Document

Type of Equipment

Number of
Units

Average Age
(In years)

Linehaul trailers

P&D trailers

Note 1. Significant Accounting Policies

Business

We are a leading, less-than-truckload (“LTL”), union-free motor carrier providing regional, inter-regional and national LTL services, which include ground and air expedited transportation and consumer household pickup and delivery, through a single integrated organization. In addition to our core LTL services, we offer a range of value-added services including container drayage, truckload brokerage, supply chain consulting and warehousing.

We have one operating segment and no single customer exceeds 5% of our revenue. The composition of our revenue is summarized below:



	Year Ended December 31,
(In thousands)	2017		2016		2015
LTL services	$	3,303,611	$	2,939,572	$	2,893,683
Other services	54,501		51,945		78,759
Total revenue	$	3,358,112	$	2,991,517	$	2,972,442

Basis of Presentation

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Certain amounts in prior years have been reclassified to conform prior years’ financial statements to the current presentation.

Unless the context requires otherwise, references in these Notes to “Old Dominion,” the “Company,” “we,” “us” and “our” refer to Old Dominion Freight Line, Inc.

Revenue and Expense Recognition

We recognize revenue based upon when our transportation services have been completed in accordance with the bill of lading contract, our general tariff provisions or contractual agreements with our customers. Generally, this occurs when we complete the delivery of a shipment. For transportation services not completed at the end of a reporting period, we use a percentage of completion method to allocate the appropriate revenue to each separate reporting period. Under this method, we develop a factor for each uncompleted shipment by dividing the actual number of days in transit at the end of a reporting period by that shipment’s standard delivery time schedule. This factor is applied to the total revenue for that shipment and revenue is allocated between reporting periods accordingly.

Expenses are recognized when incurred.

Allowances for Uncollectible Accounts and Revenue Adjustments

We maintain an allowance for uncollectible accounts for estimated losses resulting from the inability of our customers to make required payments. We estimate this allowance by analyzing the aging of our customer receivables, our historical loss experience and other trends and factors affecting the credit risk of our customers. Write-offs occur when we determine an account to be uncollectible and could differ from our allowance estimate as a result of factors such as changes in the overall economic environment or risks surrounding our customers. Additional allowances may be required if the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments. We periodically review the underlying assumptions in our estimate of the allowance for uncollectible accounts to ensure that the allowance reflects the most recent trends and factors.

We also maintain an allowance for estimated revenue adjustments resulting from future billing corrections, customer allowances, money-back service guarantees and other miscellaneous revenue adjustments. These revenue adjustments are recorded in our revenue from operations. We use historical experience, trends and current information to update and evaluate these estimates.

Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist principally of customer receivables. We perform initial and ongoing credit evaluations of our customers to minimize credit risk. We generally do not require collateral but may require prepayment of our services under certain circumstances. Credit risk is generally diversified due to the large number of entities comprising our customer base and their dispersion across many different industries and geographic regions.

Cash and Cash Equivalents

We consider cash on hand and deposits in banks along with certificates of deposit and short-term marketable securities with original maturities of three months or less as cash and cash equivalents.

Property and Equipment

Property and equipment are stated at cost. Major additions and improvements are capitalized, while maintenance and repairs that do not improve or extend the lives of the respective assets are charged to expense as incurred. We capitalize the cost of tires mounted on purchased revenue equipment as a part of the total equipment cost. Subsequent replacement tires are expensed at the time those tires are placed in service. We assess the realizable value of our long-lived assets and evaluate such assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the related assets. The following table provides the estimated useful lives by asset type:



Structures		7 to 30 years
Revenue equipment		4 to 15 years
Other equipment		2 to 20 years
Leasehold improvements		Lesser of economic life or life of lease

Depreciation expense, which includes the amortization of capital leases, was $205.6 million, $189.6 million and $164.8 million for 2017, 2016 and 2015, respectively.

Goodwill

Intangible assets have been acquired in connection with business combinations and are comprised of goodwill. Goodwill is calculated as the excess cost over the fair value of assets acquired and is not subject to amortization. We review goodwill annually for impairment as a single reporting unit, unless circumstances dictate more frequent assessments, in accordance with Accounting Standards Update (“ASU”) 2011-08, Testing Goodwill for Impairment. ASU 2011-08 permits an initial assessment, commonly referred to as "step zero", of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount and also provides a basis for determining whether it is necessary to perform the goodwill impairment test required by Accounting Standards Codification ("ASC") Topic 350.

We performed the qualitative assessment of goodwill on our annual measurement date of October 1, 2017 and determined that it was more likely than not that the fair value of our reporting unit would be greater than its carrying amount. Therefore, we determined it was not necessary to perform the quantitative goodwill impairment test. Furthermore, there has been no historical impairment of our goodwill.

Claims and Insurance Accruals

As of December 31, 2017, we maintained a self-insured retention ("SIR") of $2.75 million per occurrence for bodily injury and property damage (“BIPD”) claims, plus a one-time, $2.5 million aggregate corridor deductible applicable per annual policy period to any claim that exceeds $5.0 million and occurs after March 30, 2016; a deductible of $100,000 per occurrence for cargo loss and damage; and a deductible of $1.0 million per occurrence for workers' compensation claims. We also had a SIR of $1.0 million per covered person paid during 2017 for group health claims.

Claims and insurance accruals reflect the estimated cost of claims for cargo loss and damage, BIPD, workers' compensation, group health and group dental not covered by insurance. These accruals include amounts for future claims development and claims incurred but not reported, which are primarily based on historical claims development experience. The related costs for cargo loss and damage and BIPD are charged to "Insurance and claims" on our Statements of Operations, while the related costs for workers' compensation, group health and group dental are charged to "Salaries, wages and benefits" on our Statements of Operations.

Our liability for claims and insurance totaled $127.6 million and $125.8 million at December 31, 2017 and 2016, respectively. The long-term portions of those reserves were $77.7 million and $78.4 million for 2017 and 2016, respectively, which were included in “Other non-current liabilities” on our Balance Sheets.

Share-Based Compensation

We have various share-based compensation plans for our employees and non-employee directors. Our share-based compensation includes awards of phantom stock and restricted stock which are accounted for under ASC Topic 718, Compensation - Stock Compensation. All share based compensation expense is presented in "Salaries, wages and benefits" for employees and “Miscellaneous expenses, net” for non-employee directors in the accompanying Statements of Operations. Total compensation expense (benefit) recognized for all share-based compensation awards was $22.7 million, $16.2 million and ($2.5) million during 2017, 2016,and 2015, respectively. The total tax (benefit) expense recognized related to these awards was ($9.0) million, ($6.3) million and $1.0 million during 2017, 2016, and 2015.

Awards of phantom stock are accounted for as a liability under ASC Topic 718 and changes in the fair value of our liability are recognized as compensation cost over the requisite service period for the percentage of requisite service rendered each period. Changes in the fair value of the liability that occur after the requisite service period are recognized as compensation cost during the period in which the changes occur. We remeasure the liability for the outstanding awards at the end of each reporting period and the compensation cost is based on the change in fair market value for each reporting period.

Awards of restricted stock are accounted for as equity under ASC Topic 718. Compensation cost for restricted stock awards is measured at the fair market value of our common stock on the grant date. We recognize compensation cost, net of estimated forfeitures, on a straight-line basis over the requisite service period of each award.

Advertising

The costs of advertising our services are expensed as incurred and are included in “General supplies and expenses” on our Statements of Operations. Advertising costs charged to expense totaled $27.3 million, $20.5 million and $22.9 million for 2017, 2016 and 2015, respectively.

Fair Values of Financial Instruments

The carrying values of financial instruments in current assets and current liabilities approximate their fair value due to the short maturities of these instruments. The carrying value of our revolving credit facility approximates fair value due to the variable interest rates of the facility that correlate with current market rates. The carrying value of our total long-term debt, including current maturities, was $95.0 million and $105.0 million at December 31, 2017 and 2016, respectively. The estimated fair value of our total long-term debt, including current maturities, was $97.1 million and $108.3 million at December 31, 2017 and 2016, respectively. The fair value measurement of our senior notes was determined using a discounted cash flow analysis that factors in current market yields for comparable borrowing arrangements under our credit profile. Since this methodology is based upon market yields for comparable arrangements, the measurement is categorized as Level 2 under the three-level fair value hierarchy as established by the Financial Accounting Standards Board (the “FASB”).

Stock Repurchase Program

During the second quarter of 2016, we completed our stock repurchase program to repurchase up to an aggregate of $200.0 million of our outstanding common stock, previously announced on November 10, 2014. On May 23, 2016, we announced that our Board of Directors had approved a new two-year stock repurchase program authorizing us to repurchase up to an aggregate of $250.0 million of our outstanding common stock (the “2016 Repurchase Program”). Under the 2016 Repurchase Program, we may repurchase shares from time to time in open market purchases or through privately negotiated transactions. Shares of our common stock repurchased under our repurchase programs are canceled at the time of repurchase and are classified as authorized but unissued shares of our common stock. As of December 31, 2017, we had $192.0 million remaining authorized under the 2016 Repurchase Program.

Comprehensive Income

The Company has no components of other comprehensive income. Accordingly, net income equals comprehensive income for all periods presented in this report.

Supplemental Disclosure of Noncash Investing and Financing Activities

Investing and financing activities that are not reported in the Statements of Cash Flows due to their non-cash nature are summarized below:



	Year Ended December 31,
(In thousands)	2017		2016		2015
Acquisition of property and equipment by capital lease	$	—	$	—	$	3,552

Recent Accounting Pronouncements

In August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments" (Topic 230) to address how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This ASU is intended to reduce diversity in practice in the classification of certain transactions on the statement of cash flows. The ASU is effective for public companies for fiscal years beginning after December 15, 2017, and early adoption is permitted. We early adopted the provisions of ASU 2016-15 as of January 1, 2017. The adoption resulted in proceeds from Company-owned life insurance policies being classified as cash flows from investing activities, rather than cash flows from operating activities on our Statements of Cash Flows. The adoption did not have a material impact on our financial position, results of operations or cash flows.

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other" (Topic 350). This ASU is intended to simplify the subsequent measurement of goodwill and reduces the complexity of evaluating goodwill for impairment. Under this ASU, an entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. This ASU is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We early adopted the provisions of ASU 2017-04 in 2017. The adoption did not have an impact on our financial position, results of operations or cash flows.

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers" (Topic 606). This ASU supersedes the previous revenue recognition requirements in ASC Topic 605-Revenue Recognition. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers", which deferred the effective date for ASU 2014-09 by one year to fiscal years beginning after December 15, 2017 and also provided for the option to early adopt for fiscal years beginning after December 15, 2016. Transition methods under ASU 2014-09 must be through (i) retrospective application to each prior reporting period presented, or (ii) modified retrospective application with a cumulative effect adjustment at the date of initial application.

We completed our evaluation of the impact of ASU 2014-09 on our financial reporting and disclosures, including but not limited to our accounting policies, internal controls and processes. We will adopt ASU 2014-09 using the modified retrospective application effective January 1, 2018. Based on our assessment, upon adoption, ASU 2014-09 will not have a material impact on our financial position, results of operations or cash flows.

In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842). This ASU requires a lessee to recognize a right-of-use asset and a lease liability under most operating leases in its balance sheet. The ASU is effective for annual and interim periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We are continuing to evaluate the impact of this new standard on our financial reporting and disclosures.



VIRGINIA		56-0751714
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



Title of each class		Name of each exchange on which registered
Common Stock ($0.10 par value)		The Nasdaq Stock Market LLC (Nasdaq Global Select Market)



Large accelerated filer	ý	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨
(Do not check if a smaller reporting company)		Emerging growth company	¨



Part I		1

Item 1	Business	1
Item 1A	Risk Factors	7
Item 1B	Unresolved Staff Comments	15
Item 2	Properties	16
Item 3	Legal Proceedings	16
Item 4	Mine Safety Disclosures	16



Part II		17

Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17
Item 6	Selected Financial Data	19
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 7A	Quantitative and Qualitative Disclosures about Market Risk	29
Item 8	Financial Statements and Supplementary Data	31
Item 9	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	49
Item 9A	Controls and Procedures	49
Item 9B	Other Information	51



ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Part III		51

Item 10	Directors, Executive Officers and Corporate Governance	51
Item 11	Executive Compensation	51
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	51
Item 13	Certain Relationships and Related Transactions, and Director Independence	51
Item 14	Principal Accounting Fees and Services	51



Part IV		52

Item 15	Exhibits, Financial Statement Schedules	52
Item 16	Form 10-K Summary	53


•	$2.75 million per occurrence for bodily injury and property damage (“BIPD”) claims, plus a one-time, $2.5



Full-Time Employees		Number of Employees
Drivers		10,187
Platform		3,443
Fleet technicians		557
Sales, administrative and other		4,996
Total		19,183


•	we compete with other transportation service providers of varying sizes, some of which may have more equipment, a broader global network, a wider range of services, greater capital resources or other competitive advantages;


•	some of our competitors may reduce their prices to gain business, especially during times of reduced growth rates in the economy, which may limit our ability to maintain or increase prices or maintain revenue;


•	we may be unable to continue to collect fuel surcharges or our fuel surcharge program may become ineffective in mitigating the impact of the fluctuating costs of fuel and other petroleum-based products;


•	some shippers may choose to acquire their own trucking fleet or may choose to increase the volume of freight they transport if they have an existing trucking fleet;


•	advances in technology require increased investments to remain competitive, and our customers may not be willing to accept higher prices to cover the cost of these investments;


•	restrictive work rules could hamper our efforts to improve and sustain operating efficiency;


•	restrictive work rules could impair our service reputation and limit our ability to provide next-day services;


•	many customers reduce the number of carriers they use by selecting “core carriers” as approved transportation service providers and we may not be selected;


•	many customers periodically accept bids from multiple carriers for their shipping needs, and this process may depress prices or result in the loss of some business to competitors;


•	some customers may choose to consolidate certain LTL shipments through a different mode of transportation, such as truckload, intermodal or rail;


•	our customers may manage their inventory levels more closely to a “just-in-time” basis, which may increase our costs and adversely affect our ability to meet our customers’ needs;


•	consolidation in the ground transportation industry may create other large carriers with greater financial resources and other competitive advantages relating to their size;


•	competition from non-asset-based logistics and freight brokerage companies may adversely affect our customer relationships and ability to maintain sufficient pricing; and


•	our competitors may adopt emerging or additional technologies that improve their operating effectiveness, which could negatively affect our ability to remain competitive.


•	a strike or work stoppage could negatively impact our profitability and could damage customer and employee relationships;


•	shippers may limit their use of unionized trucking companies because of the threat of strikes and other work stoppages; and


•	an election and bargaining process could divert management’s time and attention from our overall objectives and impose significant expenses.


•	shortages of suitable real estate may limit our growth and could cause congestion in our service center network, which could result in increased operating expenses;


•	growth may strain our management, capital resources, information systems and customer service;


•	hiring new employees may increase training costs and may result in temporary inefficiencies until those employees become proficient in their jobs; and


•	expanding our service offerings may require us to enter into new markets and encounter new competitive challenges.


•	we may not achieve anticipated levels of revenue, efficiency, cash flows and profitability;


•	we may experience difficulties managing businesses that are outside our historical core competency and markets;


•	we may underestimate the resources required to support acquisitions, which could disrupt our ongoing business and distract our management;


•	we may incur unanticipated costs to our infrastructure to support new business lines or separate legal entities;


•	we may be required to temporarily match existing customer pricing in the acquiree’s markets, which may be lower than the rates that we would typically charge for our services;


•	liabilities we assume could be greater than our original estimates or may not be disclosed to us at the time of acquisition;