UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2004
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number: 0-19582
OLD DOMINION FREIGHT LINE, INC.
(Exact name of registrant as specified in its charter)
| VIRGINIA | 56-0751714 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
500 Old Dominion Way
Thomasville, NC 27360
(Address of principal executive offices)
(336) 889-5000
(Registrant’s telephone number, including area code)
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 whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x No ¨
As of May 4, 2004, there were 16,059,352 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
| Quarter Ended | ||||||
| (In thousands, except share data) |
March 31, 2004 |
March 31, 2003 | ||||
| (Unaudited) | (Unaudited) | |||||
| Revenue from operations |
$ | 182,769 | $ | 152,865 | ||
| Operating expenses: |
||||||
| Salaries, wages and benefits |
108,450 | 91,857 | ||||
| Purchased transportation |
6,281 | 4,904 | ||||
| Operating supplies and expenses |
20,835 | 18,158 | ||||
| Depreciation and amortization |
10,596 | 8,685 | ||||
| Building and office equipment rents |
1,830 | 1,767 | ||||
| Operating taxes and licenses |
7,300 | 6,289 | ||||
| Insurance and claims |
5,842 | 4,007 | ||||
| Communications and utilities |
2,844 | 2,371 | ||||
| General supplies and expenses |
6,392 | 5,374 | ||||
| Miscellaneous expenses, net |
1,498 | 787 | ||||
| Total operating expenses |
171,868 | 144,199 | ||||
| Operating income |
10,901 | 8,666 | ||||
| Other deductions: |
||||||
| Interest expense, net |
1,370 | 1,433 | ||||
| Other expense, net |
167 | 214 | ||||
| Total other deductions |
1,537 | 1,647 | ||||
| Income before income taxes |
9,364 | 7,019 | ||||
| Provision for income taxes |
3,652 | 2,772 | ||||
| Net income |
$ | 5,712 | $ | 4,247 | ||
| Earnings per share: |
||||||
| Basic |
$ | 0.24 | $ | 0.18 | ||
| Diluted |
$ | 0.24 | $ | 0.18 | ||
| Weighted average shares outstanding: |
||||||
| Basic |
24,089,028 | 24,035,864 | ||||
| Diluted |
24,110,532 | 24,070,518 | ||||
The accompanying notes are an integral part of these financial statements.
2
OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED BALANCE SHEETS
| (In thousands, except share data) |
March 31, 2004 |
December 31, 2003 |
||||||
| (Unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 1,054 | $ | 1,051 | ||||
| Customer receivables, less allowances of $7,473 and $7,388, respectively |
80,763 | 73,036 | ||||||
| Other receivables |
2,091 | 2,542 | ||||||
| Tires on equipment |
9,102 | 8,833 | ||||||
| Prepaid expenses |
9,475 | 11,369 | ||||||
| Deferred income taxes |
5,384 | 4,539 | ||||||
| Total current assets |
107,869 | 101,370 | ||||||
| Property and equipment: |
||||||||
| Revenue equipment |
270,472 | 263,698 | ||||||
| Land and structures |
188,826 | 177,597 | ||||||
| Other fixed assets |
74,742 | 70,146 | ||||||
| Leasehold improvements |
1,600 | 1,584 | ||||||
| Total property and equipment |
535,640 | 513,025 | ||||||
| Less accumulated depreciation and amortization |
(207,253 | ) | (197,257 | ) | ||||
| Net property and equipment |
328,387 | 315,768 | ||||||
| Other assets |
17,565 | 17,421 | ||||||
| Total assets |
$ | 453,821 | $ | 434,559 | ||||
The accompanying notes are an integral part of these financial statements.
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OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
| (In thousands, except share data) |
March 31, 2004 |
December 31, 2003 | ||||
| (Unaudited) | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||
| Current liabilities: |
||||||
| Accounts payable |
$ | 22,771 | $ | 12,185 | ||
| Compensation and benefits |
21,239 | 19,626 | ||||
| Claims and insurance accruals |
19,808 | 17,742 | ||||
| Other accrued liabilities |
6,739 | 4,603 | ||||
| Income taxes payable |
4,357 | 1,736 | ||||
| Current maturities of long-term debt |
21,897 | 22,440 | ||||
| Total current liabilities |
96,811 | 78,332 | ||||
| Long-term liabilities: |
||||||
| Long-term debt |
68,884 | 74,986 | ||||
| Other non-current liabilities |
18,632 | 17,437 | ||||
| Deferred income taxes |
31,241 | 31,263 | ||||
| Total long-term liabilities |
118,757 | 123,686 | ||||
| Total liabilities |
215,568 | 202,018 | ||||
| Shareholders’ equity: |
||||||
| Common stock - $.10 par value, 25,000,000 shares authorized, 16,059,352 shares outstanding at March 31, 2004 and December 31, 2003 |
1,606 | 1,606 | ||||
| Capital in excess of par value |
72,972 | 72,972 | ||||
| Retained earnings |
163,675 | 157,963 | ||||
| Total shareholders’ equity |
238,253 | 232,541 | ||||
| Commitments and contingencies |
— | — | ||||
| Total liabilities and shareholders’ equity |
$ | 453,821 | $ | 434,559 | ||
The accompanying notes are an integral part of these financial statements.
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OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
| Common Stock |
Capital in excess of par value |
Retained earnings |
Total | ||||||||||||
| (In thousands) |
Shares |
Amount |
|||||||||||||
| Balance as of December 31, 2002 |
10,652 | 1,065 | 72,135 | 130,363 | 203,563 | ||||||||||
| Net income |
— | — | — | 27,600 | 27,600 | ||||||||||
| Three-for-two stock split |
5,348 | 535 | (535 | ) | — | — | |||||||||
| Exercise of common stock options |
59 | 6 | 960 | — | 966 | ||||||||||
| Tax benefit from exercise of common stock options |
— | — | 412 | — | 412 | ||||||||||
| Balance as of December 31, 2003 |
16,059 | 1,606 | 72,972 | 157,963 | 232,541 | ||||||||||
| Net income (Unaudited) |
— | — | — | 5,712 | 5,712 | ||||||||||
| Balance as of March 31, 2004 (Unaudited) |
16,059 | $ | 1,606 | $ | 72,972 | $ | 163,675 | $ | 238,253 | ||||||
The accompanying notes are an integral part of these financial statements.
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OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Quarter Ended March 31, |
||||||||
| (In thousands) |
2004 |
2003 |
||||||
| (Unaudited) | (Unaudited) | |||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 5,712 | $ | 4,247 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
10,596 | 8,685 | ||||||
| Loss (gain) on sale of property and equipment |
44 | (11 | ) | |||||
| Changes in assets and liabilities: |
||||||||
| Customer and other receivables, net |
(7,276 | ) | (4,781 | ) | ||||
| Tires on equipment |
(269 | ) | (156 | ) | ||||
| Prepaid expenses and other assets |
1,749 | 4,290 | ||||||
| Accounts payable |
10,586 | 923 | ||||||
| Compensation, benefits and other accrued liabilities |
3,749 | 3,116 | ||||||
| Claims and insurance accruals |
2,806 | 784 | ||||||
| Deferred income tax |
(867 | ) | — | |||||
| Income taxes payable |
2,621 | — | ||||||
| Other liabilities |
455 | 137 | ||||||
| Net cash provided by operating activities |
29,906 | 17,234 | ||||||
| Cash flows from investing activities: |
||||||||
| Purchase of property and equipment |
(23,292 | ) | (29,363 | ) | ||||
| Proceeds from sale of property and equipment |
34 | 880 | ||||||
| Net cash used in investing activities |
(23,258 | ) | (28,483 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from issuance of long-term debt |
— | 2,650 | ||||||
| Principal payments under long-term debt agreements |
(10,281 | ) | (4,872 | ) | ||||
| Net proceeds from revolving line of credit |
3,636 | — | ||||||
| Proceeds from the conversion of stock options |
— | 761 | ||||||
| Net cash used in financing activities |
(6,645 | ) | (1,461 | ) | ||||
| Increase (decrease) in cash and cash equivalents |
3 | (12,710 | ) | |||||
| Cash and cash equivalents at beginning of period |
1,051 | 19,259 | ||||||
| Cash and cash equivalents at end of period |
$ | 1,054 | $ | 6,549 | ||||
The accompanying notes are an integral part of these financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
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 accounting principles generally accepted in the United States 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 revenue 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 Old Dominion Freight Line, Inc. or significant changes in our commitments and contingencies as previously described in the 2003 Annual Report to Shareholders and related annual report to the Securities and Exchange Commission on Form 10-K.
Common Stock Split
On April 22, 2004, Old Dominion announced a three-for-two stock split, which will be effected in the form of a 50% stock dividend. The new shares will be distributed on May 20, 2004, to shareholders of record at the close of business on May 6, 2004 (which is prior to the date of this report). All references in this report to weighted average shares outstanding and earnings per share amounts have been restated retroactively for this stock split.
Revolving Credit Agreement
We entered into an unsecured revolving credit agreement dated June 30, 2003 with lenders consisting of Wachovia Bank, N.A.; Bank of America, N.A.; and Branch Banking and Trust Company, with Wachovia as agent for the lenders. This three-year facility, as amended, consists of $80,000,000 in line of credit commitments from the lenders, all of which are available for revolving loans. In addition, of that $80,000,000 line of credit, $40,000,000 may be used for letters of credit and $10,000,000 may be used for borrowings under Wachovia’s sweep program. The sweep program is a daily cash management tool that automatically initiates borrowings to cover overnight cash requirements up to an aggregate of $10,000,000 or initiates overnight investments for excess cash balances. Revolving loans under the facility will bear interest at either: (a) an applicable margin plus the higher of Wachovia’s prime rate or one-half of one percentage point over the federal funds rate (the “Adjusted Base Rate”); or (b) LIBOR plus an applicable margin (the “Adjusted LIBOR Rate”). The applicable margin will vary depending upon our ratio of adjusted debt to capital. In the case of the Adjusted Base Rate, the applicable margin will range from 0% to .25%. In the case of the Adjusted LIBOR Rate, the applicable margin will range from .75% to 1.25%. The applicable margin under this agreement for the first three months of 2004 for the Adjusted Base Rate and the Adjusted LIBOR Rate was 0% and 1.0%, respectively. Revolving loans under the sweep program will bear interest at the aggregate rate applicable under the sweep program plus the Adjusted LIBOR Rate.
Quarterly fees ranging from .20% to .30% will be charged on the aggregate unused portion of the facility determined by our ratio of adjusted debt to capital. The applicable rate for the first three months of 2004 was .25%. Quarterly fees will be charged on the aggregate undrawn portion of outstanding letters of credit at a rate ranging from .75% to 1.25%, which was 1.0% for the first three months of 2004 as determined by our ratio of adjusted debt to capital. In addition, a quarterly facing fee at an annual rate of ..125% was charged on the aggregate undrawn portion of outstanding letters of credit.
The June 2003 credit facility contains customary covenants, including financial covenants that require us to observe a maximum ratio of adjusted debt to capital, to maintain a minimum fixed charge coverage ratio and to maintain a minimum consolidated tangible net worth. Our wholly owned subsidiary guaranteed payment of all of our obligations under the facility. Future wholly owned subsidiaries would
7
be required to guarantee payment of all of our obligations under the facility. At March 31, 2004, there was $17,636,000 outstanding on the line of credit facility and there was $23,429,000 outstanding on the standby letter of credit facility.
Stock Based Compensation
Stock based compensation expense for our 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. Consistent with APB 25, the exercise price of our employee stock options equals the market price of the underlying stock on the date of grant; therefore, no compensation expense is recognized. Pro forma information regarding net income and earnings per share required by SFAS No. 123, Accounting for Stock-Based Compensation, is not significant.
Recent Accounting Pronouncements
In January 2003, the FASB issued SFAS Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, which addresses consolidation by business enterprises of variable interest entities (“VIEs”) either: (1) that do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or (2) in which the equity investors lack an essential characteristic of a controlling financial interest. In December 2003, the FASB issued modifications to FIN 46 (“Revised Interpretations”) resulting in multiple effective dates based on the nature as well as the creation date of the VIE. VIEs created after January 31, 2003, but prior to January 1, 2004, may be accounted for either based on the original interpretation or the Revised Interpretations. However, the Revised Interpretations were required to be applied no later than the first quarter 2004. VIEs created after January 1, 2004 must be accounted for under the Revised Interpretations. Non-Special Purpose Entities created prior to February 1, 2003, should be accounted for under the Revised Interpretations’ provisions no later than the first quarter of fiscal 2004. We have adopted FIN 46, which did not have a material impact on our consolidated financial statements.
Related Party Transactions
Transactions with Old Dominion Truck Leasing, Inc.
Old Dominion Truck Leasing, Inc. (“Leasing”), a North Carolina corporation whose voting stock is owned by the Earl E. Congdon Intangibles Trust, David S. Congdon, Trustee, the John R. Congdon Revocable Trust and members of Earl E. Congdon’s and John R. Congdon’s families, is engaged in the business of purchasing and leasing tractors, trailers and other vehicles. John R. Congdon is Chairman of the Board of Leasing, and Earl E. Congdon is Vice Chairman of the Board of Leasing. Since 1986, we have combined our requirements with Leasing for the purchase of