchase up to an aggregate of $350.0 million of our outstanding common stock (the “2019 Repurchase Program”). Under the 2019 Repurchase Program, which became effective upon the completion of our prior stock repurchase program in May 2019, we may repurchase shares from time to time in open market purchases or through privately negotiated transactions. Shares of our common stock repurchased under the 2019 Repurchase Program are canceled at the time of repurchase and are classified as authorized but unissued shares of our common stock. As of March 31, 2020, we had $62.5 million remaining authorized under the 2019 Repurchase Program.

On May 1, 2020, we announced that our Board of Directors approved a new two-year stock repurchase program authorizing the repurchase of up to $700.0 million of our outstanding common stock (the “2020 Repurchase Program”). The 2020 Repurchase Program will commence upon the completion, expiration or termination of the 2019 Repurchase Program, which was announced on May 16, 2019.

Dividends to Shareholders

On February 21, 2020, we announced that our Board of Directors approved a three-for-two split of our common stock for shareholders of record as of the close of business on the record date of March 10, 2020. On March 24, 2020, 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 our common stock on the record date.

All references in this report to dividend amounts have been restated retroactively to reflect this stock split.

Our Board of Directors also declared a cash dividend of $0.15 per share for the first quarter of 2020, and declared a cash dividend of $0.11 per share for each quarter of 2019.

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Although we intend to pay a quarterly cash dividend on our common stock for the foreseeable future, the declaration and amount of any future dividend is subject to approval by our Board of Directors, and is restricted by applicable state law limitations on distributions to shareholders as well as certain covenants under our Credit Agreement and Note Agreement. We anticipate that any future quarterly cash dividends will be funded through cash flows from operations and, if needed, borrowings under our Credit Agreement and Note Agreement.

Financing Arrangements

Note Agreements

We have an unsecured senior note agreement with a principal amount outstanding of $45.0 million at March 31, 2020 and December 31, 2019 (the “Senior Notes”). The agreement for the Senior Notes calls for a scheduled principal payment of $45.0 million, with an interest rate of 4.79%, on January 3, 2021.

In addition to the Senior Notes, on May 4, 2020, we entered into a Note Purchase and Private Shelf Agreement with PGIM, Inc. (“Prudential”) and certain affiliates and managed accounts of Prudential (the “Note Agreement”). The Note Agreement provides for the issuance of senior promissory notes with an aggregate principal amount of up to $350.0 million through May 4, 2023. Pursuant to the Note Agreement, the Company issued $100.0 million aggregate principal amount of senior promissory notes (the “Series B Notes”), the proceeds of which will be available for capital expenditures, share repurchases, dividends, acquisitions, or general corporate purposes. Borrowing availability under the Note Agreement is reduced by our existing Senior Notes, the Series B Notes, and all other senior promissory notes issued pursuant to the Note Agreement.

The Series B Notes bear interest at 3.10% per annum and mature on May 4, 2027, unless earlier paid by the Company. Principal payments are required annually beginning on May 4, 2023 in equal installments of $20.0 million through May 4, 2027. The Series B Notes are senior unsecured obligations of the Company and rank pari passu with the Company’s other senior unsecured indebtedness.

Credit Agreement

On November 21, 2019, we entered into our Credit Agreement. The Credit Agreement provides for a five-year, $250.0 million senior unsecured revolving line of credit and a $150.0 million accordion feature, which if fully exercised and approved, would expand the total borrowing capacity up to an aggregate of $400.0 million. Of the $250.0 million line of credit commitments under the Credit Agreement, up to $100.0 million may be used for letters of credit.

At our option, borrowings under the Credit Agreement bear interest at either: (i) LIBOR (including applicable successor provisions) plus an applicable margin (based on our ratio of net debt-to-total capitalization) that ranges from 1.000% to 1.375%; or (ii) a Base Rate plus an applicable margin (based on our ratio of net debt-to-total capitalization) that ranges from 0.000% to 0.375%. Letter of credit fees equal to the applicable margin for LIBOR loans are charged quarterly in arrears on the daily average aggregate stated amount of all letters of credit outstanding during the quarter. Commitment fees ranging from 0.100% to 0.175% (based upon the ratio of net debt-to-total capitalization) are charged quarterly in arrears on the aggregate unutilized portion of the Credit Agreement.

For periods covered under the Credit Agreement, the applicable margin on LIBOR loans and letter of credit fees were 1.000% and commitment fees were 0.100%.

The Credit Agreement replaced our previous five-year, $300.0 million senior unsecured revolving credit agreement dated as of December 15, 2015, as amended on September 9, 2016 (the “Prior Credit Agreement”). For periods in 2019 and 2018 covered under the Prior Credit Agreement, the applicable margin on LIBOR loans and letter of credit fees were 1.000% and commitment fees were 0.125%.

The amounts outstanding and available borrowing capacity under the Credit Agreement are presented below:

The interest rate is fixed on our Senior Notes and Note Agreement. Therefore, short-term exposure to fluctuations in interest rates is limited to our line of credit facility. We do not currently use interest rate derivative instruments to manage exposure to interest rate changes.

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General Debt Provisions

Our Senior Notes, Credit Agreement, and Note Agreement contain customary covenants, including financial covenants that require us to observe a maximum ratio of debt to total capital and a minimum fixed charge coverage ratio. The Credit Agreement and Note Agreement also include a provision limiting our ability to make restricted payments, including dividends and payments for share repurchases, unless, among other conditions, no defaults or events of default are ongoing (or would be caused by such restricted payment). We were in compliance with all covenants in our outstanding debt instruments for the period ended March 31, 2020.

We do not anticipate financial performance that would cause us to violate any such covenants in the future, and we believe the combination of our existing Credit Agreement and Note Agreement along with our additional borrowing capacity will be sufficient to meet foreseeable seasonal and long-term capital needs.

Critical Accounting Policies

In preparing our condensed financial statements, we applied the same critical accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2019 that affect judgments and estimates of amounts recorded for certain assets, liabilities, revenue and expenses.

Seasonality

Our tonnage levels and revenue mix are subject to seasonal trends common in our industry, although other factors, such as macroeconomic changes, could cause variation in these trends. Our revenue and operating margins in the first and fourth quarters are typically lower than those during the second and third quarters due to reduced shipments during the winter months; however, the effects of the recent COVID-19 pandemic on the domestic economy could impact our normal seasonal trends. Harsh winter weather, such as hurricanes, tornadoes, and floods can also adversely impact our performance by reducing demand and increasing operating expenses. We believe seasonal trends will continue to impact our business.

Environmental Regulation

We are subject to various federal, state and local environmental laws and regulations that focus on, among other things: the disposal, emission and discharge of hazardous waste, hazardous materials, or other materials into the environment or their presence at our properties or in our vehicles; fuel storage tanks; transportation of certain materials; and the discharge or retention of storm water. Under specific environmental laws, we could also be held responsible for any costs relating to contamination at our past or present facilities and at third-party waste disposal sites, as well as costs associated with clean-up of accidents involving our vehicles. We do not believe that the cost of future compliance with current environmental laws or regulations will have a material adverse effect on our operations, financial condition, competitive position or capital expenditures for the remainder of 2020 or fiscal year 2021. However, future changes to laws or regulations may adversely affect our operations and could result in unforeseen costs to our business.

Forward-Looking Information

Forward-looking statements appear in this report, including, but not limited to, “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 us. These forward-looking statements include, but are not limited to, statements relating to our goals, strategies, expectations, competitive environment, regulation, availability of resources, future events and future financial performance. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements typically can be identified by such words as “anticipate,” “estimate,” “forecast,” “project,” “intend,” “expect,” “believe,” “should,” “could,” “may” or other similar words or expressions. We caution readers that such forward-looking statements involve risks and uncertainties, including, but not limited to, the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2019 and in other reports and statements that we file with the Securities and Exchange Commission (“SEC”). Such forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied herein, including, but not limited to, the following, many of which are currently amplified by and may continue to be amplified by or may, in the future, be amplified by, the current COVID-19 pandemic:

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Our forward-looking statements are based upon our beliefs and assumptions using information available at the time the statements are made. We caution the reader not to place undue reliance on our forward-looking statements as (i) these statements are neither a prediction nor a guarantee of future events or circumstances and (ii) the assumptions, beliefs, expectations and projections about future events may differ materially from actual results. We undertake no obligation to publicly update any forward-looking statement to reflect developments occurring after the statement is made, except as otherwise required by law.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to our market risk exposures since our most recent fiscal year end. For a discussion of our exposure to market risk, refer to Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

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Item 4. Controls and Procedures

As of the end of the period covered by this quarterly report, our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), conducted an evaluation of the effectiveness of our disclosure controls and procedures in accordance with Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this quarterly report, our CEO and CFO concluded that, as of such date, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (a) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure, and (b) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are involved in or addressing various legal proceedings and claims, governmental inquiries, notices and investigations that have arisen in the ordinary course of our business and have not been fully adjudicated, some of which may be covered in whole or in part by insurance.  Certain of these matters include collective and/or class-action allegations. We do not believe that the resolution of any of these matters will have a material adverse effect upon our financial position, results of operations or cash flows.

Item 103 of SEC Regulation S-K requires disclosure of environmental legal proceedings with a governmental authority if management reasonably believes that the proceedings may involve potential monetary sanctions of $100,000 or more. The following matter is disclosed in accordance with that requirement. We do not believe that any possible loss that may be incurred in connection with the matter will be material to our financial position, results of operations or cash flows.

On May 12, 2017, we received a letter from the Orange County California District Attorney’s Office concerning suspected violations of California laws with respect to waste handling practices.  As part of the civil investigation conducted in coordination with other California counties, we have shared information about our waste handling practices at our facilities throughout the state. We are in discussions concerning resolution of this matter.

Item 1A. Risk Factors

In addition to the other information set forth in this report and in our other reports and statements that we file with the SEC, including our quarterly reports on Form 10-Q, careful consideration should be given to the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, which could materially affect our business, financial condition and future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and operating results.

Other than the risk identified below, there have been no material changes to the risk factors identified in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019.

We face various risks related to health epidemics, pandemics and similar outbreaks that may have material adverse effects on our business, results of operations and financial condition.

The recent novel coronavirus (COVID-19) pandemic and the related changes in the economic and political conditions in markets in which we operate have had, and could continue to have, adverse impacts on our business, results of operations and financial condition, and on those of our customers and suppliers.  These impacts include, among other things, significant reductions or volatility in demand for our services, inability of our customers to pay for our services, and failure of our suppliers or third-party service providers to meet their obligations to us.  Furthermore, COVID-19 has impacted and may further impact the global economy, including negatively impacting the proper functioning of financial and capital markets and interest rates, which may increase the cost of capital and limit access to capital.  As the COVID-19 pandemic continues to adversely affect our business, results of operations and financial condition, it may also have the effect of heightening other risks to which we are subject, including those related to economic downturns, customer/supplier/vendor operations, changes in political and regulatory conditions, liquidity, and industry pricing environment stability, as described in more detail in Item 1A., “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019. Despite our efforts to manage our exposure to these risks, the ultimate impact of COVID-19 and similar outbreaks depends on factors beyond our knowledge or control, including the duration and severity of any outbreak and governmental/social actions taken to contain its spread and mitigate its public health impact.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information regarding our repurchases of our common stock during the first quarter of 2020:

On May 16, 2019, we announced that our Board of Directors had approved a two-year stock repurchase program authorizing us to repurchase up to an aggregate of $350.0 million of our outstanding common stock (the “2019 Repurchase Program”). Under the 2019 Repurchase Program, which became effective upon the completion of our prior stock repurchase program in May 2019, we may repurchase shares from time to time in open market purchases or through privately negotiated transactions. Shares of our common stock repurchased under the 2019 Repurchase Program are canceled at the time of repurchase and are classified as authorized but unissued shares of our common stock. As of March 31, 2020, we had $62.5 million remaining authorized under the 2019 Repurchase Program.

On May 1, 2020, we announced that our Board of Directors approved a new two-year stock repurchase program authorizing the repurchase of up to $700.0 million of our outstanding common stock (the “2020 Repurchase Program”). The 2020 Repurchase Program will commence upon the completion, expiration or termination of the 2019 Repurchase Program, which was announced on May 16, 2019.

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Item 5. Other Information

On May 4, 2020, the Company entered into a Note Purchase and Private Shelf Agreement (the “Note Agreement”) with PGIM, Inc. (“Prudential”) and certain affiliates and managed accounts of Prudential, as purchasers (collectively, the “Series B Purchasers”), pursuant to which the Company issued $100.0 million aggregate principal amount of senior promissory notes (the “Series B Notes”) to the Series B Purchasers.

The Series B Notes bear interest at 3.10% per annum and mature on May 4, 2027, unless earlier paid by the Company. Principal payments are required annually beginning on May 4, 2023 in equal installments of $20.0 million through May 4, 2027; provided that, upon any partial optional prepayment of the Series B Notes pursuant to the Note Agreement, the principal amount of each future required payment will be reduced by the same proportion as the aggregate unpaid principal amount of the Series B Notes is reduced as a result of such optional prepayment.  Interest is payable semi-annually on May 4 and November 4 of each year, beginning on November 4, 2020.  The Series B Notes will be the Company’s senior unsecured obligations and will rank pari passu with the Company’s other senior unsecured indebtedness.  The Company expects the proceeds to be available for capital expenditures, share repurchases, dividends, acquisitions or general corporate purposes.  

Pursuant to the Note Agreement, the Company may also from time to time issue and sell, and Prudential and certain affiliates and managed accounts of Prudential may in their sole discretion purchase, within the next three years, additional senior promissory notes (the “Shelf Notes,” and together with the Series B Notes, the “Notes”) in an aggregate principal amount of up to $350.0 million (less the aggregate principal amount of all of the Company’s 4.79% Senior Notes, Tranche B, due January 3, 2021 then outstanding and less the aggregate principal amount of the Series B Notes and all other Notes then outstanding).  The Shelf Notes will have a maturity date of no more than 15 years from the date of issuance, and an average life of no more than 15 years from the date of issuance.  The Shelf Notes will have such other terms, including interest rates, as the parties may agree upon at the time of issuance.

The Note Agreement contains customary covenants, including, without limitation, requirements for the Company to maintain certain fixed charge coverage and leverage ratios and restrictions on the Company’s ability to, among other things, incur additional indebtedness, create liens, consolidate or merge with any other entity, or transfer or sell substantially all of its assets, in each case subject to certain exceptions and limitations.

The Note Agreement also contains customary events of default, including, without limitation, payment defaults, defaults in the performance of affirmative and negative covenants, the inaccuracy of representations or warranties, bankruptcy and insolvency related defaults, defaults relating to judgments, the failure to pay specified indebtedness and certain change in control events, in each case subject to certain exceptions and limitations.  The occurrence of any event of default under the Note Agreement may result in an increased interest rate on the Notes then outstanding or all of the Notes then outstanding becoming immediately due and payable, together with interest accrued thereon and a specified make whole amount.

In addition, if at any time the Company’s second amended and restated credit agreement dated as of November 21, 2019, the Company’s note purchase agreement dated as of January 3, 2011, or any other agreement of the Company creating or evidencing indebtedness equal to or greater than $75.0 million includes any covenant or event of default that is not provided for in the Note Agreement, the Note Agreement will be deemed to be automatically amended to include such covenant or event of default.

The foregoing description is a summary of the material terms and conditions of the Note Agreement. This summary is not complete and is qualified in its entirety by reference to the Note Agreement filed as Exhibit 4.16 to this Quarterly Report on Form 10-Q and incorporated herein by reference.

Item 6. Exhibits

The exhibits listed in the accompanying Exhibit Index are filed as a part of this report.

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EXHIBIT INDEX

TO QUARTERLY REPORT ON FORM 10-Q

Our SEC file number reference for documents filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended, is 0-19582.

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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.

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