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 March 31, 1998
[ ] 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)
<TABLE>
<CAPTION>
<S> <C>
VIRGINIA 56-0751714
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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 May 12, 1998, there were 8,310,596 shares of the registrant's Common
Stock ($.10 par value) outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<S> <C>
QUARTER ENDED
---------------------------------------
MARCH 31, March 31,
1998 1997
(In thousands, except share data) (UNAUDITED) (Unaudited)
- ---------------------------------------------------------------------------------------------------------
Revenue from operations $ 88,694 $ 73,591
Operating expenses:
Salaries, wages and benefits 53,274 43,421
Purchased transportation 4,155 3,397
Operating supplies and expenses 7,734 7,532
Depreciation and amortization 4,665 3,991
Building and office equipment rents 1,798 1,675
Operating taxes and licenses 3,747 3,313
Insurance and claims 2,888 2,316
Communications and utilities 1,685 1,425
General supplies and expenses 3,729 2,706
Miscellaneous expenses 930 601
----------------- -----------------
Total operating expenses 84,605 70,377
----------------- -----------------
Operating income 4,089 3,214
Other deductions:
Interest expense, net 913 868
Other expense, net 91 72
----------------- -----------------
Total other deductions 1,004 940
----------------- -----------------
Income before income taxes 3,085 2,274
Provision for income taxes 1,172 875
----------------- -----------------
Net income $ 1,913 $ 1,399
================= =================
Basic and diluted earnings per share: $ 0.23 $ 0.17
Weighted average shares outstanding:
Basic 8,310,596 8,319,420
Diluted 8,325,879 8,322,304
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C>
MARCH 31, December 31,
1998 1997
(In thousands, except share data) (UNAUDITED) (Audited)
- ------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 8,885 $ 674
Customer receivables, less allowances of $4,882
and $4,963, respectively 46,937 43,399
Other receivables 748 1,492
Tires on equipment 5,206 5,052
Prepaid expenses 5,196 7,273
Deferred income taxes 1,970 1,970
------------------ -------------------
Total current assets 68,942 59,860
Property and equipment:
Revenue equipment 148,994 144,926
Land and structures 43,347 42,572
Other equipment 29,733 19,675
Leasehold improvements 766 721
------------------ -------------------
Total property and equipment 222,840 207,894
Less accumulated depreciation and amortization (87,563) (83,064)
------------------ -------------------
Net property and equipment 135,277 124,830
Other assets, less insurance policy loans of $1,851,
respectively 6,940 6,371
------------------ -------------------
Total assets $ 211,159 $ 191,061
================== ===================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
MARCH 31, December 31,
1998 1997
(In thousands, except share data) (UNAUDITED) (Audited)
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,770 $ 14,161
Compensation and benefits 10,965 8,915
Claims and insurance accruals 9,135 9,275
Other accrued liabilities 2,453 1,587
Income taxes payable 809 -
Current maturities of long-term debt 5,445 5,146
------------------ -------------------
Total current liabilities 43,577 39,084
Long-term debt 55,014 42,155
Other non-current liabilities 7,951 7,704
Deferred income taxes 17,203 16,617
------------------ -------------------
Total long-term liabilities 80,168 66,476
Stockholders' equity:
Common stock - $.10 par value, 25,000,000 shares
authorized, 8,310,596 outstanding, respectively 831 831
Capital in excess of par value 23,891 23,891
Retained earnings 62,692 60,779
------------------ -------------------
Total stockholders' equity 87,414 85,501
Commitments and contingencies - -
------------------ -------------------
Total liabilities and stockholders' equity $ 211,159 $ 191,061
================== ===================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C>
QUARTER ENDED MARCH 31,
-----------------------------------
1998 1997
(In thousands) (UNAUDITED) (Unaudited)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 1,913 $ 1,399
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,665 3,991
Deferred income taxes 586 949
Net effect of restricted stock distrubution - 511
Loss (Gain) on sale of property and equipment 51 (43)
Changes in assets and liabilities:
Customer and other receivables, net (2,794) (2,235)
Tires on equipment (154) 271
Prepaid expenses and other assets 1,508 486
Accounts payable 609 (4,987)
Compensation, benefits and other accrued liabilities 2,916 1,495
Claims and insurance accruals (140) (198)
Income taxes payable 809 503
Other liabilities 247 571
---------------- ---------------
Net cash provided by operating activities 10,216 2,713
---------------- ---------------
Cash flows from investing activities:
Purchase of property and equipment (15,197) (5,531)
Proceeds from sale of property and equipment 34 505
---------------- ---------------
Net cash used by investing activities (15,163) (5,026)
---------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 20,990 5,000
Principal payments under debt and capital lease agreements (1,102) (944)
Net payments on revolving line of credit (6,730) (2,245)
---------------- ---------------
Net cash provided by financing activities 13,158 1,811
---------------- ---------------
Increase (Decrease) in cash and cash equivalents 8,211 (502)
Cash and cash equivalents at beginning of period 674 1,353
---------------- ---------------
Cash and cash equivalents at end of period $ 8,885 $ 851
================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
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, 1997. The results of operations for the quarter
ended March 31, 1998, are not necessarily indicative of the results for the
entire fiscal year ending December 31, 1998.
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 1997 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. The Company's restated EPS under
Statement of Financial Accounting Standards ("SFAS") No. 128, EARNINGS PER
SHARE, for both basic and diluted EPS was $.23 and $.17 for the quarters ended
March 31, 1998 and 1997, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, REPORTING COMPREHENSIVE INCOME, which establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The Company adopted SFAS No. 130 in the
first quarter of 1998.
In June 1997, the FASB issued SFAS 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
adopted Statement No. 131 in the first quarter of 1998.
The impact of the adoption of these statements was not material.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998, VS. MARCH 31,
1997
<TABLE>
<CAPTION>
<S> <C>
EXPENSES AS A PERCENTAGE OF REVENUE FROM OPERATIONS
THREE MONTHS ENDED
MARCH 31,
------------------------------------------------
1998 1997
------------------------------------------------
Revenue from operations 100.0% 100.0%
----------------- -----------------
Operating expenses:
Salaries, wages and benefits 60.1 59.0
Purchased transportation 4.7 4.6
Operating supplies and expenses 8.7 10.2
Depreciation and amortization 5.3 5.4
Building and office equipment rents 2.0 2.3
Operating taxes and licenses 4.2 4.5
Insurance and claims 3.3 3.2
Communications and utilities 1.9 1.9
General supplies and expenses 4.2 3.7
Miscellaneous expenses 1.0 0.8
------------------- --------------------
Total operating expenses 95.4 95.6
------------------- --------------------
Operating income 4.6 4.4
Interest expense, net 1.0 1.2
Other expense, net 0.1 0.1
------------------- --------------------
Income before income taxes 3.5 3.1
Provision for income taxes 1.3 1.2
------------------- --------------------
Net income 2.2% 1.9%
================= =================
</TABLE>
7
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998, VERSUS THREE MONTHS ENDED MARCH 31, 1997
Net revenue for the first quarter of 1998 was $88,694,000, an increase of 20.5%,
compared to $73,591,000 for the first quarter of 1997. Less than truckload
("LTL") tonnage increased 18.4% during the quarter primarily due to efforts to
increase market share and freight density in the Company's existing service
center network. This increase also reflects the purchase of selected assets of
Fredrickson Motor Express, a southeastern regional LTL motor carrier based in
Charlotte, NC, and the opening of four new service centers in Buffalo,
Rochester, Syracuse and Albany, New York during the first quarter of 1998. The
asset purchase and upstate New York expansion contributed approximately 4% of
the total 20.5% revenue growth.
Average revenue per LTL shipment decreased .9% to $120.10 in the current quarter
from $121.21 for the same quarter in 1997. This decrease was due primarily to a
1.4% decrease in LTL weight per shipment to 1,069 lbs. from 1,084 lbs. Average
length of haul also decreased .6% to 847 miles for the current quarter from 852
miles for the same quarter of 1997. These decreases are attributed to the
regional characteristics of the additional freight contributed by the
Fredrickson asset purchase and the growth of the Company's regional business in
the northern and midwest regions. The average LTL revenue per hundredweight
increased to $11.24 compared to $11.18, an increase of .5%. This increase
reflects a rate increase effective January 1, 1998, on the Company's general
tariffs.
Operating expenses as a percentage of net revenue, the operating ratio,
decreased to 95.4% for the first quarter of 1998 from 95.6% for the same period
of 1997. The improvement in the operating ratio was due to decreases in
operating supplies and expenses, depreciation and amortization, building and
office equipment rents and operating taxes and licenses as a percent of revenue.
Combined, these costs decreased to 20.2% of revenue compared to 22.4% for the
same quarter of 1997.
Operating supplies and expenses accounted for a significant portion of the
reduction, decreasing to 8.7% of revenue from 10.2% for the same quarter last
year. The decrease in operating supplies and expenses is attributed to a 15.8%
reduction in the average price per gallon of fuel combined with a 1% improvement
in fuel efficiency for the first quarter of 1998. In addition, vehicle repair
and maintenance expense decreased to 1.8% of revenue in the current quarter from
2.2% for the same quarter of 1997. The reduction in maintenance expense is
attributed to the Company's aggressive preventive maintenance program and the
decrease in the use of external maintenance vendors. Building and office
equipment rents decreased to 2.0% of revenue from 2.3% primarily as a result of
the Company's purchase of service centers that were previously leased.
These reduced expenses as a percent of revenue were partially offset by
increases in salaries, wages and benefits, purchased transportation, insurance
and claims, general supplies and expenses and miscellaneous expenses to 73.3% of
revenue compared to 71.3% for the same period last year. The increases in
salaries, wages and benefits and general supplies and expenses are due to the
planned strategic increase of 39 salespersons since the end of the first quarter
of 1997, as well as the start up costs related to the upstate New York expansion
and the Fredrickson asset purchase.
Net interest expense decreased to 1.0% of revenue in the first quarter of the
current year from 1.2% for the same quarter of 1997. On February 27, 1998, the
Company secured $20,000,000 of additional Senior Note financing and used
$11,805,000 of the proceeds to reduce the Company's line of credit, which
carried a higher interest rate than the notes, and placed the remaining proceeds
into short-term interest producing investments in anticipation of future capital
expenditures. For the quarter, interest expense increased $155,000 due to the
increase in long-term debt and a higher average outstanding debt level, however,
interest income increased $110,000 due to the income earned on the invested
proceeds.
Net income was $1,913,000 for the quarter ended March 31, 1998, an increase of
36.7%, compared to $1,399,000 for the same quarter of the previous year. The
effective tax rate was 38.0% for the first quarter of 1998 compared to 38.5% for
the same period of 1997.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Expansion in both the size and number of service center facilities, as well as
the scheduled tractor and trailer replacement cycle, require continued
investment in property and equipment. The Company currently anticipates capital
expenditures of between $60,000,000 and $65,000,000 for 1998. This investment
will be financed by a combination of internally generated cash flow supplemented
with borrowings. Capital expenditures during the quarter ended March 31, 1998,
were approximately $15,197,000. Long-term debt including current maturities
increased to $60,459,000 at March 31, 1998, from $47,301,000 at December 31,
1997. While debt increased $13,158,000 from year-end 1997, approximately
$8,200,000 of the proceeds were held in short-term investments at the end of the
quarter in anticipation of scheduled capital expenditures.
The Company generally meets its working capital needs with cash generated from
operations, supplemented by credit lines. 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. The Company currently maintains a $32,500,000 uncollateralized
committed credit agreement that provides 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. 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 the outstanding letters of credit. At March 31, 1998, there was no
balance outstanding on the line of credit and $7,891,000 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 it has sufficient credit lines and capacity to meet
seasonal and long-term financing needs.
On February 27, 1998, the Company entered into a $20,000,000 private placement
of debt through a Note Purchase Agreement with two insurance companies. The Note
Purchase Agreement consists of $10,000,000 of Senior Notes maturing in seven
years bearing an interest rate of 6.35% and $10,000,000 of Senior Notes maturing
in ten years bearing an interest rate of 6.59%. The proceeds from this private
debt agreement were used to replace the outstanding borrowings on the line of
credit facility with long term, fixed rate obligations with the excess proceeds
to be used to finance 1998 planned capital expenditures for service center
facilities and revenue equipment.
IMPACT OF THE YEAR 2000
Some of the Company's older software applications were written using two digits
rather than four to define the applicable year. As a result, that software may
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 and will have to modify or replace
portions of its software to ensure that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The total cost
of this year 2000 project is expected to be approximately $500,000. The project
is currently underway, with several of the affected systems having already been
modified or replaced. The project to modify internally generated software is
expected to be completed in its entirety by the end of the third quarter of 1998
and may require additional expenditures of approximately $250,000 to complete.
The Company believes that with the necessary modifications to existing software
and any necessary conversions to new software, the year 2000 issue does not pose
significant operational problems for its computer systems.
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
9
<PAGE>
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 and similar uncertainties.
The Company has not completed an evaluation of its major customers and suppliers
to determine if they have taken adequate measures to ensure that necessary
modifications are made to their software prior to the year 2000. While the
Company is not dependent on any one customer or supplier, failure to make
necessary year 2000 modifications by any large groups of customers or suppliers
could result in a material adverse impact on the Company.
INFLATION
Most of the Company's expenses are affected by inflation, which will generally
result in increased costs. During the first quarter of 1997 and 1998, the effect
of inflation on the Company's results of operations was minimal.
SEASONALITY
The Company's operations are subject to seasonal trends common in the motor
carrier industry. Operating results in the first and fourth quarters are
normally lower due to reduced shipments during the winter months. Harsh winter
weather can also adversely impact the Company's performance by reducing demand
and increasing operating expenses. The second and third quarters are stronger
due to increased demand for services during the spring and summer months.
ENVIRONMENTAL
The Company is subject to federal, state and local environmental laws and
regulations, particularly relative to underground storage tanks ("UST's"). The
Company believes it is in compliance with 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.
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) 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; and (8) other risks and uncertainties
indicated from time to time in the Company's filings with the Securities and
Exchange Commission.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 1998 Annual Meeting of Stockholders on May 4, 1998. The
only item on the agenda was the election of directors for which votes were cast
or withheld as follows:
Nominee For Withheld
------- --- --------
Earl E. Congdon 7,055,535 750
John R. Congdon 7,055,585 700
John A. Ebeling 7,055,585 700
Harold G. Hoak 7,055,585 700
Franz F. Holscher 7,055,585 700
David S. Congdon 7,055,585 700
John R. Congdon, Jr. 7,055,585 700
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 March 31, 1998.
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.
<TABLE>
<CAPTION>
<S> <C>
OLD DOMINION FREIGHT LINE, INC.
DATE: May 12, 1998 /s/ J. WES FRYE
-------------------------------------- ------------------------------
J. Wes Frye
Senior Vice President - Finance
(Principal Financial Officer)
DATE: May 12, 1998 /s/ JOHN P. BOOKER III
-------------------------------------- ------------------
John P. Booker III
Vice President - Controller
(Principal Accounting Officer)
</TABLE>
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000878927
<NAME> OLD DOMINION FREIGHT LINE
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 8,885
<SECURITIES> 0
<RECEIVABLES> 51,819
<ALLOWANCES> (4,882)
<INVENTORY> 0
<CURRENT-ASSETS> 68,942
<PP&E> 222,840
<DEPRECIATION> (87,563)
<TOTAL-ASSETS> 211,159
<CURRENT-LIABILITIES> 43,577
<BONDS> 0
0
0
<COMMON> 831
<OTHER-SE> 86,583
<TOTAL-LIABILITY-AND-EQUITY> 211,159
<SALES> 88,694
<TOTAL-REVENUES> 88,694
<CGS> 0
<TOTAL-COSTS> 84,605
<OTHER-EXPENSES> 91
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 913
<INCOME-PRETAX> 3,085
<INCOME-TAX> 1,172
<INCOME-CONTINUING> 1,913
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,913
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
