0001564590-22-017820.txt : 20220504 0001564590-22-017820.hdr.sgml : 20220504 20220504153737 ACCESSION NUMBER: 0001564590-22-017820 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 40 CONFORMED PERIOD OF REPORT: 20220331 FILED AS OF DATE: 20220504 DATE AS OF CHANGE: 20220504 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: 22891298 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_20220331.htm FORM 10-Q odfl-10q_20220331.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 March 31, 2022

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 May 3, 2022 there were 113,353,760 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 – March 31, 2022 and December 31, 2021

1

 

Condensed Statements of Operations – For the three months ended March 31, 2022 and 2021

3

 

Condensed Statements of Changes in Shareholders’ Equity - For the three months ended March 31, 2022 and 2021

4

 

Condensed Statements of Cash Flows – For the three months ended March 31, 2022 and 2021

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

18

 

 

Part II – OTHER INFORMATION

 

 

 

 

Item 1

Legal Proceedings

19

Item 1A

Risk Factors

19

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

20

Item 6

Exhibits

20

 

 

Exhibit Index

21

Signatures

22

 

 

 


 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

OLD DOMINION FREIGHT LINE, INC.

CONDENSED BALANCE SHEETS

 

 

 

March 31,

 

 

 

 

 

 

 

2022

 

 

December 31,

 

(In thousands, except share and per share data)

 

(Unaudited)

 

 

2021

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

262,122

 

 

$

462,564

 

Short-term investments

 

 

279,183

 

 

 

254,433

 

Customer receivables, less allowances of $12,118 and $9,855, respectively

 

 

669,042

 

 

 

567,474

 

Income taxes receivable

 

 

 

 

 

19,218

 

Other receivables

 

 

12,347

 

 

 

12,410

 

Prepaid expenses and other current assets

 

 

58,263

 

 

 

67,688

 

Total current assets

 

 

1,280,957

 

 

 

1,383,787

 

 

 

 

 

 

 

 

 

 

Property and equipment:

 

 

 

 

 

 

 

 

Revenue equipment

 

 

2,156,600

 

 

 

2,146,205

 

Land and structures

 

 

2,508,592

 

 

 

2,463,949

 

Other fixed assets

 

 

530,304

 

 

 

512,340

 

Leasehold improvements

 

 

13,486

 

 

 

13,131

 

Total property and equipment

 

 

5,208,982

 

 

 

5,135,625

 

Accumulated depreciation

 

 

(1,983,674

)

 

 

(1,919,939

)

Net property and equipment

 

 

3,225,308

 

 

 

3,215,686

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

216,385

 

 

 

222,071

 

Total assets

 

$

4,722,650

 

 

$

4,821,544

 

 

Note: The Condensed Balance Sheet at December 31, 2021 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)

 

 

 

March 31,

 

 

 

 

 

 

 

2022

 

 

December 31,

 

(In thousands, except share and per share data)

 

(Unaudited)

 

 

2021

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

117,850

 

 

$

82,519

 

Compensation and benefits

 

 

223,096

 

 

 

257,905

 

Claims and insurance accruals

 

 

63,229

 

 

 

61,822

 

Other accrued liabilities

 

 

91,135

 

 

 

61,988

 

Income taxes payable

 

 

83,286

 

 

 

Total current liabilities

 

 

578,596

 

 

 

464,234

 

 

 

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Long-term debt

 

 

99,951

 

 

 

99,947

 

Other non-current liabilities

 

 

292,078

 

 

 

328,838

 

Deferred income taxes

 

 

248,718

 

 

 

248,718

 

Total long-term liabilities

 

 

640,747

 

 

 

677,503

 

Total liabilities

 

 

1,219,343

 

 

 

1,141,737

 

 

 

 

 

 

 

 

 

 

Commitments and contingent liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Common stock - $0.10 par value, 280,000,000 shares authorized, 113,761,155 and 115,011,172 shares outstanding at March 31, 2022 and December 31, 2021, respectively

 

 

11,376

 

 

 

11,501

 

Capital in excess of par value

 

 

133,172

 

 

 

174,445

 

Retained earnings

 

 

3,358,759

 

 

 

3,493,861

 

Total shareholders’ equity

 

 

3,503,307

 

 

 

3,679,807

 

Total liabilities and shareholders’ equity

 

$

4,722,650

 

 

$

4,821,544

 

 

Note: The Condensed Balance Sheet at December 31, 2021 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

 

 

March 31,

(In thousands, except share and per share data)

 

2022

 

 

2021

 

Revenue from operations

 

$

1,497,280

 

 

$

1,126,515

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Salaries, wages and benefits

 

 

680,189

 

 

 

545,659

 

Operating supplies and expenses

 

 

191,357

 

 

 

124,156

 

General supplies and expenses

 

 

35,513

 

 

 

31,168

 

Operating taxes and licenses

 

 

35,076

 

 

 

31,266

 

Insurance and claims

 

 

16,107

 

 

 

12,922

 

Communications and utilities

 

 

9,876

 

 

 

8,196

 

Depreciation and amortization

 

 

67,340

 

 

 

63,987

 

Purchased transportation

 

 

52,500

 

 

 

34,714

 

Miscellaneous expenses, net

 

 

3,704

 

 

 

4,790

 

Total operating expenses

 

 

1,091,662

 

 

 

856,858

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

405,618

 

 

 

269,657

 

 

 

 

 

 

 

 

 

 

Non-operating expense (income):

 

 

 

 

 

 

 

 

Interest expense

 

 

73

 

 

 

507

 

Interest income

 

 

(129

)

 

 

(286

)

Other expense, net

 

 

605

 

 

 

128

 

Total non-operating expense

 

 

549

 

 

 

349

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

405,069

 

 

 

269,308

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

105,318

 

 

 

69,949

 

 

 

 

 

 

 

 

 

 

Net income

 

$

299,751

 

 

$

199,359

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$

2.62

 

 

$

1.71

 

Diluted

 

$

2.60

 

 

$

1.70

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

114,418,703

 

 

 

116,497,893

 

Diluted

 

 

115,172,776

 

 

 

117,255,740

 

 

 

 

 

 

 

 

 

 

Dividends declared per share

 

$

0.30

 

 

$

0.20

 

 

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)

 

 

(In thousands)

 

Common Stock

 

 

Capital in

Excess of

Par Value

 

 

Retained Earnings

 

 

Total

 

Balance as of December 31, 2021

 

$

11,501

 

 

$

174,445

 

 

$

3,493,861

 

 

$

3,679,807

 

Net income

 

 

 

 

 

 

 

 

299,751

 

 

 

299,751

 

Share repurchases, including settlements under accelerated share

     repurchase programs

 

 

(127

)

 

 

62,500

 

 

 

(400,725

)

 

 

(338,352

)

Forward contract for accelerated share repurchases

 

 

 

 

 

(100,000

)

 

 

 

 

 

(100,000

)

Cash dividends declared

 

 

 

 

 

 

 

 

(34,128

)

 

 

(34,128

)

Share-based compensation and share issuances, net of forfeitures

 

 

5

 

 

 

4,286

 

 

 

 

 

 

4,291

 

Taxes paid in exchange for shares withheld

 

 

(3

)

 

 

(8,059

)

 

 

 

 

 

(8,062

)

Balance as of March 31, 2022

 

$

11,376

 

 

$

133,172

 

 

$

3,358,759

 

 

$

3,503,307

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Common Stock

 

 

Capital in

Excess of

Par Value

 

 

Retained Earnings

 

 

Total

 

Balance as of December 31, 2020

 

$

11,706

 

 

$

226,451

 

 

$

3,088,131

 

 

$

3,326,288

 

Net income

 

 

 

 

 

 

 

 

199,359

 

 

 

199,359

 

Share repurchases

 

 

(113

)

 

 

 

 

 

(240,102

)

 

 

(240,215

)

Forward contract for accelerated share repurchases

 

 

 

 

 

(68,750

)

 

 

 

 

 

(68,750

)

Cash dividends declared

 

 

 

 

 

 

 

 

(23,193

)

 

 

(23,193

)

Share-based compensation and share issuances, net of forfeitures

 

 

5

 

 

 

2,964

 

 

 

 

 

 

2,969

 

Taxes paid in exchange for shares withheld

 

 

(2

)

 

 

(4,539

)

 

 

 

 

 

(4,541

)

Balance as of March 31, 2021

 

$

11,596

 

 

$

156,126

 

 

$

3,024,195

 

 

$

3,191,917

 

 

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

4


 

 

OLD DOMINION FREIGHT LINE, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

Three Months Ended

 

 

 

March 31,

 

(In thousands)

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

299,751

 

 

$

199,359

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

67,344

 

 

 

63,991

 

(Gain) Loss on disposal of property and equipment

 

 

(1,205

)

 

 

603

 

Other, net

 

 

8,115

 

 

 

6,124

 

Changes in operating assets and liabilities, net

 

 

14,720

 

 

 

40,231

 

Net cash provided by operating activities

 

 

388,725

 

 

 

310,308

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(93,713

)

 

 

(50,953

)

Proceeds from sale of property and equipment

 

 

10,455

 

 

 

7,656

 

Purchase of short-term investments

 

 

(75,162

)

 

 

(89,965

)

Proceeds from maturities of short-term investments

 

 

49,966

 

 

 

110,190

 

Net cash used in investing activities

 

 

(108,454

)

 

 

(23,072

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Payments for share repurchases

 

 

(338,352

)

 

 

(240,215

)

Forward contract for accelerated share repurchases

 

 

(100,000

)

 

 

(68,750

)

Dividends paid

 

 

(34,196

)

 

 

(23,232

)

Other financing activities, net

 

 

(8,165

)

 

 

(4,569

)

Net cash used in financing activities

 

 

(480,713

)

 

 

(336,766

)

 

 

 

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

 

(200,442

)

 

 

(49,530

)

Cash and cash equivalents at beginning of period

 

 

462,564

 

 

 

401,430

 

Cash and cash equivalents at end of period

 

$

262,122

 

 

$

351,900

 

 

 

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 one of the largest North American less-than-truckload (“LTL”) motor carriers. We provide regional, inter-regional and national LTL services through a single integrated, union-free 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

 

 

 

March 31,

 

(In thousands)

 

2022

 

 

2021

 

LTL services

 

$

1,475,781

 

 

$

1,109,622

 

Other services

 

 

21,499

 

 

 

16,893

 

Total revenue from operations

 

$

1,497,280

 

 

$

1,126,515

 

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 March 31, 2022 are not necessarily indicative of the results that may be expected for the subsequent quarterly periods or the year ending December 31, 2022.

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, 2021. 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, 2021, other than those disclosed in this Form 10-Q.

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.

Stock Repurchase Program

On May 1, 2020, we announced that our Board of Directors had approved a 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. On July 28, 2021, we announced that our Board of Directors had approved a new stock repurchase program authorizing us to repurchase up to an aggregate of $2.0 billion of our outstanding common stock (the “2021 Repurchase Program”). The 2021 Repurchase Program, which does not have an expiration date, began after the completion of the 2020 Repurchase Program in January 2022.

Under our repurchase programs, 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.

We entered into accelerated share repurchase agreements with a third-party financial institution on each of February 25, 2021 (the “February 2021 ASR Agreement”), August 26, 2021 (the “August 2021 ASR Agreement”) and February 24, 2022 (the “February 2022 ASR Agreement”).    

6


 

Under the February 2021 ASR Agreement, we made a prepayment of $275.0 million to the financial institution and received an initial delivery of 960,330 shares of our common stock valued at $206.3 million. The remaining balance of $68.7 million was settled during the third quarter of 2021, with the final number of shares received based on the daily volume-weighted average share price of our common stock over the term of the agreement, less a negotiated discount. Under the February 2021 ASR Agreement, we repurchased 1,101,046 shares for $275.0 million.

Under the August 2021 ASR Agreement, we made a prepayment of $250.0 million to the financial institution and received an initial delivery of 655,365 shares of our common stock valued at $187.5 million. The remaining balance of $62.5 million was settled during the first quarter of 2022, with the final number of shares received based on the daily volume-weighted average share price of our common stock over the term of the agreement, less a negotiated discount. Under the August 2021 ASR Agreement, we repurchased 778,775 shares for $250.0 million.

Under the February 2022 ASR Agreement, we paid the third-party financial institution $400.0 million and received an initial delivery of 1,018,157 shares of our common stock for $300.0 million, representing approximately 75% of the total value of shares to be received by us under the February 2022 ASR Agreement. The remaining balance of $100.0 million was settled during April 2022, with the final number of shares received based on the daily volume-weighted average share price of our common stock over the term of the agreement, less a negotiated discount. Under the February 2022 ASR Agreement, we repurchased 1,390,966 shares for $400.0 million.

The Company’s accelerated share repurchase agreements are each accounted for as a settled treasury stock purchase and a forward stock purchase contract. The par value of the initial share delivery is 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 Balance Sheets.

During the three months ended March 31, 2022, we utilized cash of $438.4 million for repurchases of shares in the open market and under the February 2022 ASR Agreement. We received total shares of 1,273,060 during the first quarter of 2022, including 123,410 shares for the settlement of the August 2021 ASR Agreement. At March 31, 2022, we had $1.62 billion remaining available under the 2021 Repurchase Program, including $100.0 million that was deferred until final settlement occurred on the February 2022 ASR Agreement, leaving $1.52 billion remaining available and uncommitted.

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

 

 

March 31,

 

 

2022

 

 

2021

 

Weighted average shares outstanding - basic

 

 

114,418,703

 

 

 

116,497,893

 

Dilutive effect of share-based awards

 

 

754,073

 

 

 

757,847

 

Weighted average shares outstanding - diluted

 

 

115,172,776

 

 

 

117,255,740

 

 

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Note 3. Long-Term Debt

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

(In thousands)

 

March 31,

2022

 

 

December 31,

2021

 

Senior notes

 

$

99,951

 

 

$

99,947

 

Revolving credit facility

 

 

 

 

 

 

Total long-term debt

 

 

99,951

 

 

 

99,947

 

Less: Current maturities

 

 

 

 

 

 

Total maturities due after one year

 

$

99,951

 

 

$

99,947

 

Senior Note Agreement

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 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 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”) or Note Agreement.

Credit Agreement

On November 21, 2019, we entered into 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.

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, as defined in the Credit Agreement, 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%.

There were $40.8 million and $39.2 million of outstanding letters of credit at March 31, 2022 and December 31, 2021, respectively.

General Debt Provisions

The 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).

 


8


 

 

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.

Note 5. Fair Value Measurements

Short-term Investments

A summary of the fair value of our short-term investments as of March 31, 2022 and December 31, 2021 is shown in the tables below.

(In thousands)

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

March 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

$

40,034

 

 

$

 

 

$

40,034

 

 

$

 

Commercial paper

 

 

239,149

 

 

 

 

 

 

239,149

 

 

 

 

 

 

$

279,183

 

 

$

 

 

$

279,183

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

$

40,014

 

 

$

 

 

$

40,014

 

 

$

 

Commercial paper

 

 

214,419

 

 

 

 

 

 

214,419

 

 

 

 

 

 

$

254,433

 

 

$

 

 

$

254,433

 

 

$

 

Our certificates of deposit are measured at carrying value including accrued interest, which approximates fair value due to their short-term nature. Our commercial paper is valued using broker quotes that utilize observable market inputs.

Long-term Debt

The carrying value of our total long-term debt was $100.0 million and $99.9 million at March 31, 2022 and December 31, 2021, respectively. The estimated fair value of our total long-term debt was $98.1 million and $104.5 million at March 31, 2022 and December 31, 2021, respectively. The fair value measurement of our senior note 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.

9


 

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

Overview

We are one of the largest North American less-than-truckload (“LTL”) motor carriers. We provide regional, inter-regional and national LTL services through a single integrated, union-free 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 98% 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.

 

LTL Revenue Per Shipment - This measurement is primarily determined by the three metrics listed above and is used in conjunction with the number of LTL shipments we receive to evaluate LTL revenue.

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

10


 

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.

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.

Results of Operations

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

 

 

Three Months Ended

 

 

March 31,

 

 

2022

 

 

2021

 

Revenue from operations

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Salaries, wages and benefits

 

 

45.4

 

 

 

48.4

 

Operating supplies and expenses

 

 

12.8

 

 

 

11.0

 

General supplies and expenses

 

 

2.4

 

 

 

2.8

 

Operating taxes and licenses

 

 

2.3

 

 

 

2.8

 

Insurance and claims

 

 

1.1

 

 

 

1.2

 

Communications and utilities

 

 

0.7

 

 

 

0.7

 

Depreciation and amortization

 

 

4.5

 

 

 

5.7

 

Purchased transportation

 

 

3.5

 

 

 

3.1

 

Miscellaneous expenses, net

 

 

0.2

 

 

 

0.4

 

Total operating expenses

 

 

72.9

 

 

 

76.1

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

27.1

 

 

 

23.9

 

 

 

 

 

 

 

 

 

 

Interest (income) expense, net

 

 

(0.0

)

 

 

0.0

 

Other expense, net

 

 

0.1

 

 

 

0.0

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

27.0

 

 

 

23.9

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

7.0

 

 

 

6.2

 

 

 

 

 

 

 

 

 

 

Net income

 

 

20.0

%

 

 

17.7

%

Key financial and operating metrics for the three-month periods ended March 31, 2022 and 2021 are presented below:

 

 

Three Months Ended

 

 

March 31,

 

 

2022

 

 

2021

 

 

%

Change

Work days

 

 

64

 

 

 

63

 

 

 

1.6

%

Revenue (in thousands)

 

$

1,497,280

 

 

$

1,126,515

 

 

 

32.9

%

Operating ratio

 

 

72.9

%

 

 

76.1

%

 

 

 

 

Net income (in thousands)

 

$

299,751

 

 

$

199,359

 

 

 

50.4

%

Diluted earnings per share

 

$

2.60

 

 

$

1.70

 

 

 

52.9

%

LTL tons (in thousands)

 

 

2,653

 

 

 

2,332

 

 

 

13.8

%

LTL tonnage per day

 

 

41,454

 

 

 

37,010

 

 

 

12.0

%

LTL shipments (in thousands)

 

 

3,340

 

 

 

2,904

 

 

 

15.0

%

LTL shipments per day

 

 

52,190

 

 

 

46,090

 

 

 

13.2

%

LTL weight per shipment (lbs.)

 

 

1,589

 

 

 

1,606

 

 

 

(1.1

)%

LTL revenue per hundredweight

 

$

28.13