FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to ____________.
COMMISSION FILE NUMBER: 0-19582
OLD DOMINION FREIGHT LINE, INC.
(Exact name of registrant as specified in its charter)
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)
REGISTRANT'S TELEPHONE NUMBER (336) 889-5000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK ($.10 PAR VALUE)
(Title of class)
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 .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of March 16, 1999, was $16,663,329.
As of March 16, 1999, the registrant had outstanding 8,312,196 shares of
Common Stock ($.10 par value).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the 1999 Annual Meeting of
Stockholders are incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS
GENERAL
Old Dominion Freight Line, Inc. ("Old Dominion", the "Company" or the
"Registrant", as appropriate for this report) is an inter-regional and
multi-regional motor carrier transporting primarily less-than-truckload ("LTL")
shipments of general commodities, including consumer goods, textiles and capital
goods to a diversified customer base. The Company serves regional markets in the
Southeast, South Central, Northeast, Midwest and West regions of the country.
Old Dominion connects these geographic regions with high quality inter-regional
service.
Old Dominion's operating strategy is to provide high quality and timely
service, including time definite and expedited delivery services, at competitive
prices, while maintaining low operating costs. Along key inter-regional lanes,
Old Dominion maintains published service standards that generally provide for
delivery time schedules that are faster than those of its principal national
competitors, in part, because of its more efficient service center network. The
Company's service standards provide for delivery times of between two and three
days along key inter-regional lanes between 500 and 1,500 miles. The Company
generally provides for one or two-day delivery along regional lanes of less than
500 miles, which Old Dominion believes is highly competitive.
The Company seeks to reduce unit operating costs and improve service by
building freight volume, or density, in its markets. Increasing density reduces
unloading and reloading at breakbulk facilities, resulting in faster transit
times and reduced cargo claims, and also improves equipment utilization. Old
Dominion also lowers its cost structure and reduces cargo claims by using twin
28-foot trailers exclusively in its linehaul operations. Use of twin 28-foot
trailers permits the Company to transport freight directly from its point of
origin to destination with minimal unloading and reloading, and permits more
freight to be hauled behind a tractor than could be hauled if the Company used
one larger trailer. Approximately 55% of the Company's LTL tonnage moves
directly from the origination service center to its destination without being
reloaded to another trailer at a breakbulk facility, with a substantial majority
of the remaining tonnage experiencing no more than one breakbulk handling per
shipment. Further, management believes that it gains an operating advantage by
maintaining flexible work force rules among its nonunion labor force, which
permits service center employees to perform several functions that result in
reliable delivery and a higher level of customer satisfaction.
The Company also transports shipping containers between several port
cities and inland points, primarily in its core southeastern service area. For
the year ended December 31, 1998, container services accounted for 2.6% of the
Company's operating revenue. Old Dominion also provides assembly and
distribution services primarily to its retail customers.
THE LTL INDUSTRY
Old Dominion transports primarily LTL shipments, which are defined as
shipments weighing less than 10,000 pounds. Generally, LTL carriers transport
freight from multiple shippers to multiple consignees through a service center
network, based on standard transit times.
Deregulation of the trucking industry in 1980 created a new operating
environment for motor carriers, permitting them to choose, for the first time,
their operating routes and pricing policies. Since deregulation, most LTL
carriers have focused on providing service in either a single regional market or
the national market. Furthermore, the overall trucking industry currently is
undergoing changes that affect both shippers and carriers. Shippers are seeking
to reduce the number of carriers they use and to establish service-based,
long-term relationships with a small group of preferred or "core carriers." This
trend toward the use of "core carriers" offers significant growth opportunities
for carriers that possess financial stability and can provide both regional and
inter-regional, high quality service with low costs. The Company believes that
this trend has created an opportunity for it to increase lane and
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service center density along key inter-regional lanes in which a relatively
small number of carriers offer high quality service. Old Dominion's strategy is
to continue to capitalize on the opportunities provided by deregulation by
building its market share in key inter-regional and regional lanes. From time to
time, certain national carriers have sought to compete in selected
inter-regional markets and along selected inter-regional lanes and may seek to
do so in the future as national markets mature, but the Company believes that it
holds a key competitive advantage over its principal national competitors due to
its more efficient service center network.
LTL companies are generally categorized as regional, inter-regional or
national motor carriers based upon length of haul. Carriers with average lengths
of haul less than 500 miles are referred to as regional carriers. Carriers with
average lengths of haul between 500 and 1,000 miles are referred to as
inter-regional carriers. National carriers generally have average lengths of
haul that exceed 1,000 miles. For the year ended December 31, 1998, Old Dominion
had an average length of haul of 853 miles.
In the motor carrier industry, revenue is primarily a function of
weight, length of haul and commodity class, and is frequently described in terms
of revenue per hundredweight. The Company tracks revenue per hundredweight as a
measure of pricing, commodity mix and rate trends.
LTL carriers can improve profitability by increasing lane and service
center density. Increased lane density lowers unit operating costs and improves
service. Increased service center density, by increasing the amount of freight
handled at a given service center location, improves utilization of assets and
other fixed costs.
REVENUE EQUIPMENT AND MAINTENANCE
At December 31, 1998, the Company operated 2,091 tractors. The Company
uses new tractors in linehaul operations for approximately three to five years
and then transfers those tractors to pickup and delivery operations for the
remainder of their useful lives. In a number of Company service centers,
tractors perform pickup and delivery functions during the day and linehaul
functions at night to maximize tractor utilization.
At December 31, 1998, the Company operated a fleet of 8,979 trailers. As
the Company has expanded and its needs for equipment have increased, the Company
has purchased new trailers as well as trailers meeting its specifications from
other trucking companies that have ceased operations. These purchases of
pre-owned equipment, though providing an excellent value, have the effect of
increasing the trailer fleet's average age; however, the Company believes the
age of its trailer fleet compares favorably with its competitors.
The Company develops certain specifications for revenue equipment, the
production and purchase of which are negotiated with several manufacturers.
These purchases are planned well in advance of anticipated delivery dates in
order to accommodate manufacturers' production schedules. The Company believes
that there is sufficient capacity among suppliers to ensure an uninterrupted
flow of equipment.
The table below reflects, as of December 31, 1998, the average age of
Old Dominion's revenue equipment:
Type of Equipment Number
(Categorized by Primary Use) of Units Average Age
- ---------------------------- --------- -----------
Linehaul tractors 1,732 3.2 years
Pickup and delivery tractors 359 6.9 years
Pickup and delivery trucks 22 4.2 years
Linehaul trailers 7,138 6.5 years
Pickup and delivery trailers 1,841 11.8 years
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The Company currently has major maintenance operations at its service
centers in Atlanta, Georgia; Dallas, Texas; Des Plaines, Illinois; Jersey City,
New Jersey; Morristown and Memphis, Tennessee; Los Angeles, California;
Columbus, Ohio; and Greensboro, North Carolina. In addition, six other service
center locations are equipped to perform routine and preventive maintenance
checks and repairs on the Company's equipment.
The Company has an established scheduled maintenance policy and
procedure that is administered by the Vice President - Equipment and
Maintenance. Linehaul tractors are routed to appropriate maintenance facilities
at designated mileage intervals ranging from 12,500 to 25,000 miles, depending
upon how the equipment was utilized. Pickup and delivery tractors and trailers
are scheduled for maintenance every 90 days.
The table below sets forth the Company's capital expenditures for
certain revenue equipment during 1996, 1997 and 1998:
Year Service Centers Tractors Trailers Total
- ---- --------------- ----------- ----------- -----------
1996 $12,513,000 $13,116,000 $10,120,000 $35,749,000
1997 $ 6,371,000 $17,529,000 $ 4,889,000 $28,789,000
1998 $12,115,000 $21,400,000 $15,165,000 $48,680,000
SERVICE CENTER OPERATIONS
At December 31, 1998, Old Dominion conducted operations through 92
service center locations, of which it owns 33 and leases 59. The Company
operates major breakbulk facilities in Atlanta, Georgia; Columbus, Ohio;
Morristown, Tennessee; Jersey City, New Jersey; Los Angeles, California; and
Greensboro, North Carolina, while using some smaller service centers for limited
breakbulk activity. Old Dominion's service centers are strategically located to
permit the Company to provide the highest quality service and minimize freight
rehandling costs.
Each service center is responsible for the pickup and delivery of
freight for its own service area. All inbound freight received by the service
center in the evening or at night is scheduled for local delivery the next
business day, unless a customer requests a different delivery schedule. Each
service center loads the freight by destination the day it is picked up.
Management reviews the productivity and service performance of each service
center on a daily basis in order to ensure quality service.
The Company also has established primary responsibility for customer
service at the local level. Service center employees trace freight movements
using the Company's automated tracing systems which provides for immediate
response to customer requests for delivery information. While the Company
maintains primary accountability for customer service at the local service
center, the Company has established a customer service function at the corporate
offices to offer additional customer support.
The Company plans to expand capacity at existing service centers as well
as expand the number of service centers geographically as opportunities arise
that provide for profitable growth and fit the needs of its customers.
LINEHAUL TRANSPORTATION
The Company's Transportation Department is responsible for directing the
movement of freight among the Company's service centers. Linehaul dispatchers
monitor the movement of freight among service centers with an on-line automated
dispatch system that operates continuously. Each morning, the Company's senior
management reviews the prior day's freight movements, transit times, load
factors, empty miles and other key statistics to monitor the Company's
performance.
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The Company uses scheduled runs, and schedules additional runs as
necessary, to meet its published service standards. The Company uses twin
trailers exclusively in its linehaul operations to reduce breakbulk handling and
to increase linehaul productivity.
MARKETING AND CUSTOMERS
At December 31, 1998, the Company had a sales staff of 258 employees.
The Company compensates its sales force, in part, based upon revenue generated,
Company and service center profitability and on-time service performance, which
the Company believes helps motivate those employees.
The Company utilizes a computer modeling program to determine the price
level at which a particular shipment of freight will be profitable. Elements of
the pricing model may be modified, as necessary, to simulate the actual
conditions under which the freight will be moved. From time to time, the Company
also competes for business by participating in bid solicitations. Customers
generally solicit bids for relatively large numbers of shipments for a period of
from one to two years and typically choose to enter into a contractual
arrangement with a limited number of motor carriers based upon price and
service.
For the year ended December 31, 1998, Old Dominion's largest 20, 10, and
5 customers accounted for approximately 19.1%, 14.7% and 10.5%, respectively, of
the Company's operating revenue. The Company's largest customer for 1998
accounted for approximately 2.8% of operating revenue. While the Company is not
dependent upon one customer, a reduction or termination of services provided by
the Company to a large group of customers could have an adverse effect on the
Company's business and operating results.
COMPETITION
The transportation industry is highly competitive on the basis of both
price and service. Old Dominion competes with regional, inter-regional and
national LTL and truckload carriers and, to a lesser extent, with air freight
carriers and railroads, a number of which have greater financial resources,
operate more equipment and have larger freight capacity than the Company. The
Company believes that it is able to compete effectively in its markets by
providing high quality and timely service at competitive prices.
SAFETY AND INSURANCE
The Company's Vice President - Safety and Personnel and Vice President -
Quality and Field Services implement and monitor its safety and loss prevention
programs with the assistance of 11 field supervisors. As a result of the
Company's emphasis on safety, the accident frequency, as defined by the National
Safety Council (including minor and unavoidable accidents), has decreased from
12.5 accidents per million miles for the year ended December 31, 1989, to 7.5
accidents per million miles for the year ended December 31, 1998.
The Company is self-insured for bodily injury and property damage claims
up to $250,000 per occurrence and for cargo claims up to $50,000 per occurrence.
The Company also is self-insured for workers' compensation in certain states and
has first dollar or high deductible plans in the other states. The Company
believes that its policy of self-insuring up to set limits, together with its
safety and loss prevention programs, is an effective means of managing insurance
costs.
Old Dominion believes that its current insurance coverage is adequate to
cover its liability risks.
5
FUEL AVAILABILITY AND COST
The motor carrier industry is dependent upon the availability of diesel
fuel. Increases in fuel prices and fuel taxes, to the extent not offset by rate
increases or fuel surcharges to customers, shortages of fuel or rationing of
petroleum products could have a material adverse effect on the operations and
profitability of the Company. The Company has not experienced difficulties in
maintaining a consistent and ample supply of fuel. In periods of extreme price
increases, the Company has implemented a fuel surcharge, which is consistent
with other competitors. Management believes that the Company's operations and
financial condition are susceptible to the same fuel price increases or fuel
shortages as those of its competitors. Fuel costs normally fluctuate between
three and five percent of operating revenue. Fuel expense was 3.3% of revenue in
1998.
EMPLOYEES AND DRIVERS
At December 31, 1998, the Company employed 5,287 persons in the
following categories:
Number of
Category Employees
--------- ---------
Salaried and clerical 1,228
Drivers 2,680
Platform 964
Mechanics 157
Sales (corporate and field) 258
At December 31, 1998, the Company employed 1,155 road drivers and 1,525
city drivers. All drivers hired by the Company are selected based upon driving
records and experience. Drivers are required to pass drug tests at employment
and are later required to take such tests periodically, by random selection.
Competition for drivers is intense within the trucking industry, and the Company
periodically experiences difficulties in attracting and retaining qualified
drivers. There can be no assurance that the Company's operations will not be
affected by a shortage of qualified drivers in the future which could result in
temporary under-utilization of revenue equipment, difficulty in meeting shipper
demands and increased compensation levels for drivers. Difficulty in attracting
or retaining qualified drivers could require the Company to limit growth and
have a material adverse effect on the Company's operations.
To help fulfill driver needs, the Company offers employees and their
spouses the opportunity to become drivers through the "Old Dominion Driver
Training Program". Since its inception in 1988, 619 individuals have graduated
from that program. The Company has experienced an annual turnover rate of
approximately 7% for those employees, which the Company believes compares
favorably with industry experience of driver retention. In management's opinion,
driver qualification programs, which are required to be taken by all drivers,
have been important factors in improving the Company's safety record. Drivers
with safe driving records are rewarded with bonuses of up to $1,000 annually.
Driver safety bonuses paid for 1998 were approximately $431,000.
None of the Company's employees are currently represented by a
collective bargaining unit, and management believes that relations with its
employees are excellent. From time to time there have been efforts to organize
Company employees at various service centers, none of which have been
successful. However, there can be no assurance that the Company's employees will
not unionize in the future, which could increase the Company's operating costs
and force it to alter its operating methods, which could in turn have a
materially adverse effect on the Company's operating results.
REGULATION
The Motor Carrier Act of 1980 significantly deregulated the trucking
industry and increased competition among motor carriers. Following enactment of
the Motor Carrier Act, applicants have
6
obtained operating authority more easily, and interstate motor carriers such as
Old Dominion have been able to change their rates more freely with less
regulatory scrutiny and delay. The law also removed many route and commodity
restrictions on transportation of freight.
Effective January 1, 1995, the passage by the U.S. Congress of Section
601 of the Federal Aviation Administrative Authorization Act and the Trucking
Industry Regulatory Reform Act ("TIRRA") deregulated intrastate operating
authority. Prior to TIRRA, the Company maintained intrastate authority in the
states of North Carolina, Virginia, South Carolina, Georgia and California. The
states of Florida and New Jersey had already eliminated their restrictions on
operating authority. The passage of TIRRA provides additional intrastate growth
opportunities in the states in which the Company operates.
The Company was regulated by the Interstate Commerce Commission (the
"ICC") until passage of the ICC Termination Act of 1995, which abolished the ICC
on December 31, 1995. The Surface Transportation Board, an independent entity
within the United States Department of Transportation ("DOT"), assumed many of
the responsibilities of the ICC. The Company is also regulated by various state
agencies. These regulatory authorities have broad powers, generally governing
matters such as authority to engage in motor carrier operations, rates, certain
mergers, consolidations and acquisitions, and periodic financial reporting. The
motor carrier industry is subject to regulatory and legislative changes that can
affect the economics of the industry by requiring changes in operating practices
or influencing the demand for, and the costs of providing services to, shippers.
Interstate motor carrier operations are subject to safety requirements
prescribed by the DOT. Such matters as weight and dimensions of equipment are
also subject to federal and state regulation. The Company is subject to federal,
state and local environmental laws and regulations, particularly relating to
underground fuel storage tanks ("USTs"). The Company believes it is in
compliance with applicable environmental laws and regulations, including those
relating to USTs, and does not believe that the cost of future compliance should
have a material adverse effect on the Company's operations or financial
condition.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth information regarding the executive
officers of the Company:
Name and Age Positions and Offices with the Company
- ------------- --------------------------------------
Earl E. Congdon (68) Chairman of the Board of Directors and Chief
Executive Officer
John R. Congdon (66) Vice Chairman of the Board of Directors
John A. Ebeling (61) Vice Chairman of the Board of Directors
David S. Congdon (42) President, Chief Operating Officer
John B. Yowell (47) Executive Vice President
J. Wes Frye (51) Sr. Vice President - Finance, Treasurer, Chief
Financial Officer and Assistant Secretary
Joel B. McCarty, Jr. (61) Sr. Vice President, General Counsel and Secretary
Earl E. Congdon has been employed by the Company since 1950 and has
served as Chairman of the Board and Chief Executive Officer since 1985 and as a
director since 1952. He is a son of E. E. Congdon, one of the founders of Old
Dominion.
7
John R. Congdon has been with the Company since 1953 and has served as
Vice Chairman of the Board since 1985 and as a director since 1955. He is also
the Chairman of Old Dominion Truck Leasing, Inc., a North Carolina corporation
that is engaged in the full service leasing of tractors, trailers and other
equipment, to which he devotes more than half of his time. He is a son of E. E.
Congdon, one of the founders of Old Dominion, and the brother of Earl E.
Congdon.
John A. Ebeling has been a Vice Chairman of the Board of Directors since
May 1997. He formerly served as President and Chief Operating Officer from
August 1985 to May 1997 and was first elected a director in August 1985. Mr.
Ebeling was previously employed by ANR Freight Systems from 1978 to 1985,
holding the positions of Chairman and Chief Executive Officer.
David S. Congdon has been employed by the Company since 1978 and, since
May 1997, has served as President and Chief Operating Officer. He has held
various positions in the Company including Vice President - Quality and Field
Services, Vice President - Quality, Vice President - Transportation, President -
Dominion Furniture Xpress (a former division of Old Dominion that specialized in
furniture transportation) and held other positions in operations and
engineering. He is the son of Earl E. Congdon.
John B. Yowell has been employed by the Company since February 1983 and
was promoted to Executive Vice President in May 1997. He has held the position
of Vice President - Corporate Services, Vice President - Central Region,
Assistant to the President and Vice President - Management Information Systems.
He is a son-in-law of Earl E. Congdon.
J. Wes Frye has been the Sr. Vice President - Finance since May 1997. He
has been Chief Financial Officer and Treasurer since joining the Company in
February 1985 and has served as Assistant Secretary since December 1987. Mr.
Frye served as the Vice President of Finance of Builders Transport, Inc., from
1982 to 1985, and in various positions, including Vice President - Controller,
with Johnson Motor Lines from 1975 to 1980. Mr. Frye is a Certified Public
Accountant.
Joel B. McCarty, Jr., has been a Sr. Vice President since May 1997 and
has served as General Counsel and Secretary since joining the Company in June
1987. Before joining Old Dominion, he was Assistant General Counsel of McLean
Trucking Company and was in private law practice prior to 1985.
Information concerning the Company's other significant employees is as
follows:
Name and Age Position
------------- ---------
Ernest Brantley (62) Senior Vice President - Operations
J. Timothy Turner (43) Senior Vice President - Sales and Marketing
John P. Booker, III (42) Vice President - Controller
Gerry L. Broadwell (44) Vice President - South Central Area
Robert M. Delgado (60) Vice President - Western Area
Kevin M. Freeman (39) Vice President - Field Sales
Greg C. Gantt (43) Vice President - Southern Area
Terry L. Hutchins (40) Vice President - Quality and Field Services
Richard F. Keeler (49) Vice President - Corporate Services
Mark M. Madden (47) Vice President - Northern Area
Buddy S. McBride (53) Vice President - Transportation
Hugh N. Morris, Jr. (35) Vice President - Midwest Area
J. Edward Richardson (54) Vice President - Equipment and Maintenance
Brian J. Stoddard (51) Vice President - Safety and Personnel
Michael A. Wood (45) Vice President - Central Area
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Ernest Brantley has served as Senior Vice President - Operations since
January 1992 after joining the Company as Vice President - Operations in January
1990. He was previously with Thurston Motor Lines for 35 years where he served
in various capacities, including Executive Vice President from 1981 to 1987.
Following its acquisition by Brown Transport Co., Inc., Mr. Brantley served as
Senior Vice President of Brown Transport from 1987 to 1990.
J. Timothy Turner has been employed by the Company since July 1981 and
was promoted to Sr. Vice President - Sales and Marketing in May 1997. He has
also served as Vice President - Sales and Marketing, Vice President - National
Accounts, Director of Sales, Central Area Director of Sales and District Sales
Representative prior to 1986. He was employed by McLean Trucking Company from
1977 to 1981.
John P. Booker, III, joined the Company in April 1987 and was promoted
to Vice President - Controller in May 1997. He previously served as Assistant
Vice President - Controller. Between 1979 and 1987 he was employed by RJR
Nabisco, Inc. and Monsanto Company where he held various accounting positions.
Mr. Booker is a Certified Management Accountant.
Gerry L. Broadwell has served as Vice President - South Central Area
since joining the Company in August 1998. He was previously employed by Goggin
Truck Line Company, Inc. from 1990 to 1998 where he held various senior
management positions, including Executive Vice President. From 1984 to 1990, Mr.
Broadwell was employed by Ryder PIE, where he held the positions of Regional
Manager and Service Center Manager.
Robert M. Delgado joined the Company in December 1985 and was promoted
to Vice President - Western Area in October 1996. He has also served as the
Director of the Western Area and as the Los Angeles Service Center Manager.
Prior to joining the Company, he held several management positions with Watkins
Motor Lines.
Kevin M. Freeman joined the Company in 1988 and was promoted to Vice
President - Field Sales in May 1997. He previously served as Director of Field
Sales, Central Sales Director and as an area sales representative. Prior to
joining Old Dominion, he was employed in the air freight industry as a National
Sales Representative.
Greg C. Gantt joined the Company in November 1994 as Vice President -
South Central Area and assumed responsibility for the Southern Area in January
1996. From 1978 to 1994 he was employed by Carolina Freight Carriers where he
held various positions including Vice President - Southern Region, Regional
Manager and Operations Director.
Terry L. Hutchins joined the Company in December 1992 and was promoted
to Vice President - Quality and Field Services in December 1997. Previously he
served as Vice President - Southern Area and Vice President - Central Area.
Prior to joining the Company, he held various Service Center Manager and sales
positions with Carolina Freight Carriers and McLean Trucking Company between
1980 and 1992.
Richard F. Keeler joined the Company in 1993 and was promoted to Vice
President - Corporate Services in May 1997. He has previously served as Vice
President - Midwest Area, Vice President - Northern Area, and as Director of
Pickup and Delivery Operations. Formerly, he was employed by Standard Trucking
Company and McLean Trucking Company where he served in various management
positions.
Mark M. Madden joined Old Dominion in January 1986 and was promoted to
Vice President - Northern Area in April 1995. He has also served as the Area
Manager - Metro Area and as a Service Center Manager in the Northern Area.
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Buddy S. McBride joined the Company in 1977 and has held Service Center
Manager positions in Richmond and Greensboro prior to becoming Vice President -
Central Area in 1991. In December 1992, he was promoted to Vice President -
Transportation.
Hugh N. Morris joined the Company in 1986 and was promoted to Vice
President - Midwest Area in May 1997. He previously served as Manager of Sales
and Service at the Charlotte, Atlanta and Tampa Service Centers, Southern Area
Sales Director and held various management positions at the Chattanooga Service
Center. Prior to joining Old Dominion he was employed by both ARA/Smith's
Transfer and Apex/Humboldt Express where he held several management positions.
J. Edward Richardson joined Old Dominion in December 1986 and has served
as Vice President - Equipment and Maintenance since March of 1990. From 1986 to
1990, he was Director of Maintenance. Prior to joining the Company, he was an
area operations manager for Saunders Leasing System.
Brian J. Stoddard joined the Company in 1969 and was promoted to Vice
President Safety and Personnel in May 1997. He previously served as Director -
Safety and Personnel, Corporate Safety Manager, Service Center Manager -
Dominion Furniture Xpress, Service Center Manager at both the Newport News and
Norfolk Service Centers and as a supervisor, dockworker and driver.
Michael A. Wood joined the Company in 1991 and was promoted to Vice
President - Central Area in December 1997. He previously served as Manager of
Sales and Service - Atlanta, and as both the Manager of Sales and Service and
Assistant Manager of Sales and Service - Charlotte. Prior to joining Old
Dominion he was employed by Ryder PIE from 1979 to 1991.
ITEM 2. PROPERTIES
The Company owns its general offices located in High Point, North
Carolina, consisting of a four-story office building of approximately 56,500
square feet on 10.3 acres and an office building of approximately 15,000 square
feet located near the general office. The Company also owns operating service
center facilities in Los Angeles, California; South Windsor, Connecticut;
Atlanta, Georgia; Orlando, Jacksonville and Tampa, Florida; Des Plaines,
Illinois; Baltimore, Maryland; Minneapolis, Minnesota; Tupelo, Mississippi;
Kansas City, Missouri; Syracuse, New York; Asheville, Charlotte, Fayetteville,
Hickory, Wilmington and Wilson, North Carolina; Cincinnati and Columbus, Ohio;
Columbia and Greenville, South Carolina; Morristown, Memphis, Nashville and
Chattanooga, Tennessee; Dallas and Houston, Texas; Richmond, Manassas,
Martinsville and Norfolk, Virginia; and Milwaukee, Wisconsin.
The Company also owns non-operating properties in Jacksonville, Florida;
St. Louis, Missouri; Fayetteville and Hickory, North Carolina; Memphis and
Nashville, Tennessee; and Houston, Texas, all of which are held for lease.
Currently the Jacksonville and Fayetteville properties are not under lease; the
Hickory property is on a month-to-month lease; the Nashville property is leased
until September 1999; the Memphis property is leased until December 1999; and
the St. Louis property is leased until February 2004.
Old Dominion leases 59 of its 92 service centers. The lengths of the
leases range from month-to-month to a lease that expires on July 31, 2004. The
Company believes that its leased facilities are adequate for its existing needs
and that, as current leases expire, it will be able either to renew them or find
comparable facilities without incurring any material negative impact on service
to customers or its operating results.
The Company believes that all of its properties are in good repair and
are capable of providing the level of service required by current business
levels and customer demands.
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ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which the Company is a party or of
which any of its property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
COMMON STOCK AND DIVIDEND INFORMATION
The common stock of Old Dominion Freight Line, Inc. is traded on the
Nasdaq Stock Market (National Market) under the symbol ODFL. At March 22, 1999,
there were approximately 770 holders of the common stock, including 125
stockholders of record. No dividends have been paid on the common stock. The
information concerning restrictions on dividend payments required by Item 5 of
Form 10-K appears in Note 2 of the Notes to Consolidated Financial Statements
appearing in Item 8 of this report.
MARKET PRICES OF COMMON STOCK:
1998
---------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
- ----------------------------------------------------------------------------------
HIGH $ 18.25 $ 20.25 $ 17.25 $ 14.875
LOW $ 13.75 $ 15.50 $ 10.50 $ 8.00
1997
--------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------
High $12.375 $ 14.25 $ 19.75 $ 19.25
Low $ 9.50 $ 11.75 $ 13.50 $ 14.00
MARKET MAKERS:
First Union Capital Markets Corp., Inc.; ING Baring Furman Selz LLC;
Knight Securities L.P.
11
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
For the Year Ended December 31,
---------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
AND OPERATING STATISTICS) 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------
OPERATING DATA:
Revenue from operations $383,078 $328,844 $293,006 $248,079 $243,547
Operating expenses:
Salaries, wages and benefits 229,188 193,523 163,490 141,163 131,138
Purchased transportation 15,696 15,494 21,435 18,933 21,897
Operating supplies and expenses 31,485 30,311 30,288 22,945 21,716
Depreciation 21,740 17,173 16,091 13,630 11,781
Building and office equipment rents 7,285 6,921 6,874 5,991 5,292
Operating taxes and licenses 16,791 13,968 12,867 10,393 9,628
Insurance and claims 12,277 10,033 10,118 8,503 8,758
Communications and utilities 7,011 6,152 5,687 5,014 4,509
General supplies and expenses 15,000 11,976 10,444 10,195 9,406
Miscellaneous expenses 4,028 3,282 2,762 1,671 1,798
---------------------------------------------------
Total operating expenses 360,501 308,833 280,056 238,438 225,923
---------------------------------------------------
Operating income 22,577 20,011 12,950 9,641 17,624
Interest expense, net 4,331 3,547 2,903 1,510 1,107
Other expense, net 311 273 137 329 110
---------------------------------------------------
Income before income taxes 17,935 16,191 9,910 7,802 16,407
Provision for income taxes 6,815 6,153 3,766 2,995 6,399
---------------------------------------------------
Net income $ 11,120 $ 10,038 $ 6,144 $ 4,807 $ 10,008
===================================================
EARNINGS PER SHARE:
Basic $ 1.34 $ 1.21 $ 0.74 $ 0.58 $ 1.20
Diluted $ 1.34 $ 1.21 $ 0.74 $ 0.58 $ 1.19
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 8,312 8,312 8,346 8,354 8,362
Diluted 8,323 8,322 8,347 8,357 8,378
OPERATING STATISTICS:
Operating ratio 94.1% 93.9% 95.6% 96.1% 92.8%
LTL revenue per hundredweight $ 11.28 $ 11.37 $ 11.00 $ 10.87 $ 10.80
Revenue per intercity mile $ 3.06 $ 3.00 $ 2.92 $ 2.93 $ 3.04
Intercity miles (in thousands) 125,228 109,681 100,447 84,715 79,985
LTL tonnage (in thousands) 1,527 1,334 1,221 1,037 1,024
Shipments (in thousands) 2,980 2,607 2,388 2,084 2,034
Average length of haul (miles) 853 869 - - -
BALANCE SHEET DATA: As of December 31,
---------------------------------------------------
1998 1997 1996 1995 1994
---------------------------------------------------
Current assets $ 69,789 $ 59,860 $ 56,264 $ 50,465 $ 45,643
Current liabilities 54,481 39,084 35,865 31,861 34,538
Total assets 241,799 191,061 170,726 143,346 124,035
Long-term debt (including current
maturities) 70,589 47,301 43,141 30,216 18,625
Stockholders' equity 96,637 85,501 74,928 68,784 63,726
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, expenses and other
items as a percentage of revenue from operations:
1998 1997 1996
- ------------------------------------------------------------------------------------------
Revenue from operations 100.0% 100.0% 100.0%
-------- --------- ---------
Salaries, wages and benefits 59.8 58.9 55.8
Purchased transportation 4.1 4.7 7.3
Operating supplies and expenses 8.2 9.2 10.3
Depreciation 5.7 5.2 5.5
Building and office equipment rents 1.9 2.1 2.4
Operating taxes and licenses 4.4 4.2 4.4
Insurance and claims 3.2 3.1 3.5
Communication and utilities 1.8 1.9 1.9
General supplies and expenses 3.9 3.6 3.6
Miscellaneous expenses 1.1 1.0 0.9
-------- --------- ---------
Total operating expenses 94.1 93.9 95.6
-------- --------- ---------
Operating income 5.9 6.1 4.4
Interest expense, net 1.1 1.1 1.0
Other expense, net 0.1 0.1 -
-------- --------- ---------
Income before income taxes 4.7 4.9 3.4
Provision for income taxes 1.8 1.8 1.3
-------- --------- ---------
Net income 2.9% 3.1% 2.1%
======== ========= =========
RESULTS OF OPERATIONS
- ---------------------
1998 COMPARED TO 1997
Revenue from operations for 1998 increased 16.5% to $383,078,000
compared to $328,844,000 for 1997. This revenue growth was a result of increased
market share in existing market areas and the addition of 13 service centers due
to expansion into upstate New York in February 1998 as well as selected asset
purchases of two trucking companies during the year. During the first quarter of
1998, the Company opened four service centers in Albany, Buffalo, Rochester and
Syracuse, New York. Nine additional service centers were opened during the year
as a result of the acquisition of selected assets of Fredrickson Motor Express
Corporation in January 1998 and Goggin Truck Line Company, Inc. in August 1998.
Average less than truckload ("LTL") revenue per shipment decreased .8%
to $118.81 for the current year from $119.73 for 1997. This decrease was due to
a .8% reduction in revenue per hundredweight. The reduction in revenue per
hundredweight was a direct result of a decrease in the Company's average length
of haul to 853 miles from 869 miles. The decrease in average length of haul was
caused by growth in the Company's short haul revenue that resulted from the
acquisition of Fredrickson and Goggin assets, both of which operated in the
southeastern region of the country. As a result of these acquisitions, the
Company's regional revenue increased 22% during the year compared to the
previous year, versus an inter-regional revenue growth of 14%. Overall
inter-regional revenue accounted for 71% of revenue from operations compared to
29% for regional revenue.
13
Operating expenses as a percent of revenue, the operating ratio,
increased slightly to 94.1% for the current year compared to 93.9% for the
previous year. The increased operating ratio was primarily a result of an
increase in salaries, wages and benefits, depreciation and general supplies and
expenses. Combined, these expenses were 1.7 operating points higher than the
previous year, increasing to 69.4% of revenue from 67.7% for the previous year.
These increased costs as a percent of revenue were offset by decreases in
purchased transportation and operating supplies and expenses. Combined, these
costs decreased to 12.3% of revenue for the current year from 13.9% for 1997, a
1.6 operating point decrease.
Salaries, wages and benefits increased to 59.8% of revenue in 1998 from
58.9% in 1997. The expansion of the service center network in 1998 allowed the
Company to deliver more shipments directly with Company personnel and equipment,
which increased wages and depreciation expense, while decreasing outside
purchased transportation. The planned reduction of purchased transportation,
which has been a trend over the last three years, allows the Company to provide
superior service with less handling and overall delivery costs. Accordingly,
purchased transportation decreased to 4.1% of revenue from 4.7% for the previous
year. In addition, 21 sales personnel were added to service the expanded
customer base and to increase market share in existing markets.
Depreciation increased to 5.7% of revenue in the current year compared
to 5.2% for the previous year. This increase was due primarily to increased
capital expenditures for the expansion of existing service centers, purchases of
new service centers which were previously leased, investments and upgrades to
the Company's information systems and the acquisition of selected assets of
Fredrickson and Goggin. The conversion to ownership of formerly leased
facilities resulted in a reduction of building and office equipment rents to
1.9% of revenue in 1998 from 2.1% for the previous year.
Operating supplies and expenses decreased to 8.2% of revenue in 1998
from 9.2% for the previous year. This reduction was primarily due to a 23.9%
reduction in the average price per gallon paid for fuel during 1998 compared to
1997. The Company's tariffs, however, contain provisions that allow a fuel
surcharge to be assessed should the price per gallon of fuel exceed certain
limits. During 1997, the Company exercised these provisions which were reflected
as an increase in revenue in 1997. On a comparable basis, the cost of fuel, net
of the fuel surcharge, was 3.3% in 1998 compared to 3.6% in 1997.
Net income was $11,120,000 for the year ended December 31, 1998, an
increase of 10.8%, compared to $10,038,000 for 1997. The effective tax rate was
approximately 38% in both 1998 and 1997.
1997 COMPARED TO 1996
Revenue from operations for 1997 was $328,844,000, an increase of 12.2%,
compared to $293,006,000 for 1996. This revenue growth was a direct result of
the Company's focus on improving both revenue per hundredweight, or revenue
yield, and market share in existing areas of operations, or market density. LTL
tonnage increased 9.3% during the year and total tonnage increased 7.2%. These
tonnage increases reflect increased market share in existing areas of operation,
as well as the impact of opening five new service centers in 1997 and six new
service centers in 1996, which primarily expanded and enhanced direct service in
existing regions of operations.
Average LTL revenue per shipment increased 3.4% to $119.73 in 1997
compared to $115.83 for 1996. This increase was a result of a 3.4% increase in
LTL revenue per hundredweight to $11.37 in 1997 from $11.00 for the previous
year. The improvement in LTL revenue per hundredweight reflects a general rate
increase on public tariffs implemented on January 1, 1997, as well as increases
on private tariffs that were negotiated throughout the year. The average weight
per LTL shipment was 1,053 lbs. for both 1997 and 1996, and thus had no impact
on the increase in average LTL revenue per shipment from 1996 to 1997.
14
Operating expense as a percentage of revenue, or the operating ratio,
was 93.9% for 1997 compared to 95.6% for the prior year. This improvement
resulted primarily from decreases in purchased transportation and operating
supplies and expenses, which combined, were 3.7 operating points lower in 1997
than in 1996. Purchased transportation decreased to 4.7% of revenue from 7.3% in
the prior year as a result of the Company's continuing effort to replace cartage
agents with Company personnel and equipment. Operating supplies and expenses
decreased to 9.2% of revenue from 10.3% in 1996 due to: (1) a reduction in
vehicle repair and maintenance costs to 2.0% of revenue from 2.2% for the
previous year; (2) a $.05 reduction in the average price per gallon of fuel in
1997; and (3) improved fleet fuel efficiency to 6.5 miles per gallon in 1997
from 6.3 for the previous year. The reduced repair and maintenance costs
resulted, in part, from a reduction in the average age of the linehaul tractor
fleet to 2.8 years in 1997 from 3.0 years for the previous year and a
comparatively milder winter season in 1997.
Building and office equipment rents decreased to 2.1% of revenue in 1997
compared to 2.4% in 1996 as a result of the Company's purchase of seven service
center facilities. Insurance and claims decreased to 3.1% from 3.5% in the
previous year. This decrease is primarily attributed to a reduction in cargo
claims expense to 1.6% of revenue from 2.1% for 1996. This reduction reflects an
ongoing Company-wide focus on continuous improvement in freight handling
processes and equipment.
Depreciation decreased to 5.2% of revenue from 5.5% in 1996 and
operating taxes and licenses decreased to 4.2% from 4.4% in 1996 as a result of
the Company leveraging higher revenue against these relatively fixed operating
costs in 1997.
These reductions in expenses were somewhat offset by an increase in
salaries, wages and benefits to 58.9% of revenue from 55.8% for 1996. In 1997,
the Company continued to replace cartage agents used for pickup and delivery
services in remote areas with Company personnel and equipment, which primarily
led to the increase in salaries, wages and benefits. As part of the overall
strategy to increase density and market share in existing markets, the Company
added 45 new field sales personnel in 1997, an increase of 23.4% over the prior
year. In addition, the Company added five new service centers in 1997 that
expanded direct coverage in regions already served. Linehaul and pickup and
delivery wages were higher in the expanded areas as the Company provided
superior service while building service center and lane density.
The Company's net interest expense increased slightly as a percent of
revenue to 1.1% in 1997 from 1.0% in 1996, due to an increase in average
outstanding debt.
Net income was $10,038,000 for the year ended December 31, 1997, an
increase of 63.4%, compared to $6,144,000 for 1996. The effective tax rate was
approximately 38% in both 1997 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Expansion in both the size and number of service center facilities, the
planned tractor and trailer replacement cycle and revenue growth have required
continued investment in property and equipment. In order to support these
requirements, the Company incurred net capital expenditures of $59,689,000
during the year ended December 31, 1998. Cash flows generated internally were
sufficient to fund 74.2% of the required capital expenditures during the year.
The remaining capital needs were achieved through additional debt, including
borrowings on the Company's line of credit, of which $8,310,000 was outstanding
at year-end December 31, 1998, compared to $6,730,000 at year-end 1997. At
December 31, 1998, long-term debt including current maturities increased to
$70,589,000 from $47,301,000 at December 31, 1997.
The Company estimates capital expenditures to be approximately
$55,000,000 to $57,000,000 for the year ending December 31, 1999. Of that,
approximately $37,000,000 will be used for purchases of larger replacement
service centers or expansion of existing service centers, approximately
$17,000,000 will be used to purchase revenue equipment and the remaining balance
will
15
be used for investments in technology and other assets. The Company plans to
fund these expenditures through cash flows from operations supplemented by
additional borrowings.
The Company maintains a $32,500,000 uncollateralized credit facility
that consists of a $17,500,000 line of credit commitment and a $15,000,000
letter of credit commitment. Interest on the line of credit is charged at rates
that vary based upon a certain financial performance ratio and the stated period
of time that the borrowings are outstanding. The applicable interest rate for
1998 was based upon LIBOR plus .75% for periods of 30-180 days and prime minus
1% for periods less than 30 days. A fee of .25% is charged on the unused portion
of the $32,500,000 line of credit and letter of credit facility, and a fee of
.75% is charged on outstanding letters of credit. At December 31, 1998, there
were $8,310,000 outstanding borrowings on the line of credit and $10,717,000
outstanding on the letter of credit facility, which is required for self-insured
retention reserves for bodily injury, property damage and workers' compensation
insurance. The Company believes that it has sufficient credit lines and capacity
to meet seasonal and long-term financial needs.
On February 25, 1998, the Company entered into a $20,000,000 private
placement of debt through a Note Purchase Agreement. This agreement consists of
$10,000,000 of senior notes maturing in 2005 bearing a fixed interest rate of
6.35% and $10,000,000 of senior notes maturing in 2008 bearing a fixed interest
rate of 6.59%. The proceeds from this private debt agreement were used to
replace the outstanding borrowings on the line of credit facility with long
term, fixed rate obligations and were also used to finance 1998 capital
expenditures for service center facilities and revenue equipment.
The Company has minimal exposure to changes in interest rates from its
long-term debt arrangements as approximately 88% of that debt has fixed interest
rates. Under its current policies, the Company does not use interest rate
derivative instruments to manage exposure to interest rate changes. Also, the
Company, currently, is not using any fuel hedging instruments as its tariff
provisions generally allow for fuel surcharges to be implemented in the event
that fuel prices exceed stipulated levels.
IMPACT OF THE YEAR 2000
- -----------------------
Some of the Company's internally generated software, third party
software, information technology ("IT") systems and non-IT systems were written
or designed using two digits rather than four to define the applicable year. As
a result, that software or system is likely to interpret a date using "00" as
the year 1900 rather than the year 2000. This could possibly cause a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in normal business activities.
The Company has completed an assessment of its software to ensure that
its computer systems will function properly with respect to dates in the year
2000 and thereafter. As of this filing date, the Company has successfully
completed modifications to all internally generated software and is currently
utilizing the modified software in production. The total cost to complete this
phase of the year 2000 project was approximately $500,000. All third party
software requiring modification has been identified and those modifications have
been successfully completed, tested and placed into production. Each software
vendor performed the necessary modifications to the third party software for
year 2000 compliance and the costs were included in the annual maintenance fees
charged to the Company. Actual costs to the Company were minimal.
During 1998, the Company successfully completed modifications to its IT
hardware for year 2000 compliance at a cost of approximately $100,000. Most of
this expense was for the replacement of all the Company's older model personal
computers. While this hardware was tested to the extent possible and is
currently being used in production, failure of one or large groups of these
personal computers would not have a critical impact on the Company.
16
Old Dominion is approximately 25% complete in its evaluation of non-IT
systems, such as telephone switches and security systems, to identify systems
that require modification. As each system or component is identified, a plan to
make appropriate modifications is initiated. The Company believes there is
minimal risk in this area and the cost of these modifications or upgrades, if
any, is expected to be less than $50,000. These evaluations and subsequent
modifications to non-IT hardware should be finalized by June 30, 1999.
The Company is currently 25% complete in its evaluation phase of its
major customers and suppliers to determine if they have taken adequate measures
to ensure that necessary modifications are made to their software and hardware
prior to the year 2000. The completion of the supplier evaluation phase, which
is scheduled for July 31, 1999, will determine the actions the Company will take
in securing alternate suppliers by year-end 1999. The Company is actively
assisting customers in achieving year 2000 compliance in their electronic data
interchange applications that are used to communicate with the Company in their
normal course of business. If these systems fail, the Company plans to convert
to traditional methods of communication such mail, phone and fax, which it
currently uses with the majority of its customer base. In addition, the
Company's existing systems could be used to provide customers with freight
tracing and documentation requirements if their systems fail. The process of
monitoring customers and suppliers for year 2000 compliance may well extend
until 2000, as those companies execute their year 2000 plans. The Company's
largest customer in 1998 accounted for 2.8% of revenue; therefore, the Company
is not dependent on any one customer. Critical supplies such as fuel and parts
are generally available from multiple sources and the Company's physical
locations are not dependent on one provider of utilities. However, failure by
any large groups of suppliers or customers to make necessary year 2000
modifications could result in a material adverse impact on the Company. The
Company has incurred approximately $10,000 to date in monitoring customer and
supplier compliance and expects to incur an additional $20,000 by year-end 1999.
In order to avoid problems that could arise in the year 2000, all
modifications to internally generated software were simulated in a year 2000
test environment and subjected to comprehensive quality standards prior to being
placed into production. Similar IT hardware testing, to the extent possible, has
been performed. The Company's contingency plan, in the event hardware or
software failures occur in early 2000, is to have its internal IT staff and
external IT support resources available to address these potential problems as
they are identified. The Company believes today that the most likely worst case
scenario would involve (1) malfunctions in computer software at the corporate
headquarters, (2) temporary disruptions in the delivery of services and products
to the Company, primarily communications, utilities and fuel, and (3) temporary
disruptions in payments from customers. The Company expects that these events
would result in increased expense and lost revenue, and would adversely affect
the Company's cash flow.
The total cost incurred to date for year 2000 compliance is
approximately $610,000 and the Company expects to incur an additional $70,000 by
year-end 1999.
The cost of the project and the date on which the Company believes it
will complete the year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer code, the ability of the Company's customers
and suppliers to address their year 2000 compliance problems and similar
uncertainties.
INFLATION
- ---------
Most of the Company's expenses are affected by inflation, which will
generally result in increased costs. For the year ending 1998, the effect of
inflation on the Company's results of operations was minimal.
17
SEASONALITY
- -----------
The Company's operations are subject to seasonal trends common in the
motor carrier industry. Operating results in the first and fourth quarters are
normally lower due to reduced shipments during the winter months. Harsh winter
weather can also adversely impact the Company's performance by reducing demand
and increasing operating expenses. The second and third quarters are stronger
due to increased demand for services during the spring and summer months.
ENVIRONMENTAL
- -------------
The Company is subject to federal, state and local environmental laws
and regulations, particularly relative to underground storage tanks ("UST's").
The Company believes it is in compliance with applicable environmental laws and
regulations, including those relating to UST's, and does not believe that the
cost of future compliance will have a material adverse effect on the Company's
operations or financial condition.
FORWARD-LOOKING INFORMATION
- ---------------------------
Forward-looking statements in this report, including, without
limitation, statements relating to future events or the future financial
performance of the Company appear in the preceding Management's Discussion and
Analysis of Financial Condition and Results of Operations and in other written
and oral statements made by or on behalf of the Company, including, without
limitation, statements relating to the Company's goals, strategies,
expectations, competitive environment, regulation and availability of resources.
Such forward-looking statements are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Investors are cautioned
that such forward-looking statements involve risks and uncertainties that could
cause actual events and results to be materially different from those expressed
or implied herein, including, but not limited to, the following: (1) changes in
the Company's goals, strategies and expectations, which are subject to change at
any time at the discretion of the Company; (2) the Company's ability to maintain
a nonunion, qualified work force; (3) the competitive environment with respect
to industry capacity and pricing; (4) the availability and cost of fuel,
additional revenue equipment, service centers and other significant resources;
(5) the impact of regulatory bodies; (6) various economic factors such as
insurance costs, liability claims, interest rate fluctuations, the availability
of qualified drivers or owner-operators, fluctuations in the resale value of
revenue equipment, increases in fuel or energy taxes, economic recessions and
downturns in customers' business cycles and shipping requirements; (7) the
Company's inability to raise capital or borrow funds on satisfactory terms,
which could limit growth and require the Company to operate its revenue
equipment for longer periods of time; (8) the availability and cost of personnel
trained in year 2000 compliance issues, the Company's ability to locate and
correct relevant IT and non-IT problems and the ability of the Company's
customers and suppliers to address their year 2000 compliance problems; and (9)
other risks and uncertainties indicated from time to time in the Company's
filings with the Securities and Exchange Commission.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by Item 7A of Form 10-K appears in Item 7 of
this report under the heading "Liquidity and Capital Resources".
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA) 1998 1997
- ------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 659 $ 674
Customer receivables, less allowances of
$5,702 and $4,963, respectively 48,612 43,399
Other receivables 2,567 1,492
Tires on equipment 6,325 5,052
Prepaid expenses 9,413 7,273
Deferred income taxes 2,213 1,970
------------ --------------
Total current assets 69,789 59,860
Property and equipment:
Revenue equipment 172,783 144,926
Land and structures 51,803 42,572
Other equipment 27,739 19,675
Leasehold improvements 4,144 721
------------ --------------
Total property and equipment 256,469 207,894
Less accumulated depreciation (97,471) (83,064)
------------ --------------
Net property and equipment 158,998 124,830
Other assets 13,012 6,371
------------ --------------
Total assets $ 241,799 $ 191,061
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 21,350 $ 14,161
Compensation and benefits 8,929 8,915
Claims and insurance accruals 11,961 9,275
Other accrued liabilities 2,649 1,587
Income taxes payable 499 -
Current maturities of long-term debt 9,093 5,146
------------ --------------
Total current liabilities 54,481 39,084
Long-term debt 61,496 42,155
Other non-current liabilities 9,636 7,704
Deferred income taxes 19,549 16,617
------------ --------------
Total long-term liabilities 90,681 66,476
Stockholders' equity:
Common stock - $.10 par value, 25,000,000
shares authorized, 8,312,196 and
8,310,596 shares outstanding,
respectively 831 831
Capital in excess of par value 23,907 23,891
Retained earnings 71,899 60,779
------------ --------------
Total stockholders' equity 96,637 85,501
Commitments and contingencies - -
------------ --------------
Total liabilities and stockholders'
equity $ 241,799 $ 191,061
============ ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
19
OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
----------------------------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1998 1997 1996
- -------------------------------------------------- ------------ ----------- ------------
Revenue from operations $383,078 $328,844 $293,006
Operating expenses:
Salaries, wages and benefits 229,188 193,523 163,490
Purchased transportation 15,696 15,494 21,435
Operating supplies and expenses 31,485 30,311 30,288
Depreciation 21,740 17,173 16,091
Building and office equipment rents 7,285 6,921 6,874
Operating taxes and licenses 16,791 13,968 12,867
Insurance and claims 12,277 10,033 10,118
Communications and utilities 7,011 6,152 5,687
General supplies and expenses 15,000 11,976 10,444
Miscellaneous expenses 4,028 3,282 2,762
------------ ----------- ------------
Total operating expenses 360,501 308,833 280,056
------------ ----------- ------------
Operating income 22,577 20,011 12,950
Other deductions:
Interest expense, net 4,331 3,547 2,903
Other expense, net 311 273 137
------------ ----------- ------------
Total other deductions 4,642 3,820 3,040
------------ ----------- ------------
Income before income taxes 17,935 16,191 9,910
Provision for income taxes 6,815 6,153 3,766
------------ ----------- ------------
Net income $ 11,120 $ 10,038 $ 6,144
============ =========== ============
Basic and diluted earnings per share $ 1.34 $ 1.21 $ 0.74
============ =========== ============
Weighted average shares outstanding:
Basic 8,311,774 8,311,521 8,345,608
Diluted 8,323,240 8,321,547 8,346,515
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
20
OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Capital in
Common excess of Retained
(IN THOUSANDS) stock par value earnings Total
- -----------------------------------------------------------------------------------------------
Balance as of December 31, 1995 $ 835 $ 23,352 $ 44,597 $ 68,784
Net income - - 6,144 6,144
-------------------------------------------
Balance as of December 31, 1996 835 23,352 50,741 74,928
Net income - - 10,038 10,038
Exercise of stock options - 24 - 24
Release of common stock under Restricted Stock
Agreement, net of tax charge of $74 (4) 515 - 511
-------------------------------------------
Balance as of December 31, 1997 831 23,891 60,779 85,501
NET INCOME - - 11,120 11,120
EXERCISE OF STOCK OPTIONS - 16 - 16
-------------------------------------------
BALANCE AS OF DECEMBER 31, 1998 $ 831 $ 23,907 $ 71,899 $ 96,637
===========================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
21
OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
------------------------------------
(IN THOUSANDS) 1998 1997 1996
- --------------------------------------------------------- ----------- ------------ -----------
Cash flows from operating activities:
Net income $ 11,120 $ 10,038 $ 6,144
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 21,887 17,173 16,091
Deferred income taxes 2,689 3,895 3,355
Net effect of restricted stock distribution - 511 -
(Gain) loss on sale of property and equipment (71) (178) 91
Changes in assets and liabilities:
Customer and other receivables, net (1,094) (4,018) (3,453)
Tires on equipment (1,273) (538) (575)
Prepaid expenses and other assets (1,428) (1,458) (2,148)
Accounts payable 7,189 (699) 4,356
Compensation, benefits and other accrued
liabilities 335 2,074 1,910
Claims and insurance accruals 4,048 622 (1,262)
Income taxes payable 499 - -
Other liabilities 370 365 226
----------- ------------ -----------
Net cash provided by operating activities 44,271 27,787 24,735
----------- ------------ -----------
Cash flows from investing activities:
Acquisition of business assets, net (16,790) - -
Purchase of property and equipment (45,079) (34,223) (38,324)
Proceeds from sale of property and equipment 2,180 1,573 1,031
----------- ------------ -----------
Net cash used by investing activities (59,689) (32,650) (37,293)
----------- ------------ -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 20,991 9,000 38,112
Principal payments under long-term debt agreements (7,184) (5,680) (13,577)
Net proceeds (payments) on revolving line of credit 1,580 840 (11,610)
Proceeds from conversion of stock options 16 24 -
----------- ------------ -----------
Net cash provided by financing activities 15,403 4,184 12,925
----------- ------------ -----------
(Decrease) increase in cash and cash equivalents (15) (679) 367
Cash and cash equivalents at beginning of period 674 1,353 986
----------- ------------ -----------
Cash and cash equivalents at end of period $ 659 $ 674 $ 1,353
=========== ============ ===========
Supplemental disclosure of non-cash financing activities:
The Company released 76,668 shares of common stock in 1997 under a Restricted Stock
Agreement.
Cash paid for interest was approximately $4,099,000, $4,565,000 and $1,990,000 for the years
ended December 31, 1998, 1997 and 1996, respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
22
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The Company is an inter-regional and multi-regional motor carrier transporting
primarily less-than-truckload shipments of general commodities, such as consumer
goods, textiles and capital goods, to a diversified customer base. The Company
serves regional markets in the Southeast, South Central, Northeast, Midwest and
West regions of the country. Old Dominion also serves inter-regional routes
connecting these geographic regions and major metropolitan markets throughout
most of the continental United States.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiary. All significant intercompany balances and transactions are
eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Estimates made by the Company relate primarily to self-insurance accruals and
allowances for doubtful accounts. Actual results could differ from these
estimates.
REVENUE AND EXPENSE RECOGNITION
Operating revenue is recognized on a percentage of completion method based on
average transit time. Expenses associated with the operating revenue are
recognized when incurred.
CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of customer receivables. Credit risk is
generally diversified due to the large number of entities comprising the
Company's customer base and their dispersion across many different industries
and geographic regions. As noted on the consolidated balance sheets, the Company
maintains an allowance for doubtful accounts to cover estimated credit losses.
CASH AND CASH EQUIVALENTS
The Company considers cash on hand and deposits in banks along with certificates
of deposit and short-term marketable securities with original maturities of
three months or less as cash and cash equivalents for the purpose of the
statements of cash flows.
TIRES ON EQUIPMENT
The cost of tires on equipment is amortized over the estimated tire life of 18
to 24 months.
FUEL AND SUPPLIES
Fuel and operating supplies are valued at the lower of cost or market using the
first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major additions and improvements are
capitalized, while maintenance and repairs that do not improve or extend the
lives of the respective assets are charged to expense as incurred.
23
Depreciation is provided by the straight-line method over the following
estimated useful lives:
Structures 5 to 25 years
Revenue equipment 3 to 12 years
Other equipment 3 to 10 years
Leasehold improvements Lesser of 10 years or life of lease
INTANGIBLE ASSETS
The excess cost over net assets acquired in connection with acquisitions is
recorded in "Other Assets". These intangible assets are amortized using a
straight-line method over their estimated useful lives of 3 to 25 years.
LONG-LIVED ASSETS
The Company periodically assesses the realizable value of its long-lived assets
and evaluates such assets for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
CLAIMS AND INSURANCE ACCRUALS
Claims and insurance accruals reflect the estimated ultimate cost of claims for
cargo loss and damage, bodily injury and property damage, workers' compensation,
long-term disability and group health not covered by insurance. These costs are
charged to insurance and claims expense except for workers' compensation,
long-term disability and group health, which are charged to employee benefits
expense.
EARNINGS PER SHARE
Net income per common share is computed using the weighted average number of
common shares outstanding during the period. The effect of dilutive employee
stock options in Note 7 is immaterial to the calculation of diluted EPS for the
years ended December 31, 1998, 1997 and 1996.
FAIR VALUES OF FINANCIAL INSTRUMENTS
At December 31, 1998, and 1997, the carrying value of financial instruments such
as cash and cash equivalents, customer and other receivables, trade payables and
long-term debt approximated their fair values. Fair value is determined based on
expected future cash flows, discounted at market interest rates, and other
appropriate valuation methodologies.
STOCK BASED COMPENSATION
Stock based compensation expense for the Company's employee stock option plan is
recognized under the provisions of Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25"), and related
interpretations. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized. Pro forma information
regarding net income and earnings per share required by Statement of Financial
Accounting Standards ("SFAS") No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION,
is not significant.
RECENT ACCOUNTING PRONOUNCEMENTS
There were no items of comprehensive income for the years ending December 31,
1998, 1997 and 1996, as defined under SFAS No. 130, REPORTING COMPREHENSIVE
INCOME. The Company operates one business segment, within the continental United
States, and has no customer that exceeds 10% of its operating revenue.
Accordingly, no disclosures are required under SFAS No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION.
RECLASSIFICATIONS
Certain amounts in prior years have been reclassified to conform with the
current period presentation.
24
NOTE 2. LONG-TERM DEBT
Long-term debt consisted of the following:
December 31,
-------------------------
(IN THOUSANDS) 1998 1997
- -------------------------------------------------------------------------------
Senior Notes $ 49,000 $ 30,000
Revolving credit facility 8,310 6,730
Equipment obligations, principal payable in monthly
installments plus interest principally ranging
from 4.5% to 6.9% 13,279 10,571
-------------------------
70,589 47,301
Less current maturities 9,093 5,146
-------------------------
$ 61,496 $ 42,155
=========================
Senior Notes consist of four individual debt agreements with interest rates
ranging from 6.35% to 7.59%. The notes call for periodic principal payments with
maturities ranging from 2002 to 2008.
The Company maintains a $32,500,000 uncollateralized committed credit agreement
that consists of a $17,500,000 line of credit facility and a $15,000,000 letter
of credit facility, expiring in June 2000. Interest on the line of credit is
charged at rates that vary based upon a certain financial performance ratio and
the stated period of time that the borrowings are outstanding. The applicable
interest rate for 1998 was based upon LIBOR plus .75% for periods of 30-180 days
and prime minus 1% for periods less than 30 days. A fee of .25% is charged on
the unused portion of the $32,500,000 line of credit and letter of credit
facility, and a fee of .75% is charged on outstanding letters of credit. At
December 31, 1998, there was $10,717,000 outstanding on the letter of credit
facility, which is required for self-insured retention reserves for bodily
injury, property damage and workers' compensation insurance.
Both the Company's Senior Notes and credit agreement limit the amount of
dividends that may be paid to stockholders pursuant to and limited by certain
financial ratios, necessary corporate action and all applicable laws. At
December 31, 1998, the Company's debt instruments limited the amount of
dividends that could be paid to stockholders to $9,620,000.
Equipment and capitalized lease obligations are collateralized by property and
equipment with a net book value book value of $16,734,000 at December 31, 1998.
As of December 31, 1998, aggregate maturities of long-term debt are as follows:
(IN THOUSANDS)
- -----------------------------------------------------------------------------
1999 $ 9,093
2000 10,298
2001 8,502
2002 7,457
2003 6,107
Thereafter 20,822
----------
62,279
Borrowings outstanding under the revolving credit agreement 8,310
----------
$ 70,589
==========
25
NOTE 3. LEASES
The Company leases certain revenue equipment under capital leases that expire in
1999 and 2002. These assets are included in property and equipment as
follows:
December 31,
--------------------------
(IN THOUSANDS) 1998 1997
- -------------------------------------------------------------------------
Revenue equipment $ 4,281 $ 1,112
Less accumulated amortization 1,217 525
----------------------------
$ 3,064 $ 587
============================
Future minimum annual lease payments as of December 31, 1998, are as follows:
Capital Operating
(IN THOUSANDS) Leases Leases Total
- -------------------------------------------------------------------------------------
1999 $ 2,858 $ 9,870 $ 12,728
2000 155 5,147 5,302
2001 155 2,727 2,882
2002 103 1,347 1,450
2003 - 725 725
Thereafter - 562 562
------------------------------------------
Total minimum lease payments 3,271 $ 20,378 $ 23,649
============================
Less amount representing interest 166
-----------
Present value of capitalized lease
obligations $ 3,105
===========
Aggregate expense under operating leases approximated $10,358,000, $9,093,000
and $8,841,000 for 1998, 1997 and 1996, respectively.
NOTE 4. INCOME TAXES
The components of the provision for income taxes are as follows:
Year ended December 31,
-----------------------------
(IN THOUSANDS) 1998 1997 1996
- -----------------------------------------------------------------------
Current:
Federal $ 3,899 $2,116 $ 395
State 227 142 16
-----------------------------
4,126 2,258 411
Deferred:
Federal 2,264 3,307 2,857
State 425 588 498
-----------------------------
2,689 3,895 3,355
-----------------------------
Total provision for income taxes $ 6,815 $6,153 $ 3,766
=============================
Net cash paid (refunds received) for income taxes during 1998, 1997 and 1996
aggregated $2,856,000, $2,972,000 and ($987,000), respectively.
26
A reconciliation of the statutory federal income tax rates with the Company's
effective income tax rates for 1998, 1997 and 1996 is as follows:
Year ended December 31,
-----------------------------
(IN THOUSANDS) 1998 1997 1996
- ------------------------------------------------------------------------------------------------
Tax provision at statutory rate on income before income
taxes $6,277 $ 5,505 $ 3,369
State income taxes, net of federal benefit 424 476 122
Meals and entertainment disallowance 291 257 229
Other, net (177) (85) 46
-----------------------------
Total provision for income taxes $6,815 $ 6,153 $ 3,766
=============================
Deferred tax assets and liabilities consist of the following:
December 31,
--------------------
(IN THOUSANDS) 1998 1997
- ------------------------------------------------------------------------------------------------
Deferred tax assets:
Claims and insurance reserves $ 7,857 $ 6,200
Allowance for doubtful accounts 2,224 1,936
Property and equipment - 694
Accrued vacation 1,301 931
Other 748 559
--------------------
12,130 10,320
Deferred tax liabilities:
Depreciation 23,321 20,297
Tires on equipment 2,769 1,971
Employee benefits 1,756 1,293
Other 1,620 1,406
--------------------
29,466 24,967
--------------------
Net deferred tax liability $ 17,336 $14,647
====================
NOTE 5. RELATED PARTY TRANSACTIONS
The Company leases revenue equipment and service center facilities from certain
stockholders, employees and affiliates under both capital and operating leases.
Future minimum lease commitments to affiliates at December 31, 1998, are as
follows:
Operating Capital
(IN THOUSANDS) lease lease Total
- --------------------------------------------------------------------------------------------
1999 $ 373 $ 236 $ 609
2000 188 - 188
-------------------------------------------------
Total minimum lease payments $ 561 236 $ 797
================== ==============
Less amount representing interest 5
-----------------
Present value of capitalized lease
obligations $ 231
=================
Lease payments to affiliates of the Company were $739,000, $775,000 and $826,000
in 1998, 1997 and 1996, respectively.
The Company purchased fuel, equipment repairs and other services from an
affiliate for which it paid $310,000, $365,000 and $401,000 in 1998, 1997 and
1996, respectively. Charges to the affiliate for rent, equipment repairs, fuel
and other services provided by the Company aggregated $207,000, $480,000 and
$1,009,000 during 1998, 1997 and 1996, respectively.
27
NOTE 6. EMPLOYEE RETIREMENT PLAN CONTRIBUTION EXPENSE
Substantially all employees meeting certain service requirements are eligible to
participate in the Company's 401(k) employee retirement plan. Employee
contributions are limited to a percentage of their compensation, as defined in
the plan. The Company makes contributions based upon the greater of a percentage
of employee contributions or ten percent of net income. Company contributions
for 1998, 1997 and 1996 were $1,112,000, $1,004,000 and $753,000, respectively.
NOTE 7. STOCK OPTIONS
In 1991, the Board of Directors and stockholders adopted the 1991 Employee Stock
Option Plan ("Plan") under which 250,000 shares of common stock are reserved for
stock option grants to certain officers and employees. Options granted under the
Plan may be incentive stock options or nonqualified stock options. The Plan
provides that options may be granted at prices not less than the fair market
value on the date the option is granted, which means the closing price of a
share of common stock as reported on the Nasdaq Stock Market (National Market)
on such day or the preceding day if the shares are not traded in the Nasdaq
system on the grant day. On the date the option is granted, the Stock Option
Plan Committee of the Board of Directors determines the period during which the
option may be exercised; however, under the terms of the Plan, the option period
cannot extend more than ten years from the date on which the option is granted.
Options may not be granted under the Plan after August 31, 2001. A summary of
the changes in the number of common shares under option during the years ended
December 31, 1998, 1997 and 1996 follows:
OPTIONS RESERVED
NUMBER OF PER SHARE FOR FUTURE
OPTIONS OPTION PRICE GRANT
- -----------------------------------------------------------------------------------
Balance as of December 31, 1995 196,500 $10.00 - $19.25 40,500
Granted - - -
Exercised - - -
Canceled (15,000) $10.00 - $19.25 15,000
-----------------------------------------------
Balance as of December 31, 1996 181,500 $10.00 - $19.25 55,500
Granted - - -
Exercised (2,400) $10.00 -
Canceled - - -
-----------------------------------------------
Balance as of December 31, 1997 179,100 $10.00 - $19.25 55,500
GRANTED - - -
EXERCISED (1,600) $10.00 -
CANCELED - - -
-----------------------------------------------
BALANCE AS OF DECEMBER 31, 1998 177,500 $10.00 - $19.25 55,500
======= ======
Options exercisable at December 31, 1998, were 161,000.
NOTE 8. RESTRICTED STOCK
In 1991, the Board of Directors and stockholders approved a Restricted Stock
Agreement with an officer of the Company. Pursuant to that agreement, 153,336
shares of the Company's common stock were issued and reserved for release to the
officer in four equal, biannual installments originally scheduled for January 1,
1994, 1996, 1998 and 2000. On January 28, 1997, the Board of Directors
authorized the release of 76,668 shares, the total remaining unreleased shares
under the agreement. Compensation expense was recognized ratably over the
vesting period, adjusted for accelerations of release dates by the Board of
Directors, based on the stock price as of October 24, 1991, the date of the
initial public offering. Compensation expense recognized pursuant to this
agreement was $697,000 and $232,000 for the years 1997 and 1996, respectively.
28
NOTE 9. ACQUISITIONS OF BUSINESS ASSETS
During 1998, the Company acquired selected assets of two LTL trucking companies,
Fredrickson Motor Express Corporation and Goggin Truck Line Company, Inc. These
acquisitions have been accounted for as purchase transactions and consist of the
purchase of assets with an estimated fair value of $18,247,000 and the
assumption of liabilities of $8,942,000. Subsequent to these purchases,
approximately $7,407,000 of the acquired assets were liquidated. Goodwill
associated with the acquisitions is being amortized using a straight-line method
over 25 years.
The results of operations of these acquisitions have been included in the
Company's financial statements beginning on the date the acquisitions were
consummated. The aggregate pro forma impact on the Company's revenue from
operations, operating income and earnings per share is not material to the
consolidated results of operations.
NOTE 10. COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal proceedings and claims that have arisen
in the ordinary course of its business that have not been fully adjudicated.
Many of these are covered in whole or in part by insurance. These actions, when
finally concluded and determined, will not, in the opinion of management, have
an adverse effect upon the financial position or results of operations of the
Company.
NOTE 11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarter
--------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) First Second Third Fourth Total
- --------------------------------------------------------------------------------------------------
1998
REVENUE $88,694 $95,640 $99,266 $99,478 $383,078
OPERATING INCOME 4,089 6,778 6,735 4,975 22,577
NET INCOME 1,913 3,554 3,422 2,231 11,120
NET INCOME PER SHARE:
BASIC AND DILUTED 0.23 0.43 0.41 0.27 1.34
1997
Revenue $73,591 $84,490 $88,275 $82,488 $328,844
Operating income 3,214 6,061 6,502 4,234 20,011
Net income 1,399 3,153 3,353 2,133 10,038
Net income per share:
Basic and diluted 0.17 0.38 0.40 0.26 1.21
29
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Old Dominion Freight Line, Inc.
We have audited the accompanying consolidated balance sheets of Old Dominion
Freight Line, Inc. and subsidiary as of December 31, 1998 and 1997, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1998. Our audits also included the financial statement schedule of Old Dominion
Freight Line, Inc. and subsidiary listed in Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Old Dominion
Freight Line, Inc. and its subsidiary at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. Also, in our opinion, the financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
Winston-Salem, North Carolina
January 28, 1999
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required by Item 10
of Form 10-K is incorporated by reference to the Company's proxy statement for
the 1999 Annual Meeting of its Stockholders under the caption's "Election of
Directors" and "Principal Stockholders - Section 16 Beneficial Ownership
Reporting Compliance", reference to which is hereby made, and the information
there is incorporated herein by reference.
The information concerning the Company's executive officers required by
Item 10 of Form 10-K appears in Item 1 of this report under the heading
"Executive Officers of the Company".
30
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 of Form 10-K appears in the
Company's proxy statement for the 1999 Annual Meeting of its Stockholders under
the caption "Executive Compensation", reference to which is hereby made, and the
information there is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 of Form 10-K appears in the
Company's proxy statement for the 1999 Annual Meeting of its Stockholders under
the captions "Election of Directors" and "Principal Stockholders", reference to
which is hereby made, and the information there is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 of Form 10-K appears in the
Company's proxy statement for the 1999 Annual Meeting of its Stockholders under
the caption "Executive Compensation - Compensation Committee Interlocks and
Insider Participation", reference to which is hereby made, and the information
there is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
The following consolidated financial statements of Old Dominion Freight
Line, Inc., are included in Item 8:
Consolidated Balance Sheets - December 31, 1998, and December 31, 1997
Consolidated Statements of Operations - Years ended December 31, 1998,
December 31, 1997, and December 31, 1996
Consolidated Statements of Changes in Stockholders' Equity - Years ended
December 31, 1998, December 31, 1997, and December 31, 1996
Consolidated Statements of Cash Flows - Years ended December 31, 1998,
December 31, 1997, and December 31, 1996
Notes to the Consolidated Financial Statements
(a)(2) Financial Statement Schedules.
The following financial statement schedule of Old Dominion Freight Line,
Inc., is included in response to Item 14(d):
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the instructions or are inapplicable and, therefore,
have been omitted.
31
The documents listed below are filed under subsection (d) of Item 14:
(a)(3) Exhibits Filed. The exhibits listed in the accompanying Exhibit Index
are filed as a part of this report.
(b) Reports on Form 8-K. None filed during the last quarter of the period
covered by this report.
(c) Exhibits. See Exhibit Index.
(d) Financial Statement Schedules.
SCHEDULE II
OLD DOMINION FREIGHT LINE, INC.
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
----------------------------------------------------------
ADDITIONS AMOUNTS
BEGINNING CHARGED WRITTEN ENDING
DESCRIPTION BALANCE TO EXPENSE OFF BALANCE
- --------------------------------------------------------------------------------
Year ended
December 31, 1996 $ 5,083,000 $ 2,345,000 $ 1,729,000 $ 5,699,000
Year ended
December 31, 1997 $ 5,699,000 $ 2,852,000 $ 3,588,000 $ 4,963,000
YEAR ENDED
DECEMBER 31, 1998 $ 4,963,000 $ 3,035,000 $ 2,296,000 $ 5,702,000
32
[zz]
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 22, 1999 By: EARL E. CONGDON
---------------
Earl E. Congdon
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Name and Signature Position Date
- ------------------ -------- ----
EARL E. CONGDON Chairman of the Board and March 22, 1999
- ---------------------- Chief Executive Officer
Earl E. Congdon
JOHN R. CONGDON Vice Chairman of the Board March 22, 1999
- ---------------------- and Director
John R. Congdon
JOHN A. EBELING Vice Chairman of the Board March 22, 1999
- ---------------------- and Director
John A. Ebeling
JOHN R. CONGDON, JR. Director March 22, 1999
- --------------------
John R. Congdon, Jr.
HAROLD G. HOAK Director March 22, 1999
- --------------------
Harold G. Hoak
FRANZ F. HOLSCHER Director March 22, 1999
- --------------------
Franz F. Holscher
DAVID S. CONGDON President and Chief Operating March 22, 1999
- ---------------------- Officer
David S. Congdon
J. WES FRYE Senior Vice President - Finance March 22, 1999
- ---------------------- (Principal Financial Officer)
J. Wes Frye
JOHN P. BOOKER III Vice President - Controller March 22, 1999
- ---------------------- (Principal Accounting Officer)
John P. Booker III
33
EXHIBIT INDEX
TO ANNUAL REPORT ON FORM 10-K
OLD DOMINION FREIGHT LINE, INC.
FOR YEAR ENDED DECEMBER 31, 1998
Exhibit No. Description
- ----------- ---------------------------------------------------------------------
3.1.1(a) Articles of Incorporation (as amended and restated September 18, 1991)
3.2(a) Bylaws of Old Dominion Freight Line, Inc.
4.1(a) Specimen certificate of Common Stock
4.3(b) ISDA Master Agreement and Schedule between First Union National Bank of North
Carolina and Old Dominion Freight Line, Inc., dated June 15, 1995
4.4(b) Credit Agreement between First Union National Bank of North Carolina and Old
Dominion Freight Line, Inc., dated June 14, 1995
4.4.1(b) Form of note issued by Company pursuant to the Credit Agreement
between First Union National Bank of North Carolina and Old
Dominion Freight Line, Inc., dated June 14, 1995
4.4.2(c) First Amendment to Credit Agreement between First Union National Bank of North
Carolina and Old Dominion Freight Line, Inc., dated February 2, 1996
4.4.3(d) Second Amendment to the Credit Agreement between Old Dominion Freight Line,
Inc. and First Union National Bank of North Carolina, dated April 29, 1996
4.4.4(d) Third Amendment to the Credit Agreement between Old Dominion Freight Line,
Inc. and First Union National Bank of North Carolina, dated June 15, 1996
4.4.5(f) Fourth Amendment to the Credit Agreement between Old Dominion Freight Line,
Inc. and First Union National Bank of North Carolina, dated April 22, 1997
4.5(d) Note Purchase Agreement between Nationwide Life Insurance Company, New York
Life Insurance Company and Old Dominion Freight Line, Inc., dated June 15, 1996
4.5.1(d) Forms of notes issued by Company pursuant to Note Purchase Agreement between
Nationwide Life Insurance Company, New York Life Insurance Company and Old
Dominion Freight Line, Inc., dated June 15, 1996
4.6(g) Note Purchase Agreement between Nationwide Life Insurance Company, New York
Life Insurance Company and Old Dominion Freight Line, Inc., dated February 25, 1998
4.6.1(g) Forms of notes issued by Company pursuant to Note Purchase Agreement between
Nationwide Life Insurance Company, New York Life Insurance Company and Old
Dominion Freight Line, Inc., dated February 25, 1998
10.1(a) Employment Agreement between Old Dominion Freight Line, Inc., and John A.
Ebeling (as amended April 7, 1988)
10.3(a) Restricted Stock Agreement between Old Dominion Freight Line, Inc., and John
A. Ebeling, dated August 19, 1991
10.4(a) 1991 Employee Stock Option Plan of Old Dominion Freight Line, Inc.
10.5(a) Stock Option Agreement pursuant to the 1991 Employee Stock Option Plan of Old
Dominion Freight Line, Inc. (included in Exhibit 10.4)
10.9(a) E & J Enterprises Trailer Lease Agreement, effective August 1, 1991
34
Exhibit No. Description
- ----------- --------------------------------------------------------------------------
10.9.1(e) Extension of E & J Trailer Lease Agreement, effective August 1, 1996
10.15(c) Lease Agreement between Robert A. Cox, Jr., Trustee, and Old Dominion Freight
Line, Inc., dated as of October 31, 1995
23.1 Consent of Ernst & Young LLP
27 Financial Data Schedule
- --------------------------------------------------
(a) Incorporated by reference to the exhibit of the same number contained in the
Company's registration statement on Form S-1 filed under the Securities Act of 1933 (SEC
File: 33-42631)
(b) Incorporated by reference to the exhibit contained in the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1995
(c) Incorporated by reference to the exhibit of the same number contained in
the Company's Annual Report on Form 10-K for the year ended December 31, 1995
(d) Incorporated by reference to the exhibit of the same number contained in the
Company'sQuarterly Report on Form 10-Q for the quarter ended June 30, 1996
(e) Incorporated by reference to the exhibit of the same number contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996
(f) Incorporated by reference to the exhibit of the same number contained in the
Company'sQuarterly Report on Form 10-Q for the quarter ended June 30, 1997
(g) Incorporated by reference to the exhibit of the same number contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997