Note: The Condensed Balance Sheet at December 31, 2018 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements.
The accompanying notes are an integral part of these condensed financial statements.
Note: The Condensed Balance Sheet at December 31, 2018 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements.
The accompanying notes are an integral part of these condensed financial statements.
The accompanying notes are an integral part of these condensed financial statements.
The accompanying notes are an integral part of these condensed financial statements.
The accompanying notes are an integral part of these condensed financial statements.
NOTES TO THE CONDENSED FINAN
CIAL STATEMENTS (UNAUDITED)
Note 1. Significant Accounting Policies
Business
We are a leading, less-than-truckload (“LTL”), union-free motor carrier providing regional, inter-regional and national LTL services through a single integrated organization. Our service offerings, which include expedited transportation, are provided through an expansive network of service centers located throughout the continental United States. Through strategic alliances, we also provide LTL services throughout North America. In addition to our core LTL services, we offer a range of value-added services including container drayage, truckload brokerage and supply chain consulting. We have one operating segment and the composition of our revenue is summarized below:
|
|
Three Months Ended
|
|
|
March 31,
|
(In thousands)
|
|
2019
|
|
2018
|
LTL services
|
|
$
|
976,563
|
|
|
$
|
911,054
|
|
Other services
|
|
|
14,219
|
|
|
|
13,966
|
|
Total revenue from operations
|
|
$
|
990,782
|
|
|
$
|
925,020
|
|
Basis of Presentation
The accompanying unaudited, interim condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and, in management’s opinion, contain all adjustments (consisting of normal recurring items) necessary for a fair presentation, in all material respects, of the financial position and results of operations for the periods presented. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements.
The preparation of condensed financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Our operating results are subject to seasonal trends; therefore, the results of operations for the interim period ended March 31, 2019 are not necessarily indicative of the results that may be expected for the subsequent quarterly periods or the year ending December 31, 2019.
The condensed financial statements should be read in conjunction with the financial statements and related notes, which appear in our Annual Report on Form 10-K for the year ended December 31, 2018. There have been no significant changes in the accounting principles and policies, long-term contracts or estimates inherent in the preparation of the condensed financial statements of Old Dominion Freight Line, Inc. as previously described in our Annual Report on Form 10-K for the year ended December 31, 2018, other than those disclosed in this Form 10-Q.
Certain amounts in prior years have been reclassified to conform prior years’ financial statements to the current presentation.
Unless the context requires otherwise, references in these Notes to “Old Dominion,” the “Company,” “we,” “us” and “our” refer to Old Dominion Freight Line, Inc.
Fair Values of Financial Instruments
The carrying values of financial instruments in current assets and current liabilities approximate their fair value due to the short maturities of these instruments. The carrying value of our total long-term debt was $45.0 million at each of March 31, 2019 and December 31, 2018. The estimated fair value of our total long-term debt was $46.0
million and $45.6 million at March 31, 2019 and December 31, 2018, respectively. The fair value measurement of our senior notes was determined using a discounted cash flow analysis that factors in current market yields for comparable borrowing arrangements under our credit profile. Since this methodology is based upon market yields for comparable arrangements, the measurement is categorized as Level 2 under the three-level fair value hierarchy as established by the Financial Accounting Standards Board (the “FASB”).
6
Stock Repurchase Program
On May 17, 2018, we announced that our Board of Directors had approved a two-year stock repurchase program authorizing us to repurchase up to an aggregate of $250.0 million of our outstanding common stock (the “Repurchase Program”). Under the Repurchase Program, which became effective upon the expiration of our prior stock repurchase program in June 2018, we may repurchase shares from time to time in open market purchases or through privately negotiated transactions. Shares of our common stock repurchased under the Repurchase Program are canceled at the time of repurchase and are classified as authorized but unissued shares of our common stock.
During the three months ended March 31, 2019, we repurchased 221,809 shares of our common stock for $30.6 million. As of March 31, 2019, we had $101.1 million remaining authorized under the Repurchase Program.
Recent Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, “Leases” (Topic 842). This ASU requires a lessee to recognize a right-of-use asset and a lease liability on its balance sheet for most operating leases. ASU 2016-02 is effective for annual and interim periods beginning after December 15, 2018, including interim periods within those fiscal years. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements,” which provided companies with an additional optional transition method to apply the new standard to leases in effect at the adoption date through a cumulative effect adjustment. We adopted the new lease standard on January 1, 2019 using this optional transition method.
We elected the package of practical expedients referenced in ASU 2016-02, which permits companies to retain original lease identification and classification without reassessing initial direct costs for existing leases. We also elected (i) the practical expedient that exempts leases with an initial lease term of twelve months or less, (ii) the practical expedient that allows companies to select, by class of underlying asset, not to separate lease and non-lease components, and (iii) the practical expedient that allows companies to apply hindsight in determining lease terms. Our adoption of this standard resulted in the recognition of right-of-use assets and corresponding lease liabilities of $68.0 million and $69.1 million, respectively, as of January 1, 2019. There were no material impacts to our results of operations or our cash flows. Disclosures related to the amount, timing, and uncertainty of cash flows arising from our leases are included in Note 4.
Note 2. Earnings Per Share
Basic earnings per share is computed by dividing net income by the daily weighted average number of shares of our common stock outstanding for the period, excluding shares of unvested restricted stock and contingently-issuable shares. Unvested restricted stock is included in shares of common stock outstanding on our Condensed Balance Sheets.
Diluted earnings per share is computed using the treasury stock method. The denominator used in calculating diluted earnings per share includes shares of unvested restricted stock, but excludes contingently-issuable shares under performance-based award agreements because the performance target has not yet been deemed achieved.
The following table provides a reconciliation of the number of shares of common stock used in computing basic and diluted earnings per share:
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2019
|
|
2018
|
Weighted average shares outstanding - basic
|
|
|
81,033,137
|
|
|
|
82,253,470
|
|
Dilutive effect of share-based awards
|
|
|
110,417
|
|
|
|
102,578
|
|
Weighted average shares outstanding - diluted
|
|
|
81,143,554
|
|
|
|
82,356,048
|
|
7
Note 3.
Long-Term Debt
Long-term debt consisted of the following:
(In thousands)
|
|
March 31,
2019
|
|
December 31,
2018
|
Senior notes
|
|
$
|
45,000
|
|
|
$
|
45,000
|
|
Revolving credit facility
|
|
|
—
|
|
|
|
—
|
|
Total long-term debt
|
|
|
45,000
|
|
|
|
45,000
|
|
Less: Current maturities
|
|
|
—
|
|
|
|
—
|
|
Total maturities due after one year
|
|
$
|
45,000
|
|
|
$
|
45,000
|
|
We have one unsecured senior note agreement with an amount outstanding of $45.0 million at each of March 31, 2019 and December 31, 2018. Our unsecured senior note agreement calls for a scheduled principal payment of $45.0 million due on January 3, 2021. The interest rate on the January 3, 2021 scheduled principal payment is 4.79%.
On December 15, 2015, we entered into an amended and restated credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”) serving as administrative agent for the lenders (the “Credit Agreement”). The Credit Agreement originally provided for a five-year, $250.0 million senior unsecured revolving line of credit and a $100.0 million accordion feature, which if fully exercised and approved, would expand the total borrowing capacity up to an aggregate of $350.0 million.
On September 9, 2016, we exercised a portion of the accordion feature and entered into an amendment to the Credit Agreement to increase the aggregate commitments from existing lenders by $50.0 million to an aggregate of $300.0 million. Of the $300.0 million line of credit commitments under the Credit Agreement, as amended, up to $100.0 million may be used for letters of credit.
At our option, borrowings under the Credit Agreement bear interest at either: (i) LIBOR plus an applicable margin (based on our ratio of net debt-to-total capitalization) that ranges from 1.0% to 1.50%; or (ii) a Base Rate plus an applicable margin (based on our ratio of net debt-to-total capitalization) that ranges from 0.0% to 0.5%. Letter of credit fees equal to the applicable margin for LIBOR loans are charged quarterly in arrears on the daily average aggregate stated amount of all letters of credit outstanding during the quarter. Commitment fees ranging from 0.125% to 0.2% (based upon the ratio of net debt-to-total capitalization) are charged quarterly in arrears on the aggregate unutilized portion of the Credit Agreement.
For periods covered under the Credit Agreement, the applicable margin on LIBOR loans and letter of credit fees were 1.0% and commitment fees were 0.125%. There were $58.9
million and $61.5 million of outstanding letters of credit at March 31, 2019 and December 31, 2018, respectively.
Note 4. Leases
We lease certain assets under operating leases, which primarily consist of real estate leases for 32 of our 235 service center locations and automotive leases for our Company-owned vehicles. Certain operating leases provide for renewal options, which can vary by lease and are typically offered at their fair rental value. We have not made any residual value guarantees related to our operating leases; therefore, we have no corresponding liability recorded on our Condensed Balance Sheets.
The right-of-use assets and corresponding lease liabilities on our Condensed Balance Sheet represent payments over the lease term, which includes renewal options for certain real estate leases that we are likely to exercise. These renewal options range from one to ten years in length and begin in 2020 and continue through 2033. Short-term leases, which have an initial term of 12 months or less, are not included in our right-of-use assets.
Of our total lease liabilities, $10.4 million is classified as current and is presented within “Other accrued liabilities,” and $58.6 million is classified as non-current and is presented within “Other non-current liabilities,” on our Condensed Balance Sheet as of March 31, 2019. Our right-of-use assets totaled $67.8 million and are presented within “Other assets,” which is classified as long-term, on our Condensed Balance Sheet as of March 31, 2019.
8
Future lease payments for assets under operating leases, as well as a reconciliation to our
total
lease liabilit
ies
as of March 31, 2019,
are
as follows:
(In thousands)
|
Lease Payments
(a)
|
Remainder of 2019
|
$
|
9,943
|
|
2020
|
|
11,516
|
|
2021
|
|
8,917
|
|
2022
|
|
6,524
|
|
2023
|
|
5,314
|
|
Thereafter
|
|
47,210
|
|
Total lease payments
|
$
|
89,424
|
|
Less: Imputed interest
|
|
(20,471
|
)
|
Total lease liabilities
|
$
|
68,953
|
|
|
(a)
|
Lease payments include lease extensions which are reasonably certain to be exercised and exclude $44.9 million in lease payments for leases signed but not yet commenced.
|
The weighted average lease term for our operating leases was 9.5 years as of March 31, 2019. The discount rate used in the calculation of our right-of-use assets and corresponding lease liabilities was determined based on the stated rate within each contract when available, or our collateralized borrowing rate from lending institutions. The weighted average discount rate for our operating leases was 4.2% as of March 31, 2019.
For the three-month period ended March 31, 2019, cash paid for amounts included in the measurement of our operating leases was $3.5 million, while the aggregate lease expense under operating leases was $3.6 million. Certain operating leases include rent escalation provisions, which we recognize as expense on a straight-line basis. Lease expense is presented within “Operating supplies and expenses” or “General supplies and expenses,” depending on the nature of the use of the leased asset.
Note 5. Commitments and Contingencies
We are involved in or addressing various legal proceedings and claims, governmental inquiries, notices and investigations that have arisen in the ordinary course of our business and have not been fully adjudicated, some of which may be covered in whole or in part by insurance. Certain of these matters include class-action allegations. We do not believe that the resolution of any of these matters will have a material adverse effect upon our financial position, results of operations or cash flows.
9