0001564590-20-037340.txt : 20200806 0001564590-20-037340.hdr.sgml : 20200806 20200806095247 ACCESSION NUMBER: 0001564590-20-037340 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 37 CONFORMED PERIOD OF REPORT: 20200630 FILED AS OF DATE: 20200806 DATE AS OF CHANGE: 20200806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OLD DOMINION FREIGHT LINE, INC. CENTRAL INDEX KEY: 0000878927 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 560751714 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19582 FILM NUMBER: 201080244 BUSINESS ADDRESS: STREET 1: 500 OLD DOMINION WAY CITY: THOMASVILLE STATE: NC ZIP: 27360 BUSINESS PHONE: 3368895000 MAIL ADDRESS: STREET 1: 500 OLD DOMINION WAY CITY: THOMASVILLE STATE: NC ZIP: 27360 FORMER COMPANY: FORMER CONFORMED NAME: OLD DOMINION FREIGHT LINE INC/VA DATE OF NAME CHANGE: 19930328 10-Q 1 odfl-10q_20200630.htm FORM 10-Q odfl-10q_20200630.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

 

 

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

For the quarterly period ended June 30, 2020

or

 

 

 

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

For the transition period from ________ to ________ .

 

Commission File Number: 0-19582

 

OLD DOMINION FREIGHT LINE, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

VIRGINIA

 

56-0751714

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

 

 

500 Old Dominion Way

Thomasville, North Carolina

 

27360

(Address of principal executive offices)

 

(Zip Code)

(336) 889-5000

(Registrant’s telephone number, including area code)

 

 

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock ($0.10 par value)

ODFL

The Nasdaq Stock Market LLC

(Nasdaq Global Select Market)

 

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.

 

 

 

 

 

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

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 August 4, 2020 there were 117,331,447 shares of the registrant’s Common Stock ($0.10 par value) outstanding.

 


INDEX

 

Part I – FINANCIAL INFORMATION

 

 

 

 

Item 1

Financial Statements

1

 

Condensed Balance Sheets – June 30, 2020 and December 31, 2019

1

 

Condensed Statements of Operations – For the three and six months ended June 30, 2020 and 2019

3

 

Condensed Statements of Changes in Shareholders’ Equity - For the three and six months ended June 30, 2020 and 2019

4

 

Condensed Statements of Cash Flows – For the six months ended June 30, 2020 and 2019

5

 

Notes to the Condensed Financial Statements

6

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

10

Item 3

Quantitative and Qualitative Disclosures about Market Risk

18

Item 4

Controls and Procedures

19

 

 

Part II – OTHER INFORMATION

 

 

 

 

Item 1

Legal Proceedings

20

Item 1A

Risk Factors

20

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

21

Item 6

Exhibits

21

 

 

Exhibit Index

22

Signatures

23

 

 


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

OLD DOMINION FREIGHT LINE, INC.

CONDENSED BALANCE SHEETS

 

 

 

June 30,

 

 

 

 

 

 

2020

 

December 31,

(In thousands, except share and per share data)

 

(Unaudited)

 

2019

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

518,624

 

 

$

403,571

 

Customer receivables, less allowances of $9,033 and $8,866, respectively

 

 

387,260

 

 

 

397,579

 

Other receivables

 

 

8,525

 

 

 

10,586

 

Prepaid expenses and other current assets

 

 

54,161

 

 

 

55,098

 

Total current assets

 

 

968,570

 

 

 

866,834

 

 

 

 

 

 

 

 

 

 

Property and equipment:

 

 

 

 

 

 

 

 

Revenue equipment

 

 

1,902,486

 

 

 

1,898,999

 

Land and structures

 

 

2,126,400

 

 

 

2,039,937

 

Other fixed assets

 

 

491,902

 

 

 

482,425

 

Leasehold improvements

 

 

12,103

 

 

 

11,709

 

Total property and equipment

 

 

4,532,891

 

 

 

4,433,070

 

Accumulated depreciation

 

 

(1,577,808

)

 

 

(1,464,235

)

Net property and equipment

 

 

2,955,083

 

 

 

2,968,835

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

19,463

 

 

 

19,463

 

Other assets

 

 

136,912

 

 

 

140,436

 

Total assets

 

$

4,080,028

 

 

$

3,995,568

 

 

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.

1


OLD DOMINION FREIGHT LINE, INC.

CONDENSED BALANCE SHEETS

(CONTINUED)

 

 

 

June 30,

 

 

 

 

 

 

2020

 

December 31,

(In thousands, except share and per share data)

 

(Unaudited)

 

2019

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

51,257

 

 

$

70,254

 

Compensation and benefits

 

 

190,678

 

 

 

192,524

 

Claims and insurance accruals

 

 

52,469

 

 

 

54,330

 

Other accrued liabilities

 

 

51,464

 

 

 

46,130

 

Income taxes payable

 

 

103,306

 

 

 

2,847

 

Current maturities of long-term debt

 

 

45,000

 

 

 

 

Total current liabilities

 

 

494,174

 

 

 

366,085

 

 

 

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Long-term debt

 

 

99,923

 

 

 

45,000

 

Other non-current liabilities

 

 

254,899

 

 

 

241,802

 

Deferred income taxes

 

 

248,564

 

 

 

261,964

 

Total long-term liabilities

 

 

603,386

 

 

 

548,766

 

Total liabilities

 

 

1,097,560

 

 

 

914,851

 

 

 

 

 

 

 

 

 

 

Commitments and contingent liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Common stock - $0.10 par value, 280,000,000 shares authorized, 117,335,353 shares outstanding at June 30, 2020 and 140,000,000 shares authorized, 119,532,534 shares outstanding at December 31, 2019

 

 

11,734

 

 

 

11,953

 

Capital in excess of par value

 

 

181,895

 

 

 

218,462

 

Retained earnings

 

 

2,788,839

 

 

 

2,850,302

 

Total shareholders’ equity

 

 

2,982,468

 

 

 

3,080,717

 

Total liabilities and shareholders’ equity

 

$

4,080,028

 

 

$

3,995,568

 

 

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.

2


OLD DOMINION FREIGHT LINE, INC.

CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

(In thousands, except share and per share data)

 

2020

 

2019

 

2020

 

2019

Revenue from operations

 

$

896,210

 

 

$

1,060,666

 

 

$

1,883,574

 

 

$

2,051,448

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries, wages and benefits

 

 

460,906

 

 

 

532,583

 

 

 

985,389

 

 

 

1,054,927

 

Operating supplies and expenses

 

 

75,412

 

 

 

122,410

 

 

 

183,105

 

 

 

243,767

 

General supplies and expenses

 

 

25,881

 

 

 

32,391

 

 

 

59,489

 

 

 

63,951

 

Operating taxes and licenses

 

 

27,043

 

 

 

29,384

 

 

 

56,357

 

 

 

58,455

 

Insurance and claims

 

 

10,910

 

 

 

11,587

 

 

 

20,760

 

 

 

22,759

 

Communications and utilities

 

 

7,262

 

 

 

6,134

 

 

 

15,453

 

 

 

13,973

 

Depreciation and amortization

 

 

65,735

 

 

 

62,571

 

 

 

131,170

 

 

 

125,644

 

Purchased transportation

 

 

18,983

 

 

 

24,468

 

 

 

39,783

 

 

 

45,155

 

Miscellaneous expenses, net

 

 

4,912

 

 

 

4,649

 

 

 

9,732

 

 

 

9,902

 

Total operating expenses

 

 

697,044

 

 

 

826,177

 

 

 

1,501,238

 

 

 

1,638,533

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

199,166

 

 

 

234,489

 

 

 

382,336

 

 

 

412,915

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-operating expense (income):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

765

 

 

 

160

 

 

 

865

 

 

 

282

 

Interest income

 

 

(231

)

 

 

(1,769

)

 

 

(1,479

)

 

 

(3,252

)

Other (income) expense, net

 

 

(373

)

 

 

524

 

 

 

3,244

 

 

 

(76

)

Total non-operating expense (income)

 

 

161

 

 

 

(1,085

)

 

 

2,630

 

 

 

(3,046

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

199,005

 

 

 

235,574

 

 

 

379,706

 

 

 

415,961

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

51,200

 

 

 

61,502

 

 

 

98,724

 

 

 

108,566

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

147,805

 

 

$

174,072

 

 

$

280,982

 

 

$

307,395

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.26

 

 

$

1.44

 

 

$

2.37

 

 

$

2.54

 

Diluted

 

$

1.25

 

 

$

1.44

 

 

$

2.36

 

 

$

2.53

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

117,610,178

 

 

 

120,783,414

 

 

 

118,330,176

 

 

 

121,164,444

 

Diluted

 

 

118,359,884

 

 

 

120,968,046

 

 

 

119,082,728

 

 

 

121,339,625

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per share

 

$

0.15

 

 

$

0.11

 

 

$

0.30

 

 

$

0.23

 

 

 

 

 

 

 

 

 

 

 

 

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

3


OLD DOMINION FREIGHT LINE, INC.

CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

 

 

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

(In thousands)

2020

 

2019

 

2020

 

2019

Common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

11,813

 

 

$

12,161

 

 

$

11,953

 

 

$

12,185

 

Share repurchases

 

(80

)

 

 

(140

)

 

 

(223

)

 

 

(173

)

Share-based compensation and restricted share issuances

 

1

 

 

 

 

 

 

7

 

 

 

10

 

Taxes paid in exchange for shares withheld

 

 

 

 

(1

)

 

 

(2

)

 

 

(2

)

Cash paid for fractional shares

 

 

 

 

 

 

 

(1

)

 

 

 

Ending balance

 

11,734

 

 

 

12,020

 

 

 

11,734

 

 

 

12,020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital in excess of par value:

 

 

 

 

 

 

 

 

 

Beginning balance

 

217,187

 

 

 

139,154

 

 

 

218,462

 

 

 

138,210

 

Share-based compensation and restricted share issuances

 

2,208

 

 

 

2,283

 

 

 

4,275

 

 

 

4,206

 

Taxes paid in exchange for shares withheld

 

 

 

 

(467

)

 

 

(2,731

)

 

 

(1,446

)

Forward contract for accelerated share repurchases

 

(37,500

)

 

 

 

 

 

(37,500

)

 

 

 

Cash paid for fractional shares

 

 

 

 

 

 

 

(611

)

 

 

 

Ending balance

 

181,895

 

 

 

140,970

 

 

 

181,895

 

 

 

140,970

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

2,787,049

 

 

 

2,619,056

 

 

 

2,850,302

 

 

 

2,530,088

 

Share repurchases

 

(128,417

)

 

 

(133,996

)

 

 

(306,568

)

 

 

(164,559

)

Cash dividends declared

 

(17,598

)

 

 

(13,637

)

 

 

(35,877

)

 

 

(27,429

)

Net income

 

147,805

 

 

 

174,072

 

 

 

280,982

 

 

 

307,395

 

Ending balance

 

2,788,839

 

 

 

2,645,495

 

 

 

2,788,839

 

 

 

2,645,495

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total shareholders' equity

$

2,982,468

 

 

$

2,798,485

 

 

$

2,982,468

 

 

$

2,798,485

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

4


OLD DOMINION FREIGHT LINE, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

Six Months Ended

 

 

June 30,

(In thousands)

 

2020

 

2019

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

280,982

 

 

$

307,395

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

131,170

 

 

 

125,644

 

Loss on disposal of property and equipment

 

 

140

 

 

 

718

 

Share-based compensation

 

 

4,282

 

 

 

4,216

 

Provision for deferred income taxes

 

 

(13,400

)

 

 

 

Other operating activities, net

 

 

113,042

 

 

 

23,910

 

Net cash provided by operating activities

 

 

516,216

 

 

 

461,883

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(120,128

)

 

 

(229,956

)

Proceeds from sale of property and equipment

 

 

2,570

 

 

 

366

 

Net cash used in investing activities

 

 

(117,558

)

 

 

(229,590

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of long-term debt

 

 

99,923

 

 

 

 

Payments for share repurchases

 

 

(306,791

)

 

 

(164,732

)

Forward contract for accelerated share repurchases

 

 

(37,500

)

 

 

 

Dividends paid

 

 

(35,892

)

 

 

(27,435

)

Other financing activities, net

 

 

(3,345

)

 

 

(1,448

)

Net cash used in financing activities

 

 

(283,605

)

 

 

(193,615

)

 

 

 

 

 

 

 

 

 

Increase in cash and cash equivalents

 

 

115,053

 

 

 

38,678

 

Cash and cash equivalents at beginning of period

 

 

403,571

 

 

 

190,282

 

Cash and cash equivalents at end of period

 

$

518,624

 

 

$

228,960

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

5


NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

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 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. We have one operating segment and the composition of our revenue is summarized below:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

(In thousands)

 

2020

 

2019

 

2020

 

2019

LTL services

 

$

884,069

 

 

$

1,047,208

 

 

$

1,858,500

 

 

$

2,023,771

 

Other services

 

 

12,141

 

 

 

13,458

 

 

 

25,074

 

 

 

27,677

 

Total revenue from operations

 

$

896,210

 

 

$

1,060,666

 

 

$

1,883,574

 

 

$

2,051,448

 

 

Basis of Presentation

The accompanying unaudited, interim condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and, in management’s opinion, contain all adjustments (consisting of normal recurring items) necessary for a fair presentation, in all material respects, of the financial position and results of operations for the periods presented. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements.

The preparation of condensed financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Our operating results are subject to seasonal trends; therefore, the results of operations for the interim period ended June 30, 2020 are not necessarily indicative of the results that may be expected for the subsequent quarterly periods or the year ending December 31, 2020.

The condensed financial statements should be read in conjunction with the financial statements and related notes, which appear in our Annual Report on Form 10-K for the year ended December 31, 2019. There have been no significant changes in the accounting principles and policies, long-term contracts or estimates inherent in the preparation of the condensed financial statements of Old Dominion Freight Line, Inc. as previously described in our Annual Report on Form 10-K for the year ended December 31, 2019, other than those disclosed in this Form 10-Q.

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.

 

Common Stock Split

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 shares outstanding, weighted average shares outstanding, earnings per share, and dividends per share amounts have been restated retroactively to reflect this stock split. Split-adjusted quarterly per-share metrics may not recalculate precisely due to rounding.

6


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 total long-term debt, including current maturities, was $144.9 million and $45.0 million at June 30, 2020 and December 31, 2019, respectively. The estimated fair value of our total long-term debt, including current maturities, was $150.4 million and $46.1 million at June 30, 2020 and December 31, 2019, 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

 On May 1, 2020, 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 $700.0 million of our outstanding common stock (the “2020 Repurchase Program”). The 2020 Repurchase Program became effective upon the termination of our $350.0 million repurchase program on May 29, 2020, as of which date $21.5 million remained authorized under the prior program. Under the 2020 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.

On May 29, 2020, we entered into an accelerated share repurchase agreement (the “ASR Agreement”) with a third-party financial institution as part of our repurchase program. Under the ASR Agreement, we paid the third-party financial institution $125.0 million and received an initial delivery of 511,427 shares of our common stock for $87.5 million, representing approximately 70% of the total value of shares to be received under the ASR Agreement. The remaining expected shares are scheduled to settle during the fourth quarter of 2020, but may settle earlier in certain circumstances. At final settlement, we may receive additional shares of our common stock, or, under certain circumstances, we may be required to provide the third-party financial institution additional shares or may elect to make a cash payment to the third-party financial institution. The total shares repurchased will be based on the daily volume-weighted average share price of our common stock during the term of the ASR Agreement, less a negotiated discount.

The ASR Agreement was accounted for as a settled treasury stock purchase and a forward stock purchase contract. The par value of the initial share delivery was recorded as a reduction to common stock, with the excess purchase price recorded as a reduction to retained earnings. The forward stock purchase contract is accounted for as a contract indexed to our own stock and is classified within capital in excess of par value on our Condensed Statements of Changes in Shareholders’ Equity.

During the three and six months ended June 30, 2020, we repurchased 802,604 shares of our common stock for $128.5 million and 2,237,320 shares of our common stock for $306.8 million under our repurchase programs, including shares repurchased under the ASR Agreement. As of June 30, 2020, we had $612.5 million remaining authorized under the 2020 Repurchase Program.

Recent Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Statements” (Topic 326). This ASU modified the loss methodology for establishing a provision against financial assets, including customer receivables, to include an expected future performance component. We adopted ASU 2016-13 on January 1, 2020. The adoption did not have a material impact to our financial position, results of operations, or cash flow.

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, including anticipated changes to future performance. 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.

Our allowance for uncollectible accounts was $4.0 million at June 30, 2020. There were no material write-offs to our allowance for uncollectible accounts during the second quarter of 2020.

7


Note 2. Earnings Per Share

Basic earnings per share is computed by dividing net income by the daily weighted average number of shares of our common stock outstanding for the period, excluding unvested restricted stock. Unvested restricted stock is included in common shares outstanding on our Condensed Balance Sheets.

Diluted earnings per share is computed using the treasury stock method. The denominator used in calculating diluted earnings per share includes the impact of unvested restricted stock and other dilutive, non-participating securities under our equity award agreements. The denominator excludes contingently-issuable shares under performance-based award agreements when the performance target has not yet been deemed achieved.

The following table provides a reconciliation of the number of shares of common stock used in computing basic and diluted earnings per share:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2020

 

2019

 

2020

 

2019

Weighted average shares outstanding - basic

 

 

117,610,178

 

 

 

120,783,414

 

 

 

118,330,176

 

 

 

121,164,444

 

Dilutive effect of share-based awards

 

 

749,706

 

 

 

184,632

 

 

 

752,552

 

 

 

175,181

 

Weighted average shares outstanding - diluted

 

 

118,359,884

 

 

 

120,968,046

 

 

 

119,082,728

 

 

 

121,339,625

 

 

 

Note 3. Long-Term Debt

Long-term debt, net of unamortized debt issuance costs, consisted of the following:

 

(In thousands)

 

June 30,

2020

 

December 31,

2019

Senior notes

 

$

144,923

 

 

$

45,000

 

Revolving credit facility

 

 

 

 

 

 

Total long-term debt

 

 

144,923

 

 

 

45,000

 

Less: Current maturities

 

 

(45,000

)

 

 

 

Total maturities due after one year

 

$

99,923

 

 

$

45,000

 

 

Senior Note Agreements

 

We had an unsecured senior note agreement with a principal amount outstanding of $45.0 million at each of June 30, 2020 and December 31, 2019 (the “Senior Note”). The agreement for the Senior Note calls for a scheduled principal payment of $45.0 million, with an interest rate of 4.79%, on January 3, 2021.

 

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, which is uncommitted and subject to Prudential’s sole discretion, 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, we issued $100.0 million aggregate principal amount of senior promissory notes (the “Series B Notes”), the proceeds of which are available for capital expenditures, share repurchases, dividends, acquisitions, or general corporate purposes. Borrowing availability under the Note Agreement is reduced by the outstanding amount of the existing Senior Note, 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 prepaid. 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 and rank pari passu with our other senior unsecured indebtedness.

 

Credit Agreement

 

On November 21, 2019, we entered into a second amended and restated credit agreement with Wells Fargo Bank, National Association serving as administrative agent for the lenders (the “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.

8


 

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%.

 

There were $45.7 million and $48.9 million of outstanding letters of credit at June 30, 2020 and December 31, 2019, respectively.

 

General Debt Provisions

 

The Senior Note, 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).

Note 4. Commitments and Contingencies

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.

 

9


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:

 

LTL Revenue Per Hundredweight - Our LTL transportation services are generally priced based on weight, commodity, and distance.  This measurement reflects the application of our pricing policies to the services we provide, which are influenced by competitive market conditions and our growth objectives. Generally, freight is rated by a class system, which is established by the National Motor Freight Traffic Association, Inc. Light, bulky freight typically has a higher class and is priced at higher revenue per hundredweight than dense, heavy freight. Fuel surcharges, accessorial charges, revenue adjustments and revenue for undelivered freight are included in this measurement. Revenue for undelivered freight is deferred for financial statement purposes in accordance with our revenue recognition policy; however, we believe including it in our revenue per hundredweight metrics results in a more accurate representation of the underlying changes in our yields by matching total billed revenue with the corresponding weight of those shipments.

 

LTL Weight Per Shipment - Fluctuations in weight per shipment can indicate changes in the mix of freight we receive from our customers, as well as changes in the number of units included in a shipment. Generally, increases in weight per shipment indicate higher demand for our customers’ products and overall increased economic activity. Changes in weight per shipment can also be influenced by shifts between LTL and other modes of transportation, such as truckload and intermodal, in response to capacity, service and pricing issues. Fluctuations in weight per shipment generally have an inverse effect on our revenue per hundredweight, as a decrease in weight per shipment will typically cause an increase in revenue per hundredweight.

 

Average Length of Haul - We consider lengths of haul less than 500 miles to be regional traffic, lengths of haul between 500 miles and 1,000 miles to be inter-regional traffic, and lengths of haul in excess of 1,000 miles to be national traffic. This metric is used to analyze our tonnage and pricing trends for shipments with similar characteristics, and also allows for comparison with other transportation providers serving specific markets. By analyzing this metric, we can determine the success and growth potential of our service products in these markets. Changes in length of haul generally have a direct effect on our revenue per hundredweight, as an increase in length of haul will typically cause an increase in revenue per hundredweight.

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.

10


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:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2020

 

2019

 

2020

 

2019

Revenue from operations

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries, wages and benefits

 

 

51.4

 

 

 

50.2

 

 

 

52.3

 

 

 

51.4

 

Operating supplies and expenses

 

 

8.4

 

 

 

11.5