FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2001
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to ____________.
Commission File Number: 0-19582
OLD DOMINION FREIGHT LINE, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 56-0751714
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1730 Westchester Drive
High Point, NC 27262
(Address of principal executive offices)
Telephone Number (336) 889-5000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No___.
---
As of November 9, 2001, there were 8,312,840 shares of the registrant's
Common Stock ($.10 par value) outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
------------------------------ ---------------------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2001 2000 2001 2000
(In thousands, except share and per share data) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
- ---------------------------------------------------------------------- -------------- ------------------- -------------------
Revenue from operations $ 128,960 $ 122,385 $ 377,835 $ 355,328
Operating expenses:
Salaries, wages and benefits 77,408 72,048 229,432 210,558
Purchased transportation 4,746 4,989 14,307 14,644
Operating supplies and expenses 12,256 13,070 38,518 37,122
Depreciation and amortization 7,517 6,936 22,326 20,026
Building and office equipment rents 1,806 1,777 5,621 5,463
Operating taxes and licenses 5,200 4,725 15,637 14,129
Insurance and claims 3,536 3,134 9,842 9,016
Communications and utilities 2,334 2,199 7,211 6,440
General supplies and expenses 4,748 4,660 13,507 13,658
Miscellaneous expenses 1,728 587 4,511 2,674
---------- ----------- ----------- ----------
Total operating expenses 121,279 114,125 360,912 333,730
---------- ----------- ----------- ----------
Operating income 7,681 8,260 16,923 21,598
Other deductions:
Interest expense, net 1,415 1,273 4,441 3,205
Other expense (income), net 267 (50) (235) 39
---------- ----------- ----------- ----------
Total other deductions 1,682 1,223 4,206 3,244
---------- ----------- ----------- ----------
Income before income taxes 5,999 7,037 12,717 18,354
Provision for income taxes 2,340 2,744 4,960 7,158
---------- ----------- ----------- ----------
Net income $ 3,659 $ 4,293 $ 7,757 $ 11,196
========== =========== =========== ==========
Basic and diluted earnings per share: $ 0.44 $ 0.52 $ .93 $ 1.35
Weighted average shares outstanding:
Basic 8,312,840 8,312,840 8,312,840 8,312,840
Diluted 8,314,922 8,312,840 8,313,751 8,314,207
The accompanying notes are an integral part of these financial statements.
2
OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2001 2000
(In thousands, except share data) (Unaudited) (Audited)
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 6,017 $ 585
Customer receivables, less allowances of $6,601
and $6,068 respectively 61,114 54,273
Other receivables 3,900 4,450
Tires on equipment 7,287 6,912
Prepaid expenses 6,325 12,499
Deferred income taxes 1,477 1,477
------------------ --------------------
Total current assets 86,120 80,196
Property and equipment:
Revenue equipment 203,703 198,131
Land and structures 104,301 90,469
Other equipment 42,585 38,430
Leasehold improvements 4,438 4,338
------------------ --------------------
Total property and equipment 355,027 331,368
Less accumulated depreciation and amortization (148,528) (130,018)
------------------ --------------------
Net property and equipment 206,499 201,350
Other assets 18,016 15,045
------------------ --------------------
Total assets $ 310,635 $ 296,591
================== ====================
The accompanying notes are an integral part of these financial statements.
3
OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
September 30, December 31,
2001 2000
(In thousands, except share data) (Unaudited) (Audited)
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 22,228 $ 26,515
Compensation and benefits 11,192 11,298
Claims and insurance accruals 15,206 14,128
Other accrued liabilities 5,074 2,434
Income taxes payable 998 -
Current maturities of long-term debt 7,934 9,035
------------------ --------------------
Total current liabilities 62,632 63,410
Long-term debt 81,004 74,507
Other non-current liabilities 12,863 12,295
Deferred income taxes 21,645 21,645
------------------ --------------------
Total long-term liabilities 115,512 108,447
Stockholders' equity:
Common stock - $.10 par value, 25,000,000 shares
authorized, 8,312,840 outstanding 831 831
Capital in excess of par value 23,907 23,907
Retained earnings 107,753 99,996
------------------ --------------------
Total stockholders' equity 132,491 124,734
Commitments and contingencies - -
------------------ --------------------
Total liabilities and stockholders' equity $310,635 $296,591
================== ====================
The accompanying notes are an integral part of these financial statements.
4
OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended Sept. 30,
----------------------------------
2001 2000
(In thousands) (Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 7,757 $ 11,196
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 22,326 20,026
Deferred income taxes - -
Loss (gain) on sale of property and equipment 137 (112)
Changes in assets and liabilities:
Customer and other receivables, net (6,291) (5,893)
Tires on equipment (375) (104)
Prepaid expenses and other assets 5,713 3,209
Accounts payable (4,287) (2,952)
Compensation, benefits and other accrued liabilities 2,534 3,410
Claims and insurance accruals 1,548 2,048
Income taxes payable 998 66
Other liabilities 98 302
--------------- ---------------
Net cash provided by operating activities 30,158 31,196
--------------- ---------------
Cash flows from investing activities:
Acquisition of business assets, net (9,387) -
Purchase of property and equipment (21,474) (52,734)
Proceeds from sale of property and equipment 739 1,311
--------------- ---------------
Net cash used in investing activities (30,122) (51,423)
--------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 52,563 1,626
Principal payments under long-term debt agreements (7,917) (7,384)
Net (payments) proceeds on revolving line of credit (39,250) 26,075
--------------- ---------------
Net cash used in financing activities 5,396 20,317
--------------- ---------------
Increase (decrease) in cash and cash equivalents 5,432 90
Cash and cash equivalents at beginning of period 585 781
--------------- ---------------
Cash and cash equivalents at end of period $ 6,017 $ 871
=============== ===============
The accompanying notes are an integral part of these financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying consolidated interim financial statements have been prepared by
Old Dominion Freight Line, Inc. (the "Company"), in accordance with generally
accepted accounting principles for interim financial information and with
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain
information and footnote disclosures normally included for complete financial
statements, prepared in accordance with generally accepted accounting
principles, have been omitted pursuant to such rules and regulations. The
balance sheet at December 31, 2000 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The consolidated interim financial statements should be
read in conjunction with the financial statements, notes thereto and other
information included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000.
The accompanying unaudited consolidated interim financial statements reflect, in
the opinion of management, all adjustments (consisting of normal recurring
items) necessary for a fair presentation, in all material respects, of the
financial position and results of operations for the periods presented. The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions.
Such estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The results of operations for the interim periods are not necessarily indicative
of the results for the entire year.
There have been no significant changes in the accounting policies of the
Company, or significant changes in the Company's commitments and contingencies
as previously described in the 2000 Annual Report to Stockholders and related
annual report to the Securities and Exchange Commission on Form 10-K.
ACQUISITION OF BUSINESS ASSETS
On January 26, 2001 the Company entered into an agreement to purchase selected
assets, consisting primarily of revenue equipment and real estate, from Carter &
Sons Freightways, Inc. of Carrollton, Texas. While the purchase price has not
been fully allocated, the Company anticipates cash outlays and the present value
of assumed equipment leases to approximate $9,387,000. The pro forma effects of
the acquisition are not material to the operations of the Company.
NOTE PURCHASE AND SHELF AGREEMENT
On May 4, 2001, the Company entered into a $65,000,000 Note Purchase and Shelf
Agreement with The Prudential Insurance Company of America ("Prudential"). Under
this agreement, the Company assumed five senior notes totaling $50,000,000
issued by Prudential and its associates, all of which bear an interest rate of
6.93% and a maturity date of August 10, 2008. The notes call for quarterly
interest payments beginning on August 10, 2001 and 10 semi-annual principal
payments of $5,000,000 beginning on February 10, 2004. The proceeds from this
agreement were used to reduce the outstanding balance on the Company's revolving
line of credit. According to terms of the agreement the Company may authorize
the issuance and sale of amounts not to exceed $15,000,000 in additional senior
notes. The applicable interest rate and payment schedules for these shelf notes
will be determined and mutually agreed upon at the time of issuance.
EARNINGS PER SHARE
Net income per share of common stock is based on the weighted average number of
shares outstanding during each period.
6
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations ("SFAS No. 141"),
and No. 142, Goodwill and Other Intangible Assets ("SFAS No. 142"). SFAS No. 141
requires that the purchase method of accounting be used for all business
combinations subsequent to June 30, 2001, and specifies criteria for recognizing
intangible assets acquired in a business combination. SFAS No. 142 requires that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment at least annually. Intangible
assets with definite useful lives will continue to be amortized over their
respective estimated useful lives. The Company will adopt SFAS No. 142 effective
January 1, 2002. During 2002, the Company will perform the first of the required
impairment tests of goodwill and indefinite lived assets as of January 1, 2002
and has not yet determined what effect, if any, these tests will have on the
earnings and financial condition of the Company.
In October 2001, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets ("SFAS No. 144"). This Statement establishes a single
accounting model for the impairment or disposal of long-lived assets. As
required by SFAS No. 144, the Company will adopt this new accounting standard on
July 1, 2002. The Company believes the adoption of SFAS No. 144 will not have a
material impact on its financial statements.
SUBSEQUENT EVENTS
None
7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations for the Three Months and Nine Months Ended September 30,
- ------------------------------------------------------------------------------
2001, Compared to the Three Months and Nine Months Ended September 30, 2000
- ---------------------------------------------------------------------------
Expenses as a Percentage of Revenue from Operations
---------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- ----------------------------------
2001 2000 2001 2000
-------------- -------------- --------------- --------------
Revenue from operations 100.0% 100.0% 100.0% 100.0%
-------------- -------------- --------------- --------------
Operating expenses:
Salaries, wages and benefits 60.0 58.9 60.7 59.3
Purchased transportation 3.7 4.1 3.8 4.1
Operating supplies and expenses 9.5 10.7 10.2 10.5
Depreciation and amortization 5.8 5.7 5.9 5.6
Building and office equipment rents 1.4 1.4 1.5 1.5
Operating taxes and licenses 4.0 3.8 4.1 4.0
Insurance and claims 2.7 2.6 2.6 2.5
Communications and utilities 1.8 1.8 1.9 1.8
General supplies and expenses 3.7 3.8 3.6 3.8
Miscellaneous expenses 1.4 .5 1.2 .8
-------------- -------------- --------------- --------------
Total operating expenses 94.0 93.3 95.5 93.9
-------------- -------------- --------------- --------------
Operating income 6.0 6.7 4.5 6.1
Interest expense, net 1.1 1.0 1.2 .9
Other expense (income), net .2 - (.1) -
-------------- -------------- --------------- --------------
Income before income taxes 4.7 5.7 3.4 5.2
Provision for income taxes 1.9 2.2 1.3 2.0
-------------- -------------- --------------- --------------
Net income 2.8% 3.5% 2.1% 3.2%
============== ============== =============== ==============
8
RESULTS OF OPERATIONS
- ---------------------
Three Months Ended September 30, 2001 Compared to Three Months Ended September
30, 2000
The third quarter of 2001 continued to reflect a weak national economy resulting
in lower demand for transportation products when compared to the previous year
comparable quarter. This economic environment was also negatively impacted by
the terrorist attacks on September 11, 2001, which in addition to further
reducing demand, also increased the Company's operating costs. Increased traffic
congestion in the New York markets and more stringent security measures
implemented throughout the Company's customer base resulted in additional costs.
As a result of these and other cost factors, net income declined 14.8% for the
quarter to $3,659,000 compared to $4,293,000 for the prior-year period. The
Company's operating ratio, operating costs as a percentage of revenue, increased
to 94.0% from 93.3%.
Revenue for the third quarter of 2001 was $128,960,000, an increase of 5.4% from
$122,385,000 for the third quarter 2000. The increased revenue for the quarter
was achieved through improvements in pricing and a shift in the Company's
tonnage mix. Pricing, as measured in revenue per hundredweight, improved to
$10.31 compared to $9.55 for the comparable period, an improvement of 7.9%. The
increase in the overall revenue per hundredweight can be attributed to a higher
less-than-truckload ("LTL") tonnage mix, which generally is priced at a higher
revenue per hundredweight than truckload shipments weighing over 10,000 lbs. The
Company also implemented an increase in its general tariffs, effective August 6,
2001, that contributed to a 2.9% increase in LTL revenue per hundredweight for
the quarter.
Tonnage decreased 2.3% to 626,000 tons from 641,000 tons for the comparable
quarter. LTL tonnage, which comprised 72.7% of total tonnage for the quarter,
increased 5.3%. This increase was offset by a 11.8% decrease in shipments
weighing between 10,000 and 20,000 lbs., a 32.7% decrease in tonnage for
truckload shipments weighing over 20,000 lbs. and a 16.9% decrease in container
tonnage. The third quarter of 2001 continues a trend of smaller shipments, in
terms of weight, that has been prevalent throughout the year. The Company
believes this is indicative of the weakness in the economy, which is manifest in
a lower demand for its shipper's products.
While lower demand and generally weaker financial results remain an industry
problem, the Company has continued to implement its long-term strategic plan to
increase market share through improved service products and selective geographic
expansion. During the third quarter, the Company continued to benefit from its
acquisition of selected assets of Carter & Sons Freightways Inc. of Carrollton,
Texas, on February 12, 2001. As a result of this acquisition, the Company opened
13 new service centers and expanded its full state coverage to 23 states with
the addition of Texas and Oklahoma. These new service centers and the
consolidation of 10 more service centers formerly operated by Carter & Sons
provided an additional source of revenue and tonnage for the third quarter.
Intra-regional revenue within the Company's South Central Area, which contains
most of the newly acquired service centers, increased 110.5%, or $1,960,000,
over the prior-year quarter.
The increase in the Company's operating ratio was primarily due to three key
factors: increased health care costs, additional provisions for potential
write-off of customer accounts receivable and increases in certain operating
costs due to excess capacity.
The Company self-insures a significant portion of the group health benefits it
provides for its employees and their families. This cost increased 31.8% or
$5,842,000 over the prior-year quarter. In particular, significant increases
were incurred in both the cost and frequency of use for prescription drugs. The
Company anticipates the trend of escalating health care costs to continue for
the immediate future, consistent with national trends. In response, management
is currently analyzing its benefit plans and most recent claims experience to
identify opportunities to lower its costs.
As the economy has weakened, the Company has experienced increases in both the
aging of its accounts receivable and the amount of receivables turned over to
third party collection agencies. As a result, the Company increased bad debt
expense to $1,446,000 for the quarter, an increase of $636,000 over the third
quarter of 2000. Bad debt expense is recorded in "Miscellaneous Expenses" on the
Company's Consolidated Statements of Operations.
9
Since the end of the third quarter 2000, the Company has increased its tractor
fleet 5.1%, its trailer fleet 6.4% and has expanded its service center network
to 115 locations from 104. This increase in equipment and service center
capacity, when combined with 2.3% decrease in tonnage, has caused certain
operating costs to increase as a percentage of revenue. Operating taxes and
licenses expense increased to 4.0% from 3.8% while depreciation and amortization
expenses increased to 5.8% of revenue from 5.7% for the comparable quarters.
While tonnage decreased for the comparable quarters, intercity miles increased
by 2.7%. As a result, linehaul driver labor increased to 12.0% of revenue
compared to 11.7% for the third quarter of 2000. Management believes this loss
of linehaul density was caused by the overall weakness in the economy, the
additional linehaul lanes required to service 11 new service center locations
and lack of density in the Company's newer full-state coverage markets. Until
these markets mature and the overall economic climate improves, the Company may
experience underutilized linehaul capacity as it continues to meet its published
service standards. However, in order to continue to increase market share, the
Company believes these cost are necessary to provide quality and consistent
service in its new and existing markets.
Fuel expenses decreased to 4.9% of revenue from 5.6% for the third quarter of
2000. This reflects a gradual decline in fuel prices since the fourth quarter
2000, a trend that has continued into the fourth quarter 2001. To offset the
price volatility of petroleum based products such as diesel fuel, the Company
has implemented a fuel surcharge on most of its tariffs and contracts.
Generally, the surcharge provides for increases in revenue as fuel costs
increase above certain benchmark price levels.
Net interest expense for the third quarter of 2001 increased slightly to 1.1% of
revenue from 1.0% for the prior-year comparable period, primarily as a result of
an increase in the amount of debt outstanding between the quarters. Net income
was $3,659,000 compared to $4,293,000, a decrease of 14.8%, and the effective
tax rate for both the third quarter of 2001 and 2000 was 39.0%.
Nine Months Ended September 30, 2001, Compared to Nine Months Ended September
30, 2000
Revenue for the first three quarters of the year was $377,835,000 compared to
$355,328,000 for the prior-year period, an increase of 6.3%. Increases in
operating expenses outpaced revenue growth and as a result, the Company's
operating ratio increased to 95.5% from 93.9%. Net income for the period
decreased 30.7% to $7,757,000 from $11,196,000 for the comparable period in
2000.
The Company's financial results for the first nine months of 2001 were impacted
by both the deceleration of the national economy and the acquisition of selected
assets of Carter & Sons Freightways Inc. In the first three quarters of the
year, economic factors depressed demand for transportation services as reflected
by only a .8% decrease in tonnage between the two periods. Although total
tonnage was relatively flat, LTL tonnage grew 5.5% while tonnage from shipments
weighing more than 10,000 lbs. declined. Because LTL shipments generally are
priced at a higher revenue per hundredweight, the Company increased revenue
while tonnage decreased. Net revenue per hundredweight was $10.07 through the
first nine months of 2001 compared to $9.40 for the prior-year period, an
increase of 7.2%. This increase reflects both the change in tonnage mix and a
rate increase on the Company's general tariffs implemented in August 2001.
The Carter & Sons acquisition in February 2001 contributed to the Company's
ability to grow tonnage and revenue in a period where industry levels generally
declined. As a result of this acquisition, the Company opened 13 new service
centers, primarily in Texas and Oklahoma. Combined with its existing operations,
this expansion generated a 110.7% increase in intra-regional revenue for the
Company's South Central Region.
The Company targeted revenue growth in the range of 10% to 15% for the current
year, a goal that will be extremely difficult to obtain in the current economic
environment. The terrorist attacks on September 11, 2001 have also had a
negative impact on demand for transportation products and have negatively
impacted costs, which has carried over into the fourth quarter of the year. As a
result, the Company is experiencing excess capacity or lack of density in its
operations that has resulted in an increase in its
10
operating ratio. Also contributing to the cost increases are markets acquired in
the Carter acquisition, which have yet to mature and supply the Company with the
density required to contribute to profitability. The Company expects that as
those markets mature and the economy improves, its historic levels of density,
operating ratio and profitability will return. Excess capacity is also evident
by the increase in depreciation and amortization expense to 5.9% of revenue from
5.6% in the prior-year period. These increases are due to underutilization of a
larger revenue equipment fleet and operating more owned service center
facilities in the first nine months of 2001.
In addition to these factors, the Company also experienced increases in certain
costs that impacted its results. Linehaul driver pay increased to 12.3% of
revenue from 11.8% for the prior-year period primarily as a result of a general
wage increase in September 2001 and a .3% decline in revenue per intercity mile.
Health care and workers compensation expenses increased 22.8% and 14.3%,
respectively, when compared with the prior-year period. The Company monitors
these expenses for opportunities to prevent and minimize these costs; however,
health care costs continue to escalate disproportionately to other cost
increases incurred by the Company.
Fuel expense remained relatively flat at 5.4% for the two comparable periods.
The Company has implemented a fuel surcharge in its general tariffs and
contracts, which has effectively offset the increase in the price of petroleum
products required by the Company's operations. The fuel surcharge is recorded in
net revenue. The Company seeks to continue to apply these surcharges until
prices fall below certain floor levels.
As a result of a higher average level of debt outstanding for the first nine
months of 2001, interest expense increased to 1.2% of revenue from .9%.
Outstanding debt was $88,938,000 at September 30, 2001 compared to $85,187,000
at September 30, 2000, an increase of 4.4%. This increase is primarily due to
the additional financing required to fund $30,122,000 of net capital
expenditures in 2001 and $61,030,000 of net capital expenditures in 2000..
The effective tax rate for both periods was 39%.
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 $30,122,000 during the first
nine months of 2001. Cash flows generated internally funded all of the required
capital expenditures for this period. At September 30, 2001, long-term debt
including current maturities increased to $88,938,000 from $83,542,000 at
December 31, 2000.
The Company estimates net capital expenditures to be approximately $35,000,000
to $40,000,000 for the year ending December 31, 2001. Of that, approximately
$23,000,000 is planned to be used for purchase or construction of larger
replacement service centers or expansion of existing service centers, $8,000,000
is planned to be used to purchase revenue equipment, $7,000,000 is planned to be
used for investments in technology and other assets. The Company plans to fund
these expenditures primarily through cash flows from operations supplemented by
additional borrowings.
On May 31, 2000 the Company entered into a $62,500,000 uncollateralized
committed credit facility that consists of a $50,000,000 line of credit and a
$12,500,000 line to support standby letters of credit. This facility has a term
of three years that expires on May 31, 2003. Interest on the line of credit is
charged at rates that vary based upon a certain financial performance ratio. The
applicable interest rate for the third quarter of 2001 under this agreement was
based upon LIBOR plus .85%. A fee of .25% was charged on the unused portion of
the line of credit and fees ranging between .70% to .71% were charged on
outstanding standby letters of credit. At September 30, 2001, there were no
outstanding borrowings on the line of credit and $6,853,000 outstanding on the
standby letter of credit facility. Standby letters of credit are primarily
issued as collateral for self-insured retention reserves for bodily injury,
property damage and workers' compensation claims. On May 31, 2001 this credit
agreement was amended, effective May 7, 2001, to decrease the line of credit
facility to $20,000,000 for the remainder of the term.
11
On May 4, 2001, the Company entered into a $65,000,000 Note Purchase and Shelf
Agreement with The Prudential Insurance Company of America ("Prudential"). Under
this agreement, the Company assumed five senior notes totaling $50,000,000
issued by Prudential and its associates, all of which bear an interest rate of
6.93% and a maturity date of August 10, 2008. The notes call for quarterly
interest payments beginning on August 10, 2001 and 10 semi-annual principal
payments of $5,000,000 beginning on February 10, 2004. The proceeds from this
agreement were used to reduce the outstanding balance on the Company's revolving
line of credit. The terms of the agreement allow the Company to authorize the
issuance and sale of amounts not to exceed $15,000,000 in additional senior
notes. The applicable interest rate and payment schedules for any new notes will
be determined and mutually agreed upon at the time of issuance. The Company's
exposure to changes in interest rates is minimal and limited to the outstanding
balance of its line of credit facility, which had no outstanding balance at
September 30, 2001. The Company does not currently use interest rate derivative
instruments to manage exposure to interest rate changes. Also, the Company 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.
INFLATION
- ---------
Most of the Company's expenses are affected by inflation, which will generally
result in increased costs. In response to the rising cost of petroleum products,
particularly diesel fuel, the Company has implemented a fuel surcharge in its
tariffs and contractual agreements. The fuel surcharge is designed to offset the
cost of fuel above a base price and increases as fuel prices escalate over the
base. For the quarter ending September 30, 2001, the net effect of inflation on
the Company's results of operations was minimal.
SEASONALITY
- -----------
The Company's tonnage levels and revenue mix are subject to seasonal trends
common in the motor carrier industry. Financial 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
reflect increased demand for services during the spring and summer months, which
generally result in improved operating margins.
ENVIRONMENTAL
- -------------
The Company is subject to federal, state and local environmental laws and
regulations, particularly relative to underground storage tanks. The Company
believes it is in compliance with applicable environmental laws and regulations,
including those relating to underground storage tanks, 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 and other significant resources; (5) the ability to
impose and maintain fuel surcharges
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to offset increases in fuel prices; (6) the impact of regulatory bodies; (7)
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; (8) the Company's ability 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; (9) the Company's
ability to purchase, build or lease facilities suitable for its operations; and
(10) other risks and uncertainties indicated from time to time in the Company's
filings with the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
The information called for by this item is provided under the caption "Liquidity
and Capital Resources" under Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits: None
b) Reports on Form 8-K: No reports on Form 8-K were filed during the
quarter ended September 30, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OLD DOMINION FREIGHT LINE, INC.
DATE: NOVEMBER 9, 2001 J. WES FRYE
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J. Wes Frye
Senior Vice President - Finance
(Principal Financial Officer)
DATE: NOVEMBER 9, 2001 JOHN P. BOOKER III
---------------------------------- ------------------------------
John P. Booker III
Vice President - Controller
(Principal Accounting Officer)
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