FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
[ ] 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 (I.R.S. Employer
incorporation or organization) Identification No.)
1730 WESTCHESTER DRIVE
HIGH POINT, NC 27262
(Address of principal executive offices)
TELEPHONE NUMBER (910) 889-5000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
As of August 11, 1997, there were 8,308,196 shares of the registrant's
Common Stock ($.10 par value) outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ -------------------------------
JUNE 30, June 30, JUNE 30, June 30,
1997 1996 1997 1996
(In thousands, except share and per share data) (UNAUDITED) (Unaudited) (UNAUDITED) (Unaudited)
- ------------------------------------------------------------------------------ ------------- -------------- ---------------
Revenue from operations $ 84,490 $ 74,862 $ 158,081 $ 143,124
Operating expenses:
Salaries, wages and benefits 49,053 41,202 92,474 79,418
Purchased transportation 3,700 5,859 7,097 11,415
Operating supplies and expenses 7,498 7,751 15,030 14,949
Depreciation and amortization 4,126 4,011 8,117 7,783
Building and office equipment rents 1,788 1,788 3,463 3,467
Operating taxes and licenses 3,582 3,207 6,895 6,293
Insurance and claims 2,888 2,688 5,204 5,094
Communications and utilities 1,481 1,443 2,906 2,925
General supplies and expenses 3,256 2,798 5,962 5,522
Miscellaneous expenses 1,057 722 1,658 1,169
-------------- ------------- -------------- ---------------
Total operating expenses 78,429 71,469 148,806 138,035
-------------- ------------- -------------- ---------------
Operating income 6,061 3,393 9,275 5,089
Other deductions:
Interest expense, net 854 649 1,722 1,195
Other expense, net 79 94 151 184
-------------- ------------- -------------- ---------------
Total other deductions 933 743 1,873 1,379
-------------- ------------- -------------- ---------------
Income before income taxes 5,128 2,650 7,402 3,710
Provision for income taxes 1,975 1,007 2,850 1,410
-------------- ------------- -------------- ---------------
Net income $ 3,153 $ 1,643 $ 4,552 $ 2,300
============== ============= ============== ===============
INCOME PER COMMON SHARE:
Net income $ 0.38 $ 0.20 $ 0.55 $ 0.28
Average number of shares outstanding 8,308,196 8,345,608 8,313,808 8,345,608
The accompanying notes are an integral part of these financial statements.
2
OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, December 31,
1997 1996
(In thousands, except share data) (UNAUDITED) (Audited)
- ------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 648 $ 1,353
Customer receivables, less allowances of $5,849
and $5,699 at June 30, 1997, and December 31, 46,015 39,983
1996, respectively
Other receivables 575 890
Tires on equipment 4,569 4,514
Prepaid expenses 4,652 6,899
Deferred income taxes 2,625 2,625
------------------ -------------------
Total current assets 59,084 56,264
Property and equipment:
Revenue equipment 136,296 127,443
Land and structures 39,370 36,459
Other equipment 19,909 15,718
Leasehold improvements 653 479
------------------ -------------------
Total property and equipment 196,228 180,099
Less accumulated depreciation and amortization (76,436) (70,924)
------------------ -------------------
Net property and equipment 119,792 109,175
Other assets, less insurance policy loans of $1,815 at
June 30, 1997, and December 31, 1996 5,776 5,287
------------------ -------------------
Total assets $ 184,652 $ 170,726
================== ===================
The accompanying notes are an integral part of these financial statements.
3
OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
JUNE 30, December 31,
1997 1996
(In thousands, except share data) (UNAUDITED) (Audited)
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,255 $ 14,860
Compensation and benefits 9,436 6,919
Claims and insurance accruals 9,274 8,918
Other accrued liabilities 1,704 1,509
Income taxes payable 26 -
Current maturities of long-term debt 5,287 3,659
------------------ -------------------
Total current liabilities 36,982 35,865
Long-term debt 43,572 39,482
Other non-current liabilities 7,807 7,074
Deferred income taxes 16,300 13,377
------------------ -------------------
Total long-term liabilities 67,679 59,933
Stockholders' equity:
Common stock - $.10 par value, 25,000,000 shares authorized
8,308,196 and 8,345,608 shares outstanding
at June 30, 1997, and December 31, 1996, respectively 831 835
Capital in excess of par value 23,867 23,352
Retained earnings 55,293 50,741
------------------ -------------------
Total stockholders' equity 79,991 74,928
Commitments and contingencies - -
------------------ -------------------
Total liabilities and stockholders' equity $ 184,652 $ 170,726
================== ===================
The accompanying notes are an integral part of these financial statements.
4
OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE
-----------------------------------
1997 1996
(In thousands) (UNAUDITED) (Unaudited)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 4,552 $ 2,300
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,117 7,783
Deferred income taxes 2,923 1,107
(Gain) Loss on sale of property and equipment (77) 134
Changes in assets and liabilities:
Receivables, net (5,717) (4,062)
Tires on equipment (55) (146)
Prepaid expenses and other assets 1,758 1,524
Accounts payable (3,605) 1,894
Compensation, benefits and other accrued liabilities 2,712 1,946
Claims and insurance accruals 356 688
Income taxes payable 26 287
Other non-current liabilities 733 (810)
---------------- ---------------
Net cash provided by operating activities 11,724 12,645
---------------- ---------------
Cash flows from investing activities:
Purchase of property and equipment (19,563) (24,185)
Proceeds from sale of property and equipment 904 40
---------------- ---------------
Net cash used in investing activities (18,659) (24,145)
---------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 9,000 37,000
Principal payments under debt and capital lease agreements (2,300) (10,459)
Net payments on short-term revolving line of credit (980) (12,000)
Purchase and retirement of restricted stock 511 -
---------------- ---------------
Net cash provided by financing activities 6,230 14,541
---------------- ---------------
Decrease in cash and cash equivalents (705) 3,041
Cash and cash equivalents at beginning of period 1,353 986
---------------- ---------------
Cash and cash equivalents at end of period $ 648 $ 4,027
================ ===============
The accompanying notes are an integral part of these financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of
the financial position and operating results for the interim periods.
Certain prior year amounts have been reclassified to conform with the
current year presentation. The consolidated financial statements should
be read in conjunction with the consolidated financial statements and
notes thereto contained in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996. The results of operations for
the six months ended June 30, 1997, are not necessarily indicative of
the results for the entire fiscal year ending December 31, 1997.
2. Net income per share of common stock is based on the weighted average
number of shares outstanding during each period.
3. In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, EARNINGS PER SHARE, which is required to be adopted
on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to
restate all prior periods. The impact of Statement 128 on the
calculation of earnings per share in the current period and those
leading up to the date of adoption and thereafter is not expected to be
material.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997,
VS. JUNE 30, 1996
EXPENSES AS A PERCENTAGE OF REVENUE FROM OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ -------------------------------
1997 1996 1997 1996
------------- ------------ ------------- -------------
Revenue from operations 100.0% 100.0% 100.0% 100.0%
------------- ------------ ------------- -------------
Operating expenses:
Salaries, wages and benefits 58.1 55.0 58.5 55.5
Purchased transportation 4.4 7.8 4.5 8.0
Operating supplies and expenses 8.9 10.4 9.5 10.4
Depreciation and amortization 4.9 5.4 5.1 5.4
Building and office equipment rents 2.1 2.4 2.2 2.4
Operating taxes and licenses 4.2 4.3 4.4 4.4
Insurance and claims 3.4 3.6 3.3 3.6
Communications and utilities 1.8 1.9 1.8 2.0
General supplies and expenses 3.8 3.7 3.8 3.9
Miscellaneous expenses 1.2 1.0 1.0 0.8
------------- ------------ ------------- -------------
Total operating expenses 92.8 95.5 94.1 96.4
------------- ------------ ------------- -------------
Operating income 7.2 4.5 5.9 3.6
Interest expense, net 1.1 0.9 1.1 0.8
Other expense, net 0.1 0.1 0.1 0.2
------------- ------------ ------------- -------------
Income before income taxes 6.0 3.5 4.7 2.6
Provision for income taxes 2.3 1.3 1.8 1.0
------------- ------------ ------------- -------------
Net income 3.7% 2.2% 2.9% 1.6%
============= ============ ============= =============
7
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997, VERSUS THREE MONTHS ENDED JUNE 30, 1996
Net revenue for the second quarter of 1997 was $84,490,000, an increase of
12.9%, compared to $74,862,000 for the second quarter of 1996. Less than
truckload ("LTL") tonnage increased 12.7% during the quarter while LTL shipments
increased 10.4%. These increases were achieved through the Company's focus in
1997 to improve the yield of its revenue base and to build market share in
existing areas of operation.
Average revenue per LTL shipment increased 3.2% to $120.68 in the current
quarter from $116.97 for the same quarter in 1996. This improvement was due
primarily to a 2.2% increase in LTL weight per shipment to 1,070 lbs. from 1,047
lbs. In addition, average LTL revenue per hundredweight increased to $11.28
compared to $11.17, an increase of 1.0%. This improvement reflects a rate
increase effective January 1, 1997, on the Company's general tariffs. Revenue
per hundredweight is affected by factors in addition to rate changes, such as
weight per shipment. Generally, an increase in weight per shipment will reduce
revenue per hundredweight. As such, the Company believes the increased weight
per shipment of 2.2% for the quarter reduced the growth in revenue per
hundredweight.
Operating expenses as a percentage of net revenue ("operating ratio") decreased
to 92.8% for the second quarter of 1997 from 95.5% for the same period of 1996.
The decrease in the operating ratio was due to decreases in purchased
transportation, operating supplies and expenses, depreciation and amortization,
building and office equipment rents, operating taxes and licenses, insurance and
claims and communications and utilities as a percent of revenue. Combined, these
costs decreased to 29.7% of revenue compared to 35.8% for the same quarter of
1996.
Purchased transportation accounted for a significant portion of lower operating
expenses, decreasing to 4.4% of revenue from 7.8% for the same quarter last
year. This decrease was due to the Company's continuing to replace cartage
agents with Company personnel and equipment. The decrease in operating supplies
and expenses was attributed primarily to a reduction in vehicle repair and
maintenance expenses to 1.8% of revenue from 2.3% for the same quarter of 1996.
Building and office equipment rents decreased to 2.1% of revenue from 2.4%
primarily as a result of the Company's purchase of service centers that were
previously leased. Insurance and claims decreased to 3.4% of revenue from 3.6%
due primarily to a reduction in cargo claims expense to 1.6% percent of revenue
from 2.3% for the same quarter of 1996.
Combined, depreciation and amortization, operating taxes and licenses and
communications and utilities expenses decreased to 10.9% of revenue from 11.6%
for the same quarter of 1996. These decreases can be attributed to the Company's
effort to leverage revenue growth against fixed and administrative costs.
These reduced expenses were partially offset by increases in salaries, wages and
benefits, general supplies and expenses and miscellaneous expenses as a percent
of revenue. Salaries, wages and benefits increased to 58.1% of revenue compared
to 55.0% for the same period last year. This increase was a result of the
expansion costs in Illinois and Texas, reduced use of outside cartage agents
replaced by Company personnel and equipment and the addition of 45 new Company
sales personnel in 1997. The planned increase in the sales force is a key
component of the Company's strategy to build market share and freight density in
existing markets. The increased sales force is expected to generate additional
revenue in strategic lanes as the year progresses.
Combined, general supplies and expenses and miscellaneous expenses increased
slightly to 5.0% of revenue from 4.7% for the same period of 1996. These
increases are attributed to increased professional services incurred by the
Company during the second quarter of 1997 and to administrative costs resulting
from the Company's 1997 expansion.
8
Interest expense increased to 1.1% of revenue from .9% for the same quarter of
1996. The increase was due primarily to an increase in outstanding debt to
$48,859,000 at June 30, 1997, from $44,757,000 at June 30, 1996.
Net income was $3,153,000 for the quarter, an increase of 91.9%, compared to
$1,643,000 for the same quarter of the previous year. The effective tax rate was
38.5% for the second quarter of 1997 compared to 38.0% for the same period of
1996.
SIX MONTHS ENDED JUNE 30, 1997, VERSUS SIX MONTHS ENDED JUNE 30, 1996
Net revenue for the six months ended June 30, 1997, was $158,081,000, an
increase of 10.5%, compared to $143,124,000 for the same period of 1996. LTL
tonnage increased 9% due primarily to a 5.9% increase in LTL shipments as well
as a 3.0% increase in the LTL weight per shipment. This increase is attributed
to Company's ongoing efforts to improve the yield of its revenue base and build
market share in existing areas of operation.
Average LTL revenue per hundredweight was $11.23 for the first six months ended
June 30, 1997, compared to $11.11 for the same period of 1996. This increase
reflects a rate increase effective January 1, 1997, and a continuing effort to
improve pricing. The increase in the LTL weight per shipment, combined with a
1.1% increase in revenue per hundredweight, resulted in a 4.2% increase in the
revenue per LTL shipment to $120.92 from $116.10.
Operating expenses as a percentage of net revenue were 94.1%, compared to 96.4%
for the same period of 1996. Combined, purchased transportation, operating
supplies and expenses, depreciation and amortization, building and office
equipment rents, insurance and claims, communications and utilities and general
supplies and expenses decreased to 30.2% of net revenue compared to 35.7%.
The improvement in the operating ratio was due principally to decreases in
purchased transportation and operating supplies and expenses. Purchased
transportation decreased to 4.5% of revenue from 8.0% due to the Company's
continuing efforts to replace cartage agents with Company personnel and
equipment as market share and density improves. Operating supplies and expenses
decreased to 9.5% of revenue for the current six-month period from 10.4% for the
same period of 1996. This decrease is primarily due to a decrease in vehicle
repair and maintenance to 2.0% of revenue from 2.4%.
Building and office equipment rents were reduced to 2.2% of revenue from 2.4%
due to the purchase of service centers previously leased. Insurance and claims
were reduced to 3.3% of revenue from 3.6% due to a reduction in cargo claims to
1.7% of revenue from 2.2%. Reductions in depreciation and amortization,
communications and utilities and general supplies and expenses were a result of
leveraging higher revenue against relatively fixed and administrative costs.
The reduction of these expenses as a percent of revenue was partially offset by
increases in salaries, wages and benefits to 58.5% of revenue as compared to
55.5% for the same period of 1996. This increase reflects the impact of
expansion costs in Illinois and Texas, reduced use of outside cartage agents
replaced by Company personnel and equipment and the planned addition of 45 new
Company sales personnel in 1997. The increased sales force is consistent with
the Company's strategy of building market share in existing markets.
The Company's net interest expense was 1.1% of revenue for the six months ended
June 30, 1997, compared to .8% for the same period of 1996 due to the increase
in average outstanding debt in 1997.
Net income was $4,552,000 for the six months ended June 30, 1997, an increase of
97.9%, compared to $2,300,000 for the same six-month period the previous year.
The effective tax rate was 38.5% for 1997 and 38.0% for 1996.
LIQUIDITY AND CAPITAL RESOURCES
9
Expansion in both the size and number of service center facilities, as well as
the routine tractor and trailer turnover cycle, have required continued
investment in property and equipment. The Company anticipates capital
expenditures of approximately $35,000,000 for the year ending December 31, 1997.
This investment will be financed principally by internally generated cash flow
supplemented with borrowings. Capital expenditures during the quarter ended June
30, 1997, were approximately $19,563,000. Long-term debt, including current
maturities, increased by $5,718,000 to $48,859,000 at June 30, 1997, from
$43,141,000 at December 31, 1996. For the period ending June 30, 1997, the
Company has financed 70.8% of its year-to-date 1997 capital expenditures through
internally generated cash flows from operations.
The Company generally meets its working capital needs with cash generated from
operations. Working capital requirements are generally higher during the first
and fourth quarters because of seasonal declines in revenue and annual payments
of property taxes, equipment tags and licenses. On April 22, 1997, the Company
amended the $32,500,000 uncollateralized committed agreement to consist of a
$17,500,000 line of credit and a $15,000,000 letter of credit facility. Interest
on the line of credit is charged at rates that can vary based upon a certain
financial performance ratio and the stated period of time the borrowings are
outstanding. The applicable interest rate is based upon LIBOR plus .75% for
periods of 30-180 days and prime minus 1% for periods less than 30 days. The
Company has also entered into a separate International Swap Dealers Association
Agreement that hedges the interest rate on a portion of the outstanding amount
on the credit line over a specified term. Pursuant to this agreement, as of June
30, 1997, the Company had fixed $3,500,000 of the outstanding credit line at a
rate of 6.54% through June 19, 1998. A fee of .2% is charged on the unused
portion of the $32,500,000 line of credit and letter of credit facility, and a
fee of .6% is charged on the outstanding letters of credit. At June 30, 1997,
there was $4,190,000 outstanding on the line of credit and $9,325,500
outstanding on the letter of credit facility, which is required for self-insured
retention reserves for bodily injury, property damage and workers' compensation
insurance. The Company believes that there are sufficient credit lines and
capacity to meet seasonal and long-term financing needs.
INFLATION
Most of the Company's expenses are affected by inflation, which will generally
result in increased costs. During the second quarter and for the six months
ended June 30, 1997, the effect of inflation on the Company's results of
operations was minimal.
SEASONALITY
The Company's operations are subject to seasonal trends common in the trucking
industry. Operating results in the first and fourth quarters are normally lower
due to reduced shipments during the winter months. The second and third quarters
are stronger due to increased demand for services during the spring and summer
months.
ENVIRONMENTAL
The Company is subject to federal, state and local environmental laws and
regulations, particularly relative to underground storage tanks ("UST's"). The
Company is in compliance with all applicable environmental laws and regulations
relating to UST's and does not believe that the cost of future compliance would
have a material adverse effect on the Company's operations or financial
condition.
10
FORWARD-LOOKING INFORMATION
Forward-looking statements in the Company's Quarterly Report on Form 10-Q,
Quarterly Report to Stockholders and other written and oral statements made by
or on behalf of the Company, including and without limitation, statements
relating to the Company's goals, strategies, expectations, competitive
environment, regulation and availability of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties including, but not limited to, the following: (1) the Company's
goals, strategies and expectations are subject to change at any time at the
discretion of the Company; (2) the Company's ability to maintain a nonunion,
qualified work force; (3) the competitive environment with respect to industry
capacity and pricing; (4) the availability of fuel and other significant
resources; (5) the impact of various regulatory bodies; and (6) other risks and
uncertainties indicated from time to time in the Company's filings with the
Securities and Exchange Commission.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 1997 Annual Meeting of Stockholders on May 5, 1997. The
only item on the agenda was the election of directors for which votes were cast
or withheld as follows:
Nominee For Withheld
------- --- --------
Earl E. Congdon 7,732,716 3,351
John R. Congdon 7,732,716 3,351
John A. Ebeling 7,732,716 3,351
Harold G. Hoak 7,732,316 3,751
Franz F. Holscher 7,732,316 3,751
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit No. Description
4.4.5 Fourth Amendment to the Credit Agreement
between Old Dominion Freight Line, Inc. and
First Union National Bank of North Carolina,
dated April 22, 1997
27 Financial Data Schedule
b) Reports on Form 8-K: No reports on Form 8-K were filed during the
quarter ended June 30, 1997.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OLD DOMINION FREIGHT LINE, INC.
DATE: August 11, 1997 J. WES FRYE
J. Wes Frye
Sr. V.P. - Finance and Chief Financial Officer
(Principal Financial Officer)
DATE: August 11, 1997 JOHN P. BOOKER III
John P. Booker III
V.P. - Controller (Principal Accounting Officer)
12