OLD DOMINION FREIGHT LINE, INC. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management’s Discussion and Analysis of Financial Condition and Results of Operations generally discusses our 2023 and 2022 results and year-to-year comparisons between 2023 and 2022. Discussions of our 2021 results and year-to-year comparisons between 2022 and 2021 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the Securities and Exchange Commission on February 22, 2023. Overview We are one of the largest North American less-than-truckload (“LTL”) motor carriers. We provide regional, inter-regional and national LTL services through a single integrated, union-free 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. More than 98% of our revenue has historically been derived from transporting LTL shipments for our customers, whose demand for our services is generally tied to industrial production and the overall health of the U.S. domestic economy. In analyzing the components of our revenue, we monitor changes and trends in our LTL volumes and LTL revenue per hundredweight. While LTL revenue per hundredweight is a yield measurement, it is also a commonly-used indicator for general pricing trends in the LTL industry. This yield metric is not a true measure of price, however, as it can be influenced by many other factors, such as changes in fuel surcharges, weight per shipment and length of haul. As a result, changes in revenue per hundredweight do not necessarily indicate actual changes in underlying base rates. LTL revenue per hundredweight and the key factors that can impact this metric are described in more detail below: • LTL Revenue Per Hundredweight - Our LTL transportation services are generally priced based on weight, commodity, and distance. This measurement reflects the application of our pricing policies to the services we provide, which are influenced by competitive market conditions and our growth objectives. Generally, freight is rated by a class system, which is established by the National Motor Freight Traffic Association, Inc. Light, bulky freight typically has a higher class and is priced at higher revenue per hundredweight than dense, heavy freight. Fuel surcharges, accessorial charges, revenue adjustments and revenue for undelivered freight are included in this measurement. Revenue for undelivered freight is deferred for financial statement purposes in accordance with our revenue recognition policy; however, we believe including it in our revenue per hundredweight metrics results in a more accurate representation of the underlying changes in our yields by matching total billed revenue with the corresponding weight of those shipments. • LTL Weight Per Shipment - Fluctuations in weight per shipment can indicate changes in the mix of freight we receive from our customers, as well as changes in the number of units included in a shipment. Generally, increases in weight per shipment indicate higher demand for our customers’ products and overall increased economic activity. Changes in weight per shipment can also be influenced by shifts between LTL and other modes of transportation, such as truckload and intermodal, in response to capacity, service and pricing issues. Fluctuations in weight per shipment generally have an inverse effect on our revenue per hundredweight, as a decrease in weight per shipment will typically cause an increase in revenue per hundredweight. • Average Length of Haul - We consider lengths of haul less than 500 miles to be regional traffic, lengths of haul between 500 miles and 1,000 miles to be inter-regional traffic, and lengths of haul in excess of 1,000 miles to be national traffic. This metric is used to analyze our tonnage and pricing trends for shipments with similar characteristics, and also allows for comparison with other transportation providers serving specific markets. By analyzing this metric, we can determine the success and growth potential of our service products in these markets. Changes in length of haul generally have a direct effect on our revenue per hundredweight, as an increase in length of haul will typically cause an increase in revenue per hundredweight. • LTL Revenue Per Shipment - This measurement is primarily determined by the three metrics listed above and is used in conjunction with the number of LTL shipments we receive to evaluate LTL revenue. 22 Our primary revenue focus is to increase density, which is shipment and tonnage growth within our existing infrastructure. Increases in density allow us to maximize our asset utilization and labor productivity, which we measure over many different functional areas of our operations including linehaul load factor, P&D stops per hour, P&D shipments per hour, platform pounds handled per hour and platform shipments per hour. In addition to our focus on density and operating efficiencies, it is critical for us to obtain an appropriate yield, which is measured as revenue per hundredweight, on the shipments we handle to offset our cost inflation and support our ongoing investments in capacity and technology. We regularly monitor the components of our pricing, including base freight rates, accessorial charges and fuel surcharges. The fuel surcharge is generally designed to offset fluctuations in the cost of our petroleum-based products and is indexed to diesel fuel prices published by the U.S. Department of Energy, which reset each week. We believe our yield management process appropriately focuses on individual account profitability, and ongoing improvements in operating efficiencies, as key components of our ability to produce profitable growth. Our primary cost elements are direct wages and benefits associated with the movement of freight, operating supplies and expenses, which include diesel fuel, and depreciation of our equipment fleet and service center facilities. We gauge our overall success in managing costs by monitoring our operating ratio, a measure of profitability calculated by dividing total operating expenses by revenue, which also allows for industry-wide comparisons with our competition. We regularly upgrade our technological capabilities to improve our customer service and lower our operating costs. Our technology provides our customers with visibility of their shipments throughout our network, increases the productivity of our workforce, and provides key metrics that we use to monitor and enhance our processes. Results of Operations The following table sets forth, for the years indicated, expenses and other items as a percentage of revenue from operations: 2023 2022 Revenue from operations 100.0 % 100.0 % Operating expenses: Salaries, wages and benefits 44.8 43.4 Operating supplies and expenses 12.2 13.6 General supplies and expenses 2.8 2.6 Operating taxes and licenses 2.5 2.3 Insurance and claims 1.3 0.9 Communication and utilities 0.7 0.6 Depreciation and amortization 5.5 4.5 Purchased transportation 2.1 2.5 Miscellaneous expenses, net 0.1 0.2 Total operating expenses 72.0 70.6 Operating income 28.0 29.4 Interest (income) expense, net (0.2 ) (0.1 ) Other expense, net 0.1 0.1 Income before income taxes 28.1 29.4 Provision for income taxes 7.0 7.4 Net income 21.1 % 22.0 % 23 Key financial and operating metrics for 2023 and 2022 are presented below: 2023 2022 Change % Change Work days 252 253 (1 ) (0.4 ) Revenue (in thousands) $ 5,866,152 $ 6,260,077 $ (393,925 ) (6.3 ) Operating ratio 72.0 % 70.6 % Net income (in thousands) $ 1,239,502 $ 1,377,159 $ (137,657 ) (10.0 ) Diluted earnings per share $ 11.26 $ 12.18 $ (0.92 ) (7.6 ) LTL tons (in thousands) 9,260 10,211 (951 ) (9.3 ) LTL tonnage per day 36,745 40,359 (3,614 ) (9.0 ) LTL shipments (in thousands) 12,176 12,989 (813 ) (6.3 ) LTL shipments per day 48,317 51,341 (3,024 ) (5.9 ) LTL weight per shipment (lbs.) 1,521 1,572 (51 ) (3.2 ) LTL revenue per hundredweight $ 31.31 $ 30.24 $ 1.07 3.5 LTL revenue per shipment $ 476.25 $ 475.45 $ 0.80 0.2 LTL revenue per intercity mile $ 8.38 $ 8.28 $ 0.10 1.2 LTL intercity miles (in thousands) 691,632 746,028 (54,396 ) (7.3 ) Average length of haul (miles) 925 934 (9 ) (1.0 ) Our financial results for 2023 reflect continued softness in the domestic economy that contributed to the decline in our revenue. Despite the decrease in our LTL tons, we maintained a commitment to providing superior customer service to support the continued improvement in our yield. We continued to focus on controlling our costs in the low volume environment, but we continued to invest in new capacity in anticipation of long-term growth in our market share. As a result, our depreciation costs increased as a percent of revenue and contributed to the slight increase in our operating ratio to 72.0% for 2023. In addition, our net income and diluted earnings per share decreased by 10.0% and 7.6%, respectively, as compared to 2022. Revenue Revenue decreased $393.9 million, or 6.3%, in 2023 compared to 2022. This decrease resulted from a 9.0% decrease in LTL tonnage per day, which was primarily due to decreases in LTL shipments per day and LTL weight per shipment. This decrease in revenue was partially offset by a 3.5% increase in our LTL revenue per hundredweight. Our LTL revenue per hundredweight includes the impact of lower fuel surcharges resulting from a decline in the average price of diesel fuel for the comparable periods. Excluding fuel surcharges, LTL revenue per hundredweight increased 8.3% in 2023 as compared to 2022. We believe the increase in our LTL revenue-per-hundredweight metrics was driven by the ongoing execution of our yield management strategy, which is focused on obtaining price increases necessary to offset our cost inflation and support our continued investments in capacity and technology. January 2024 Update Revenue per day decreased 2.7% in January 2024 compared to the same month last year. LTL tons per day decreased 5.0%, due primarily to a 2.3% decrease in LTL shipments per day and a 2.8% decrease in LTL weight per shipment. LTL revenue per hundredweight increased 2.7% as compared to the same month last year. LTL revenue per hundredweight, excluding fuel surcharges, increased 6.7% as compared to the same month last year. Operating Costs and Other Expenses Salaries, wages, and benefits decreased $87.2 million, or 3.2%, in 2023 as compared to 2022, due to an $83.1 million decrease in the costs attributable to salaries and wages and a $4.1 million decrease in employee benefit costs. The decrease in salaries and wages was due primarily to decreases in the average number of active full-time employees during the year, as we balanced our workforce to align with our customers' shipping trends. Salaries and wages also decreased as a result of lower performance-based and discretionary bonus compensation. These decreases were partially offset by the annual wage increase provided to our employees at the beginning of both September 2022 and 2023. Our productive labor costs, which include wages for drivers, platform employees, and fleet technicians, increased as a percent of revenue to 23.6% in 2023 from to 22.9% in 2022. While our platform and P&D shipments per hour and P&D stops per hour improved during 2023 as compared to 2022, our linehaul laden load average declined due to the decreased operating density associated with the decrease in our LTL tons. Our other salaries and wages as a percent of revenue remained consistent between the comparable periods. 24 The cost attributable to employee benefits decreased $4.1 million, or 0.6%, in 2023 compared to 2022. Our employee benefit costs increased as a percent of salaries and wages to 37.5% in 2023 from 36.2% in 2022. The increase in employee benefit costs as a percent of salaries and wages was primarily due to an increase in our employee group health benefit costs that resulted from higher costs per claim. This increase in employee benefit costs as a percent of salaries and wages was partially offset by lower retirement benefit plan costs directly linked to our net income. Operating supplies and expenses decreased $134.6 million, or 15.8%, in 2023 as compared to 2022, due primarily to decreases in our costs for diesel fuel used in our vehicles. The cost of diesel fuel, excluding fuel taxes, represents the largest component of operating supplies and expenses, and can vary based on both the average price per gallon and consumption. Our average cost per gallon of diesel fuel decreased 19.8% in 2023 as compared to 2022. In addition, our gallons consumed decreased 8.5% in 2023 as compared to 2022 due to a decrease in our miles driven. We do not use diesel fuel hedging instruments; therefore, our costs are subject to market price fluctuations. Our other operating supplies and expenses as a percent of revenue were generally consistent in 2023 as compared to 2022. Depreciation and amortization increased $48.4 million, or 17.5%, in 2023 as compared to 2022. The increases in depreciation and amortization costs were due primarily to the assets acquired as part of our 2022 and 2023 capital expenditure programs. We believe depreciation costs will continue to increase in future periods based on our 2024 capital expenditure plan. While our investments in real estate, equipment, and technology can increase our short-term costs, we believe these investments are necessary to support our continued long-term growth and strategic initiatives. Purchased transportation expense decreased $36.6 million, or 23.1%, in 2023 as compared to 2022. We primarily utilize purchased transportation services to support our LTL services to and from Canada as well as our truckload brokerage operations. We also periodically utilize purchased transportation for our domestic LTL service when we need to supplement the capacity of our workforce or fleet, which most frequently occurs during periods with significant growth. We used third-party transportation providers in our domestic linehaul network during the first half of 2022, but our utilization was normalized during the second half of 2022 when the capacity of our team was closely balanced with our volumes. Our effective tax rate in 2023 was 24.8% as compared to 25.2% in 2022. Our effective tax rate generally exceeds the federal statutory rate due to the impact of state taxes and, to a lesser extent, certain other non-deductible items. Liquidity and Capital Resources A summary of our cash flows is presented below: (In thousands) 2023 2022 Cash and cash equivalents at beginning of year $ 186,312 $ 462,564 Cash flows provided by (used in): Operating activities 1,569,135 1,691,582 Investing activities (659,820 ) (547,472 ) Financing activities (661,828 ) (1,420,362 ) Increase (decrease) in cash and cash equivalents 247,487 (276,252 ) Cash and cash equivalents at end of year $ 433,799 $ 186,312 The change in our cash flows provided by operating activities during 2023 as compared to 2022 was due to the $137.7 million decrease in net income as well as the $33.2 million decrease in certain other working capital accounts. These decreases were partially offset by a $48.4 million increase in depreciation and amortization expense. The change in our cash flows used in investing activities during 2023 as compared to 2022 was primarily due to the timing of purchases and maturities of short-term investments, which was partially offset by a net reduction in capital expenditures. Changes in our capital expenditures are more fully described below in “Capital Expenditures.” The change in our cash flows used in financing activities during 2023 as compared to 2022 was primarily due to the $823.6 million decrease in funds used for repurchases of our common stock. This decrease in cash was partially offset by higher dividend payments to our shareholders and a scheduled principal payment under our long-term debt agreement. Our return of capital to shareholders is more fully described below under “Stock Repurchase Program” and “Dividends to Shareholders.” Our long-term debt agreement is more fully described below under "Financing Arrangements." 25 We have four primary sources of available liquidity: cash flows from operations, our existing cash and cash equivalents, available borrowings under our third amended and restated credit agreement with Wells Fargo Bank, National Association serving as administrative agent for the lenders, dated March 22, 2023 (the “Credit Agreement”), and our Note Purchase and Private Shelf Agreement with PGIM, Inc. (“Prudential”) and certain affiliates and managed accounts of Prudential, as amended by the First Amendment dated March 22, 2023 (as amended, the “Note Agreement”). The Credit Agreement and the Note Agreement are described in more detail below under “Financing Arrangements.” We believe we also have sufficient access to debt and equity markets to provide other sources of liquidity, if needed. Capital Expenditures The table below sets forth our net capital expenditures for property and equipment, including those obtained through noncash transactions, for the years ended December 31, 2023 and 2022: Year Ended December 31, (In thousands) 2023 2022 Land and structures $ 291,070 $ 299,529 Tractors 203,417 148,719 Trailers 181,534 216,697 Technology 44,358 33,783 Other equipment and assets 36,930 68,920 Less: Proceeds from sales (48,637 ) (22,096 ) Total $ 708,672 $ 745,552 Our capital expenditures vary based upon the projected increase in the number and size of our service center facilities necessary to support our plan for long-term growth, our planned tractor and trailer replacement cycle, and forecasted tonnage and shipment growth. Expenditures for land and structures can be dependent upon the availability of land in the geographic areas where we are looking to expand. We historically spend 10% to 15% of our revenue on capital expenditures each year. We expect to continue to maintain a high level of capital expenditures in order to support our long-term plan for market share growth. We currently estimate capital expenditures will be approximately $750 million for the year ending December 31, 2024. Approximately $350 million is allocated for the purchase of service center facilities, construction of new service center facilities or expansion of existing service center facilities, subject to the availability of suitable real estate and the timing of construction projects; approximately $325 million is allocated for the purchase of tractors and trailers; and approximately $75 million is allocated for investments in technology and other assets. We expect to fund these capital expenditures primarily through cash flows from operations, our existing cash and cash equivalents and, if needed, borrowings available under the Credit Agreement or Note Agreement. We believe our current sources of liquidity will be sufficient to satisfy our expected capital expenditures for the next twelve months and in the longer term. Stock Repurchase Program On July 28, 2021, we announced that our Board of Directors had approved a stock repurchase program authorizing us to repurchase up to an aggregate of $2.0 billion of our outstanding common stock (the “2021 Repurchase Program”). The 2021 Repurchase Program, which does not have an expiration date, began after completion of our prior repurchase program in January 2022. On July 26, 2023, we announced that our Board of Directors had approved a new stock repurchase program authorizing us to repurchase up to an aggregate of $3.0 billion of our outstanding common stock. The new repurchase program, which does not have an expiration date, will be effective upon the completion of our 2021 Repurchase Program. At December 31, 2023, our 2021 Repurchase Program had $225.4 million remaining authorized. Under our repurchase programs, we may repurchase shares from time to time in open market purchases or through privately negotiated transactions. Shares of our common stock repurchased under our repurchase programs are canceled at the time of repurchase and are classified as authorized but unissued shares of our common stock. Dividends to Shareholders Our Board of Directors declared a cash dividend of $0.40 per share for each quarter of 2023 and declared a cash dividend of $0.30 per share for each quarter of 2022. 26 On January 31, 2024, we announced that our Board of Directors had declared a cash dividend of $0.52 per share of our common stock. The dividend is payable on March 20, 2024 to shareholders of record at the close of business on March 6, 2024. Although we intend to pay a quarterly cash dividend on our common stock for the foreseeable future, the declaration and amount of any future dividend is subject to approval by our Board of Directors, and is restricted by applicable state law limitations on distributions to shareholders as well as certain covenants under our Credit Agreement and Note Agreement. We anticipate that any future quarterly cash dividends will be funded through cash flows from operations, our existing cash and cash equivalents, and, if needed, borrowings under our Credit Agreement or Note Agreement. On February 16, 2024, we announced that our Board of Directors approved a two-for-one split of our common stock for shareholders of record as of the close of business on the record date of March 13, 2024. The additional shares will be distributed by our transfer agent, Computershare Trust Company, N.A., on March 27, 2024. Financing Agreements Note Agreement The Note Agreement, which is uncommitted and subject to Prudential’s sole discretion, provides for the issuance of senior promissory notes with an aggregate principal amount of up to $350.0 million through March 22, 2026. On May 4, 2020, we issued $100.0 million aggregate principal amount of senior promissory notes (the “Series B Notes”). Borrowing availability under the Note Agreement is reduced by the outstanding amount of the existing Series B Notes, and all other senior promissory notes issued pursuant to the Note Agreement. The Series B Notes bear interest at 3.10% per annum and mature on May 4, 2027, unless prepaid. Our first principal payment of $20.0 million was paid on May 4, 2023. The remaining $80.0 million will be paid in four equal annual installments of $20.0 million through May 4, 2027. The Series B Notes are senior unsecured obligations and rank pari passu with borrowings under the Credit Agreement or other senior promissory notes issued pursuant to the Note Agreement. Credit Agreement The Credit Agreement provides for a five-year, $250.0 million senior unsecured revolving line of credit and a $150.0 million accordion feature, which if fully exercised and approved, would expand the total borrowing capacity up to an aggregate of $400.0 million. Of the $250.0 million line of credit commitments under the Credit Agreement, 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) the Secured Overnight Financing Rate (SOFR) plus the Term SOFR Adjustment, as defined in the Credit Agreement, equal to 0.100%, plus an applicable margin that ranges from 1.000% to 1.375%; or (ii) a Base Rate, as defined in the Credit Agreement, plus an applicable margin that ranges from 0.000% to 0.375%. The applicable margin for each of the foregoing options is dependent upon our consolidated debt to consolidated total capitalization ratio. Letter of credit fees equal to the applicable margin for SOFR 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 0.090% to 0.175% (based upon our consolidated debt to consolidated total capitalization ratio) 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 SOFR loans and letter of credit fees were 1.000% and commitment fees were 0.090%. The Credit Agreement replaced our previous five-year, $250.0 million senior unsecured revolving credit agreement dated as of November 21, 2019 (the “Prior Credit Agreement”). For periods in 2023 and 2022 covered under the Prior Credit Agreement, the applicable margin on LIBOR loans and letter of credit fees was 1.000% and commitment fees were 0.100%. The amounts outstanding and available borrowing capacity under the Credit Agreement are presented below: December 31, (In thousands) 2023 2022 Facility limit $ 250,000 $ 250,000 Line of credit borrowings — — Outstanding letters of credit (39,966 ) (38,653 ) Available borrowing capacity $ 210,034 $ 211,347 27 General Debt Provisions The Credit Agreement and Note Agreement contain customary covenants, including financial covenants that require us to observe a maximum ratio of debt to total capital and a minimum fixed charge coverage ratio. The Credit Agreement and Note Agreement also include a provision limiting our ability to make restricted payments, including dividends and payments for share repurchases, unless, among other conditions, no defaults or events of default are ongoing (or would be caused by such restricted payment). We were in compliance with all covenants in our outstanding debt instruments for the period ended December 31, 2023. We do not anticipate financial performance that would cause us to violate any such covenants in the future, and we believe the combination of our existing Credit Agreement and Note Agreement along with our additional borrowing capacity will be sufficient to meet foreseeable seasonal and long-term capital needs. The interest rate is fixed on the Series B Notes. Therefore, short-term exposure to fluctuations in interest rates is limited to our Credit Agreement. We do not currently use interest rate derivative instruments to manage exposure to interest rate changes. Contractual Obligations The following table summarizes our significant contractual obligations as of December 31, 2023: Payments due by period Contractual Obligations (1) Less than More than (In thousands) Total 1 year 1-3 years 3-5 years 5 years Series B Notes $ 84,564 $ 22,072 $ 42,281 $ 20,211 $ — Operating lease obligations (2) 151,273 21,598 37,261 34,670 57,744 Purchase obligations and Other 38,056 25,266 12,790 — — Total $ 273,893 $ 68,936 $ 92,332 $ 54,881 $ 57,744 (1) Contractual obligations include principal and interest on our Series B Notes; leases consisting primarily of real estate and automotive leases; and purchase obligations relating to non-cancellable purchase orders for (i) equipment scheduled for delivery in 2024, and (ii) information technology agreements. (2) Lease payments include lease extensions that are reasonably certain to be exercised. Critical Accounting Policies In preparing our financial statements, we apply the following critical accounting policies that we believe affect our judgments and estimates of amounts recorded in certain assets, liabilities, revenue and expenses. These critical accounting policies, which are those that have, or are reasonably likely to have, a material impact on our financial condition or results of operations, are further described in Note 1 of the Notes to the Financial Statements included in Item 8 of this report. Revenue Recognition Our revenue is generated from providing transportation and related services to customers in accordance with the bill of lading (“BOL”) contract, our general tariff provisions and contractual agreements. Generally, our performance obligations begin when we receive a BOL from a customer and are satisfied when we complete the delivery of a shipment and related services. We recognize revenue for our performance obligations under our customer contracts over time, as our customers receive the benefits of our services in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers ("ASC Topic 606"). With respect to services not completed at the end of a reporting period, we use a percentage of completion method to allocate the appropriate revenue to each separate reporting period. Under this method, we develop a factor for each uncompleted shipment by dividing the actual number of days in transit at the end of a reporting period by that shipment’s standard delivery time schedule. This factor is applied to the total revenue for that shipment and revenue is allocated between reporting periods accordingly. A hypothetical change of 10% in our percentage of completion estimate would not have a material effect on our recorded revenue. 28 Property and Equipment Property and equipment are recorded at cost and depreciated on a straight-line basis over their estimated economic lives. We use historical experience, certain assumptions and estimates in determining the economic life of each asset. When indicators of impairment exist, we review property and equipment for impairment due to changes in operational and market conditions, and we adjust the carrying value and economic life of any impaired asset as appropriate. Estimated economic lives for structures are 7 to 30 years, revenue equipment is 4 to 15 years, other equipment is 2 to 20 years, and leasehold improvements are the lesser of the economic life of the leasehold improvement or the remaining life of the lease. The use of different assumptions, estimates or significant changes in the resale market for our equipment could result in material changes in the carrying value and related depreciation of our assets. Depreciation expense in 2023 totaled $324.0 million. A hypothetical change of 1% in the estimated useful lives of all depreciable assets would not have a material impact on our financial results. Claims and Insurance Accruals Claims and insurance accruals reflect the estimated cost of various claims, including those related to bodily injury/property damage (“BIPD”) and workers’ compensation. All related costs associated with BIPD claims are charged to insurance and claims expense, and all related costs associated with workers’ compensation claims are charged to employee benefits expense. Insurers providing excess coverage above a company’s self-insured retention or deductible levels typically adjust their premiums to cover insured losses and for other market factors. As a result, we periodically evaluate our self-insured retention and deductible levels to determine the most cost-efficient balance between our exposure and excess coverage. In establishing accruals for claims and expenses, we evaluate and monitor each claim individually, and we use factors such as historical claims development experience, known trends and third-party actuarial estimates to determine the appropriate reserves for potential liabilities. We believe the assumptions and methods used to estimate these liabilities are reasonable; however, any changes in the severity or number of reported claims, significant changes in medical costs and regulatory changes affecting the administration of our plans could significantly impact the determination of appropriate reserves in future periods. Our accrued liability for insurance, BIPD claims, and workers’ compensation claims totaled $127.0 million and $129.6 million at December 31, 2023 and 2022, respectively. Claims and insurance accruals are discussed further in Note 1 of the Notes to the Financial Statements included in Item 8 of this report. Inflation Most of our expenses are affected by inflation, which typically results in increased operating costs. In response to fluctuations in the cost of petroleum products, particularly diesel fuel, we generally include a fuel surcharge in our tariffs and contractual agreements. The fuel surcharge is designed to offset the cost of diesel fuel above a base price and fluctuates as diesel fuel prices change from the base, which is generally indexed to the DOE’s published fuel prices that reset each week. Volatility in the price of diesel fuel has impacted our business, as described in this report. However, we do not believe inflation has had a material adverse effect on our results of operations for any of the past three years. Related Party Transactions Family Relationships John R. Congdon, Jr., a member of our Board of Directors, is the cousin of David S. Congdon, Executive Chairman of our Board of Directors. We regularly disclose the amount of compensation that we pay to these individuals, as well as the compensation paid to any of their family members employed by us that from time to time may require disclosure, in the proxy statement for our Annual Meeting of Shareholders. Audit Committee Approval The Audit Committee of our Board of Directors reviews and approves all related person transactions in accordance with our Related Person Transactions Policy. 29 ITEM 7A. QUANTITATIVE AND QUALITAT IVE DISCLOSURES ABOUT MARKET RISK Market risk represents the risk of loss that may impact our financial position, results of operations and cash flows due to adverse changes in financial market prices and rates. We are exposed to interest rate risk directly related to loans, if any, under our Credit Agreement, which have variable interest rates. A 100 basis point increase in the average interest rate on this agreement would have no material effect on our operating results at December 31, 2023 and 2022. We have established policies and procedures to manage exposure to market risks and use major institutions that we believe are creditworthy to minimize credit risk. From time to time, we are exposed to interest rate risk on certain short-term investments. We maintained a short-term investment portfolio, principally composed of commercial paper, totaling $49.4 million at December 31, 2022. We held no short-term investments as of December 31, 2023. These fixed rate securities are subject to interest rate risk, as sharp increases in market interest rates could have an adverse impact on their fair value. Although the fair values of these instruments can fluctuate, we believe that the short-term, highly liquid nature of these debt securities, and our ability to hold these instruments to maturity, reduces our risk for potential material losses. A hypothetical 100 basis point change in market interest rates would have had an immaterial impact on the fair value of these investments at December 31, 2022 and no impact at December 31, 2023. We are exposed to market risk for investments relating to certain assets held within the Company-owned life insurance contracts on certain current and former employees. The cash surrender value in life insurance contracts included on our Balance Sheets at December 31, 2023 and 2022 was $74.4 million and $63.5 million, respectively. The portion of underlying investments with exposure to market fluctuations was $56.2 million and $45.9 million at December 31, 2023 and 2022, respectively. To provide a meaningful assessment of the market risk for investments relating to Company-owned life insurance contracts, we performed a sensitivity analysis using a 10% change in market value in those investments as of December 31, 2023 and 2022. A 10% change in market value would have caused a $5.6 million and a $4.6 million impact on our pre-tax income in 2023 and 2022, respectively. We are also exposed to commodity price risk related to diesel fuel prices, and we manage our exposure to that risk primarily through the application of fuel surcharges to our customers. For further discussion related to these risks, see Notes 1, 2 and 9 of the Notes to the Financial Statements included in Item 8, “Financial Statements and Supplementary Data” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 30 ITEM 8. FINANCIAL STATEMEN TS AND SUPPLEMENTARY DATA OLD DOMINION FREIGHT LINE, INC. BALANCE SHEETS December 31, (In thousands, except share and per share data) 2023 2022 ASSETS Current assets: Cash and cash equivalents $ 433,799 $ 186,312 Short-term investments — 49,355 Customer receivables, less allowances of $ 10,405 and $ 10,689 , respectively 578,885 578,648 Income taxes receivable 18,554 12,738 Other receivables 17,884 13,743 Prepaid expenses and other current assets 94,211 92,944 Total current assets 1,143,333 933,740 Property and equipment: Revenue equipment 2,590,770 2,501,995 Land and structures 3,021,447 2,750,100 Other fixed assets 623,164 550,442 Leasehold improvements 14,436 13,516 Total property and equipment 6,249,817 5,816,053 Less: Accumulated depreciation ( 2,154,412 ) ( 2,128,985 ) Net property and equipment 4,095,405 3,687,068 Other assets 273,655 217,802 Total assets $ 5,512,393 $ 4,838,610 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 112,774 $ 106,275 Compensation and benefits 278,953 288,278 Claims and insurance accruals 63,346 63,307 Other accrued liabilities 69,585 51,933 Current maturities of long-term debt 20,000 20,000 Total current liabilities 544,658 529,793 Long-term debt 59,977 79,963 Other non-current liabilities 286,815 265,422 Deferred income taxes 363,132 310,515 Total long-term liabilities 709,924 655,900 Total liabilities 1,254,582 1,185,693 Commitments and contingent liabilities Shareholders’ equity Common stock - $ 0.10 par value, 280,000,000 shares authorized, 108,965,466 and 110,222,819 shares outstanding at December 31, 2023 and December 31, 2022, respectively. 10,897 11,022 Capital in excess of par value 242,958 244,590 Retained earnings 4,003,956 3,397,305 Total shareholders’ equity 4,257,811 3,652,917 Total liabilities and shareholders’ equity $ 5,512,393 $ 4,838,610 The accompanying notes are an integral part of these financial statements. 31 OLD DOMINION FREIGHT LINE, INC. STATEMENTS O F OPERATIONS Year Ended December 31, (In thousands, except share and per share data) 2023 2022 2021 Revenue from operations $ 5,866,152 $ 6,260,077 $ 5,256,328 Operating expenses: Salaries, wages and benefits 2,629,676 2,716,835 2,467,985 Operating supplies and expenses 718,326 852,955 567,615 General supplies and expenses 162,416 159,998 136,059 Operating taxes and licenses 145,642 141,239 133,452 Insurance and claims 75,368 58,301 53,549 Communications and utilities 43,269 40,584 34,149 Depreciation and amortization 324,435 276,050 259,883 Purchased transportation 121,516 158,111 185,785 Miscellaneous expenses, net 4,831 15,372 26,249 Total operating expenses 4,225,479 4,419,445 3,864,726 Operating income 1,640,673 1,840,632 1,391,602 Non-operating (income) expense: Interest expense 464 1,563 1,727 Interest income ( 12,799 ) ( 4,884 ) ( 786 ) Other expense, net 5,232 2,604 2,238 Total non-operating (income) expense ( 7,103 ) ( 717 ) 3,179 Income before income taxes 1,647,776 1,841,349 1,388,423 Provision for income taxes 408,274 464,190 354,048 Net income $ 1,239,502 $ 1,377,159 $ 1,034,375 Earnings per share: Basic $ 11.33 $ 12.26 $ 8.94 Diluted $ 11.26 $ 12.18 $ 8.89 Weighted average shares outstanding: Basic 109,421,245 112,340,791 115,651,411 Diluted 110,090,212 113,077,820 116,409,989 Dividends declared per share $ 1.60 $ 1.20 $ 0.80 The accompanying notes are an integral part of these financial statements. 32 OLD DOMINION FREIGHT LINE, INC. STATEMENTS OF CHANGES I N SHAREHOLDERS’ EQUITY Capital in Common Stock Excess of Retained (In thousands, except per share data) Shares Amount Par Value Earnings Total Balance as of December 31, 2020 117,058 $ 11,706 $ 226,451 $ 3,088,131 $ 3,326,288 Net income — — — 1,034,375 1,034,375 Share repurchases, including settlements under accelerated share repurchase programs ( 2,083 ) ( 209 ) — ( 536,256 ) ( 536,465 ) Cash dividends declared ($ 0.80 per share) — — — ( 92,389 ) ( 92,389 ) Forward contract for 2021 accelerated share repurchases — — ( 62,500 ) — ( 62,500 ) Share-based compensation and share issuances, net of forfeitures 57 6 15,033 — 15,039 Taxes paid in exchange for shares withheld ( 21 ) ( 2 ) ( 4,539 ) — ( 4,541 ) Balance as of December 31, 2021 115,011 11,501 174,445 3,493,861 3,679,807 Net income — — — 1,377,159 1,377,159 Share repurchases, including settlements under accelerated share repurchase programs ( 4,815 ) ( 482 ) 62,500 ( 1,339,237 ) ( 1,277,219 ) Cash dividends declared ($ 1.20 per share) — — — ( 134,478 ) ( 134,478 ) Share-based compensation and share issuances, net of forfeitures 55 6 15,887 — 15,893 Taxes paid in exchange for shares withheld ( 28 ) ( 3 ) ( 8,242 ) — ( 8,245 ) Balance as of December 31, 2022 110,223 11,022 244,590 3,397,305 3,652,917 Net income — — — 1,239,502 1,239,502 Share repurchases, including transaction costs ( 1,314 ) ( 131 ) — ( 457,768 ) ( 457,899 ) Cash dividends declared ($ 1.60 per share) — — — ( 175,083 ) ( 175,083 ) Share-based compensation and share issuances, net of forfeitures 92 9 11,071 — 11,080 Taxes paid in exchange for shares withheld ( 36 ) ( 3 ) ( 12,703 ) — ( 12,706 ) Balance as of December 31, 2023 108,965 $ 10,897 $ 242,958 $ 4,003,956 $ 4,257,811 The accompanying notes are an integral part of these financial statements. 33 OLD DOMINION FREIGHT LINE, INC. STATEMENTS O F CASH FLOWS Year Ended December 31, (In thousands) 2023 2022 2021 Cash flows from operating activities: Net income $ 1,239,502 $ 1,377,159 $ 1,034,375 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 324,449 276,066 259,899 Noncash lease expense 18,665 16,658 14,890 Gain on disposal of property and equipment ( 22,555 ) ( 3,425 ) ( 563 ) Deferred income taxes 53,341 62,008 30,165 Share-based compensation 11,080 15,893 15,039 Changes in assets and liabilities: Customer and other receivables, net ( 3,875 ) ( 13,009 ) ( 125,562 ) Prepaid expenses and other assets ( 38,189 ) ( 24,714 ) ( 38,387 ) Accounts payable 6,499 23,756 14,008 Compensation, benefits and other accrued liabilities ( 1,422 ) ( 11,202 ) 32,437 Claims and insurance accruals ( 2,249 ) 5,464 10,963 Income taxes, net ( 5,816 ) 6,480 ( 27,929 ) Other liabilities ( 10,295 ) ( 39,552 ) ( 6,729 ) Net cash provided by operating activities 1,569,135 1,691,582 1,212,606 Cash flows from investing activities: Purchase of property and equipment ( 757,309 ) ( 775,148 ) ( 550,077 ) Proceeds from sale of property and equipment 48,637 22,096 19,548 Purchase of short-term investments — ( 163,720 ) ( 359,389 ) Proceeds from maturities of short-term investments 48,852 369,300 435,130 Other investing activities, net — — ( 500 ) Net cash used in investing activities ( 659,820 ) ( 547,472 ) ( 455,288 ) Cash flows from financing activities: Payments for share repurchases ( 453,613 ) ( 1,277,219 ) ( 536,465 ) Forward contract for accelerated share repurchases — — ( 62,500 ) Dividends paid ( 175,089 ) ( 134,484 ) ( 92,366 ) Principal payments under debt agreements ( 20,000 ) — — Other financing activities, net ( 13,126 ) ( 8,659 ) ( 4,853 ) Net cash used in financing activities ( 661,828 ) ( 1,420,362 ) ( 696,184 ) Increase (decrease) in cash and cash equivalents 247,487 ( 276,252 ) 61,134 Cash and cash equivalents at beginning of year 186,312 462,564 401,430 Cash and cash equivalents at end of year $ 433,799 $ 186,312 $ 462,564 Income taxes paid $ 361,448 $ 396,510 $ 352,826 Interest paid $ 3,484 $ 3,953 $ 4,232 Capitalized interest $ 3,364 $ 3,260 $ 2,655 Supplemental disclosure of noncash investing and financing activities: Noncash purchases of property $ - $ - $ 16,034 The accompanying notes are an integral part of these financial statements. 34 OLD DOMINION FREIGHT LINE, INC. NOTES TO THE FINANCIAL STATEMENTS Note 1. Significant Accounting Policies Business We are one of the largest North American less-than-truckload (“LTL”) motor carriers. We provide regional, inter-regional and national LTL services through a single integrated, union-free 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 no single customer exceeds 6% of our revenue. The composition of our revenue is summarized below: Year Ended December 31, (In thousands) 2023 2022 2021 LTL services $ 5,804,939 $ 6,177,055 $ 5,177,497 Other services 61,213 83,022 78,831 Total revenue $ 5,866,152 $ 6,260,077 $ 5,256,328 Basis of Presentation The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 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. Revenue and Expense Recognition We recognize revenue based upon when our transportation and related services have been completed in accordance with the bill of lading (“BOL”) contract, our general tariff provisions and contractual agreements with our customers. Generally, our performance obligations begin when we receive a BOL from a customer and are satisfied when we complete the delivery of a shipment and related services. We recognize revenue for our performance obligations under our customer contracts over time, as our customers receive the benefits of our services in accordance with ASC Topic 606. With respect to services not completed at the end of a reporting period, we use a percentage of completion method to allocate the appropriate revenue to each separate reporting period. Under this method, we develop a factor for each uncompleted shipment by dividing the actual number of days in transit at the end of a reporting period by that shipment’s standard delivery time schedule. This factor is applied to the total revenue for that shipment and revenue is allocated between reporting periods accordingly. Payment terms vary by customer and are short-term in nature. Expenses are recognized when incurred. Allowances for Uncollectible Accounts and Revenue Adjustments We maintain an allowance for uncollectible accounts for estimated losses resulting from the inability of our customers to make required payments. We estimate this allowance by analyzing the aging of our customer receivables, our historical loss experience and other trends and factors affecting the credit risk of our customers, including anticipated changes to future performance. Write-offs occur when we determine an account to be uncollectible and could differ from our allowance estimate as a result of factors such as changes in the overall economic environment or risks surrounding our customers. Additional allowances may be required if the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments. We periodically 35 OLD DOMINION FREIGHT LINE, INC. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) review the underlying assumptions in our estimate of the allowance for uncollectible accounts to ensure that the allowance reflects the most recent trends and factors. We also maintain an allowance for estimated revenue adjustments resulting from future billing corrections, customer allowances, money-back service guarantees and other miscellaneous revenue adjustments. These revenue adjustments are recorded in our revenue from operations. We use historical experience, trends and current information to update and evaluate these estimates. Credit Risk Financial instruments that potentially subject us to concentrations of credit risk consist principally of customer receivables. We perform initial and ongoing credit evaluations of our customers to minimize credit risk. We generally do not require collateral but may requ ire prepayment of our services under certain circumstances. Credit risk is generally diversified due to the large number of entities comprising our customer base and their dispersion across many different industries and geographic regions. When held, we generally expect our short-term investments will be diversified over various high-quality issuers. Such short-term investments may also subject us to concentrations of credit risk. Cash and Cash Equivalents We consider 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. Short-term Investments The Company’s investments in commercial paper with an original maturity of greater than three months have been classified and accounted for as trading securities, and are reported in “Short-term investments” on our Balance Sheets. These investments are measured at fair value each reporting period, with gains or losses recorded in “Non-operating (income) expense” on our Statements of Operations. 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. We capitalize the cost of tires mounted on purchased revenue equipment as a part of the total equipment cost. Subsequent replacement tires are expensed at the time those tires are placed in service. We assess the realizable value of our long-lived assets and evaluate such assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the related assets. The following table provides the estimated useful lives by asset type: Structures 7 to 30 years Revenue equipment 4 to 15 years Other equipment 2 to 20 years Leasehold improvements Lesser of economic life or life of lease Depreciation expense was $ 324.0 million, $ 275.6 million and $ 259.5 million for 2023, 2022 and 2021, respectively. Claims and Insurance Accruals We carry a significant amount of insurance with third-party insurance carriers that provides various levels of protection for our risk exposure, including protection in the areas of property, casualty, cyber, management, and group health, with coverage limits and retention and deductible levels that we believe are reasonable given historical claim activity and severity. We believe that our policy of maintaining self-insured retentions or deductibles under these various insurance programs for a portion of our risks, supported by our safety, claims management and loss prevention programs, is an effective means of managing insurance costs. We periodically review our risk exposure and insurance coverage applicable to those risks and believe that we maintain sufficient insurance coverage. 36 OLD DOMINION FREIGHT LINE, INC. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Claims and insurance accruals reflect the Company’s estimated cost of claims for cargo loss and damage, BIPD, workers’ compensation, group health and group dental. These accruals include amounts for future claims development and claims incurred but not reported, which are primarily based on historical claims development experience. The related cost for cargo loss and damage and BIPD is charged to “Insurance and claims” on our Statements of Operations, while the related costs for workers’ compensation, group health and group dental are charged to “Salaries, wages and benefits” on our Statements of Operations. Our liability for claims and insurance totaled $ 153.8 million and $ 156.0 million at December 31, 2023 and 2022, respectively. The long-term portions of those reserves were $ 90.4 million and $ 92.7 million for 2023 and 2022, respectively, which were included in “Other non-current liabilities” on our Balance Sheets. Share-Based Compensation We have various share-based compensation plans for our employees and non-employee directors. Our share-based compensation includes awards of phantom stock, restricted stock, and performance-based restricted stock units which are accounted for under ASC Topic 718, Compensation - Stock Compensation . All share-based compensation expense is presented in “Salaries, wages and benefits” for employees and “Miscellaneous expenses, net” for non-employee directors in the accompanying Statements of Operations. Total compensation expense recognized for all share-based compensation awards was $ 11.1 million, $ 15.9 million and $ 15.0 million during 2023, 2022, and 2021, respectively. The total tax benefit recognized related to these awards was $ 3.3 million, $ 3.3 million and $ 2.9 million during 2023, 2022, and 2021, respectively. Awards of restricted stock, modified phantom stock and performance-based restricted stock units are accounted for as equity under ASC Topic 718. We recognize compensation cost, net of estimated forfeitures, for restricted stock awards and modified phantom stock awards on a straight-line basis over the requisite service period of each award. Compensation cost for performance-based restricted stock unit awards is recognized using the accelerated attribution method over the requisite service period of each award. At the end of each reporting period, we reassess the probability of achieving performance targets and changes to our initial assessment are reflected in the reporting period in which the change in estimate occurs. Advertising The costs of advertising our services are expensed as incurred and are included in “General supplies and expenses” on our Statements of Operations. Advertising costs charged to expense totaled $ 34.6 million, $ 29.0 million and $ 28.1 million for 2023, 2022 and 2021, respectively. Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The levels of inputs used to measure fair value are: • Level 1 — Quoted prices for identical instruments in active markets; • Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets; and • Level 3 — Valuations based on inputs that are unobservable, generally utilizing pricing models or other valuation techniques that reflect management’s judgment and estimates. Our short-term investments are measured at fair value on a recurring basis. Our long-term debt, including current maturities, are measured at fair value. Both of these instruments are further described in Note 9. Our other financial securities in current assets and current liabilities approximate their fair value due to the short-term maturities of these instruments. 37 OLD DOMINION FREIGHT LINE, INC. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Stock Repurchase Program On May 1, 2020, we announced that our Board of Directors had approved a two-year stock repurchase program authorizing us to repurchase up to an aggregate of $ 700.0 million of our outstanding common stock (the “2020 Repurchase Program”). The 2020 Repurchase Program became effective on May 29, 2020. On July 28, 2021, we announced that our Board of Directors had approved a stock repurchase program authorizing us to repurchase up to an aggregate of $ 2.0 billion of our outstanding common stock (the “2021 Repurchase Program”). The 2021 Repurchase Program, which does not have an expiration date, began after the completion of the 2020 Repurchase Program in January 2022. At December 31, 2023, we had $ 225.4 million remaining authorized under the 2021 Repurchase Program. On July 26, 2023, we announced that our Board of Directors had approved a new stock repurchase program authorizing us to repurchase up to an aggregate of $ 3.0 billion of our outstanding common stock. The new repurchase program, which does not have an expiration date, will be effective upon the completion of our 2021 Repurchase Program. Under our repurchase programs, we may repurchase shares from time to time in open market purchases or through privately negotiated transactions. Shares of our common stock repurchased under our repurchase programs are canceled at the time of repurchase and are classified as authorized but unissued shares of our common stock. We entered into accelerated share repurchase agreements with a third-party financial institution on each of August 26, 2021 and February 24, 2022. The Company’s accelerated share repurchase agreements are each accounted for as a settled treasury stock purchase and a forward stock purchase contract. The par value of the initial shares received is recorded as a reduction to common stock, with the excess purchase price recorded as a reduction to retained earnings. The forward stock purchase contract is accounted for as a contract indexed to our own stock and is classified within capital in excess of par value on our Balance Sheets. The Company's accelerated share repurchase agreements are each settled with the final number of shares received based on the daily volume-weighted average share price of our common stock over the term of the agreement, less a negotiated discount. The table below summarizes our accelerated share repurchase activity for 2022 and 2021. There was no accelerated share repurchase activity for the year ended December 31, 2023. Agreement Agreement Settlement Amount Initial Shares Shares Received Total Shares Date Date (In millions) Received at Settlement Received February 2021 August 2021 $ 275.0 960,330 140,716 1,101,046 August 2021 January 2022 $ 250.0 655,365 123,410 778,775 February 2022 April 2022 $ 400.0 1,018,157 372,809 1,390,966 Comprehensive Income The Company has no components of other comprehensive income. Accordingly, net income equals comprehensive income for all periods presented in this report. Note 2. Long-term Debt Long-term debt, net of unamortized debt issuance costs, consisted of the following: December 31, (In thousands) 2023 2022 Senior notes $ 79,977 $ 99,963 Revolving credit facility — — Total long-term debt 79,977 99,963 Less: Current maturities ( 20,000 ) ( 20,000 ) Total maturities due after one year $ 59,977 $ 79,963 38 OLD DOMINION FREIGHT LINE, INC. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Note Agreement On May 4, 2020, we entered into a Note Purchase and Private Shelf Agreement with PGIM, Inc. (“Prudential”) and certain affiliates and managed accounts of Prudential (as subsequently amended on March 22, 2023, the “Note Agreement”). The Note Agreement, which is uncommitted and subject to Prudential’s sole discretion, provides for the issuance of senior promissory notes with an aggregate principal amount of up to $ 350.0 million through March 22, 2026. On May 4, 2020, we issued $ 100.0 million aggregate principal amount of senior promissory notes (the “Series B Notes”). Borrowing availability under the Note Agreement is reduced by the outstanding amount of the existing Series B Notes, and all other senior promissory notes issued pursuant to the Note Agreement. The Series B Notes bear interest at 3.10 % per annum and mature on May 4, 2027, unless prepaid. The first principal payment of $ 20.0 million was paid on May 4, 2023. The remaining $ 80.0 million will be paid in four equal annual installments of $ 20.0 million through May 4, 2027 . The Series B Notes are senior unsecured obligations and rank pari passu with borrowings under our third amended and restated credit agreement, dated March 22, 2023, with Wells Fargo Bank, National Association serving as administrative agent for the lenders (the “Credit Agreement”) or other senior promissory notes issued pursuant to the Note Agreement. Credit Agreement The Credit Agreement provides for a five-year, $ 250.0 million senior unsecured revolving line of credit and a $ 150.0 million accordion feature, which if fully exercised and approved, would expand the total borrowing capacity up to an aggregate of $ 400.0 million. Of the $ 250.0 million line of credit commitments under the Credit Agreement, 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) the Secured Overnight Financing Rate (SOFR) plus the Term SOFR Adjustment, as defined in the Credit Agreement, equal to 0.100 %, plus an applicable margin that ranges from 1.000 % to 1.375 %; or (ii) a Base Rate, as defined in the Credit Agreement, plus an applicable margin that ranges from 0.000 % to 0.375 %. The applicable margin for each of the foregoing options is dependent upon our consolidated debt to consolidated total capitalization ratio. Letter of credit fees equal to the applicable margin for SOFR 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 0.090 % to 0.175 % (based upon our consolidated debt to total consolidated capitalization ratio) 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 SOFR loans and letter of credit fees were 1.000 % and commitment fees were 0.090 %. The Credit Agreement replaced our previous five-year, $ 250.0 million senior unsecured revolving credit agreement dated as of November 21, 2019 (the “Prior Credit Agreement”). For periods in 2023 and 2022 covered under the Prior Cr edit Agreement, the applicable margin on LIBOR loans and letter of credit fees was 1.000 % and commitment fees were 0.100 %. There were $ 40.0 million and $ 38.7 million of outstanding letters of credit at December 31, 2023 and 2022, respectively. General Debt Provisions The Credit Agreement and Note Agreement contain customary covenants, including financial covenants that require us to observe a maximum ratio of debt to total capital and a minimum fixed charge coverage ratio. The Credit Agreement and Note Agreement also include a provision limiting our ability to make restricted payments, including dividends and payments for share repurchases, unless, among other conditions, no defaults or events of default are ongoing (or would be caused by such restricted payment). Note 3. Leases We lease certain assets under operating leases, which primarily consisted of real estate leases for certain service center locations and automotive leases for private passenger 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 Balance Sheets. 39 OLD DOMINION FREIGHT LINE, INC. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) The right-of-use assets and corresponding lease liabilities on our Balance Sheets represent payments over the lease term, which includes renewal options for certain real estate leases that we are likely to exercise. These renewal options begin in 2024 and continue through 2035 , and range from one to ten years in length. Short-term leases, which have an initial term of 12 months or less, are not included in our right-of-use assets or corresponding lease liabilities. Of our total operating lease liabilities, $ 15.6 million and $ 17.3 million are classified as current and are presented within “ Other accrued liabilities ,” and $ 104.8 million and $ 80.8 million are classified as non-current and are presented within “ Other non-current liabilities ” on our Balance Sheets as of December 31, 2023 and 2022, respectively. Our right-of-use assets totaled $ 116.4 million and $ 95.2 million and are presented within “ Other assets ,” which is classified as long-term, on our Balance Sheets as of December 31, 2023 and 2022, respectively. Future lease payments for assets under operating leases, as well as a reconciliation to our total lease liabilities as of December 31, 2023, are as follows: (In thousands) Lease Payments 2024 $ 21,598 2025 18,926 2026 18,335 2027 17,747 2028 16,922 Thereafter 57,745 Total lease payments $ 151,273 Less: imputed interest ( 30,918 ) Total lease liabilities $ 120,355 The weighted average lease term for our operating leases was 7.6 years and 8.1 years at December 31, 2023 and 2022, respectively. 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 4.9 % and 3.8 % as of December 31, 2023 and 2022, respectively. Cash paid for amounts included in the measurement of our lease liabilities was $ 22.6 million and $ 18.6 million for the years ended December 31, 2023 and 2022, respectively. 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. Aggregate expense under operating leases was $ 24.5 million, $ 20.0 million and $ 19.0 million for 2023, 2022 and 2021, respectively. During the years ended December 31, 2023 and 2022, we increased our right-of-use assets by $ 39.9 million and $ 11.6 million, respectively, in exchange for new operating lease liabilities. Note 4. Income Taxes The components of the provision for income taxes are as follows: Year Ended December 31, (In thousands) 2023 2022 2021 Current: Federal $ 288,030 $ 318,571 $ 253,084 State 66,903 83,611 70,799 354,933 402,182 323,883 Deferred: Federal 42,728 51,862 26,382 State 10,613 10,146 3,783 53,341 62,008 30,165 Total provision for income taxes $ 408,274 $ 464,190 $ 354,048 40 OLD DOMINION FREIGHT LINE, INC. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) The following is a reconciliation of income tax expense calculated using the U.S. statutory federal income tax rate with our income tax expense for 2023, 2022 and 2021: Year Ended December 31, (In thousands) 2023 2022 2021 Tax provision at statutory rate $ 346,033 $ 386,683 $ 291,569 State income taxes, net of federal benefit 66,055 75,906 60,036 Other, net ( 3,814 ) 1,601 2,443 Total provision for income taxes $ 408,274 $ 464,190 $ 354,048 Deferred tax assets and liabilities, which are included in “Other assets” and “Deferred income taxes” on our Balance Sheets, consist of the following: December 31, (In thousands) 2023 2022 Deferred tax assets: Claims and insurance reserves $ 29,776 $ 31,736 Accrued vacation 19,849 20,330 Deferred compensation 41,343 39,973 Other 12,142 11,767 Total deferred tax assets 103,110 103,806 Deferred tax liabilities: Depreciation and amortization ( 460,703 ) ( 407,942 ) Other ( 4,997 ) ( 5,113 ) Total deferred tax liabilities ( 465,700 ) ( 413,055 ) Net deferred tax liability $ ( 362,590 ) $ ( 309,249 ) We are subject to U.S. federal income tax, as well as income tax of multiple state tax jurisdictions. We remain open to examination by the Internal Revenue Service for tax years 2020 through 2023 . We also remain open to examination by various state tax jurisdictions for tax years 2019 through 2023 . The Company’s liability for unrecognized tax benefits was immaterial as of December 31, 2023 and 2022. Interest and penalties related to uncertain tax positions, which are immaterial, are recorded in our “Provision for income taxes” on our Statements of Operations. Changes in our liability for unrecognized tax benefits could affect our effective tax rate, if recognized, but we do not expect any material changes within the next twelve months. Note 5. Related Party Transactions John R. Congdon, Jr., a member of our Board of Directors, is the cousin of David S. Congdon, Executive Chairman of our Board of Directors. We regularly disclose the amount of compensation that we pay to these individuals, as well as the compensation paid to any of their family members employed by us that from time to time may require disclosure, in the proxy statement for our Annual Meeting of Shareholders. Note 6. Employee Benefit Plans Defined Contribution Plan Full-time employees meeting certain eligibility requirements are automatically enrolled in our 401(k) employee retirement plan, unless the employee elects not to defer any compensation. Employee contributions are limited to a percentage of the employee’s compensation, as defined in the plan. We match a percentage of our employees’ contributions up to certain maximum limits. In addition, we may also provide a discretionary matching contribution as specified in the plan. Our employer contributions, net of forfeitures, for 2023, 2022 and 2021 were $ 119.5 million, $ 135.2 million and $ 102.0 million, respectively. 41 OLD DOMINION FREIGHT LINE, INC. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Deferred Compensation Plan We maintain a nonqualified deferred compensation plan for the benefit of certain eligible employees, including those whose contributions to the 401(k) employee retirement plan are limited due to provisions of the Internal Revenue Code. Participating employees may elect to defer receipt of a percentage of their compensation, as defined in the plan, and the deferred amount is credited to each participant’s deferred compensation account. The plan is not funded, and the Company does not make a matching contribution to this plan. Although the plan is not funded, participants are allowed to select investment options for which their deferrals and future earnings are deemed to be invested. Participant accounts are adjusted to reflect participant deferrals and the performance of their deemed investments. The amounts owed to the participants totaled $ 101.4 million and $ 88.3 million at December 31, 2023 and 2022, respectively, of which $ 91.2 million and $ 83.2 million were included in “Other non-current liabilities” on our Balance Sheets as of December 31, 2023 and 2022, respectively. Note 7. 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 unvested restricted stock. Unvested restricted stock is included in common shares outstanding on our Balance Sheets. Diluted earnings per share is computed using the treasury stock method. The denominator used in calculating diluted earnings per share includes the impact of unvested restricted stock and other dilutive, non-participating securities under our equity award agreements. The denominator excludes contingently-issuable shares under performance-based award agreements when 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: Year Ended December 31, (In thousands) 2023 2022 2021 Weighted average shares outstanding - basic 109,421,245 112,340,791 115,651,411 Dilutive effect of share-based awards 668,967 737,029 758,578 Weighted average shares outstanding - diluted 110,090,212 113,077,820 116,409,989 Note 8. Share-Based Compensation Stock Incentive Plan On May 19, 2016, our shareholders approved the Old Dominion Freight Line, Inc. 2016 Stock Incentive Plan (the “Stock Incentive Plan”) previously approved by our Board of Directors. The Stock Incentive Plan, under which awards may be granted until May 18, 2026, or the Stock Incentive Plan’s earlier termination, serves as our primary equity incentive plan and provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted awards, performance awards, phantom stock awards and other stock-based awards or dividend equivalent awards to selected employees and non-employee directors. The maximum number of shares of common stock that we may issue or deliver pursuant to awards granted under the Stock Incentive Plan is 3,000,000 shares. Restricted Stock Awards During 2023, 2022 and 2021, we granted restricted stock awards to selected employees and non-employee directors under the Stock Incentive Plan. The employee restricted stock awards vest in three equal annual installments on each anniversary of the grant date, and the non-employee director restricted stock awards generally vest in full on the first anniversary of the grant date. In both cases, the restricted stock awards are subject to accelerated vesting due to death, total disability, or change in control of the Company. Subject to the foregoing, unvested restricted stock awards are generally forfeited upon termination of employment, unless otherwise approved by the Board of Directors or its Compensation Committee. The restricted stock awards accrue dividends while the award is unvested and only carry rights to receive the accrued dividends once vested. 42 OLD DOMINION FREIGHT LINE, INC. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Compensation cost for restricted stock awards is measured at the grant date based on the fair market value per share of our common stock. The following table summarizes our restricted stock award activity for employees and non-employee directors: Shares Weighted Average Grant Date Fair Value Per Share Unvested at January 1, 2023 77,725 $ 232.79 Granted 37,730 359.53 Vested ( 52,447 ) 222.91 Forfeited ( 5,026 ) 322.90 Unvested at December 31, 2023 57,982 $ 317.23 The weighted average grant date fair value per restricted stock award granted during fiscal years 2023, 2022 and 2021 was $ 359.53 , $ 303.81 and $ 213.55 , respectively. The total fair value of vested restricted stock awards for fiscal year 2023, 2022 and 2021 was $ 18.1 million, $ 20.1 million and $ 15.6 million, respectively. At December 31, 2023, the Company had $ 9.7 million of unrecognized stock-based compensation cost, net of estimated forfeitures, related to unvested restricted stock awards that are expected to be recognized over a weighted average period of 1.7 years. Performance-Based Restricted Stock Units During 2023, 2022 and 2021 we granted performance-based restricted stock units (“PBRSUs”) to selected employees under the Stock Incentive Plan. The PBRSUs are earned based on the achievement of stated Company performance metrics over a one-year performance period. One-third of the earned PBRSUs vest following the end of the one-year performance period if the performance metrics are satisfied, with an additional one-third of the PBRSUs vesting on each of the next two grant date anniversaries. Earned PBRSUs are subject to accelerated vesting due to death, total disability, or change in control of the Company. Subject to the foregoing, unvested PBRSUs are generally forfeited if minimum threshold performance targets are not achieved or upon termination of employment. The unvested PBRSUs do not include voting rights or dividend participation rights. Compensation cost for PBRSUs is measured at the grant date based on the fair market value per share of our common stock, with consideration given to the probability of achieving performance targets. At the end of each reporting period, we reassess the probability of achieving performance targets and changes to our initial assessment are reflected in the reporting period in which the change in estimate occurs. The following table summarizes our activity for PBRSUs for employees during 2023: Shares Weighted Average Grant Date Fair Value Per Share Unvested at January 1, 2023 54,536 $ 231.03 Granted (a) — — Vested ( 35,463 ) 228.24 Forfeited ( 1,694 ) 263.43 Unvested at December 31, 2023 17,379 $ 254.93 (a) PBRSUs earned may range from zero to 200 % of the target award. PBRSUs granted for the 2023 performance period were not earned as the performance metrics were not met. At December 31, 2023, the Company had $ 0.6 million of unrecognized stock-based compensation cost, net of estimated forfeitures, related to unvested PBRSUs that are expected to be recognized over a weighted average period of 1.0 years. 43 OLD DOMINION FREIGHT LINE, INC. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Phantom Stock Awards A summary of the changes in the number of outstanding phantom stock awards during the year ended December 31, 2023 is provided below. There were no phantom stock awards granted during 2023. Total Phantom Shares Weighted Average Grant Date Fair Value Per Share Balance of shares outstanding at January 1, 2023 612,520 $ 120.40 Settled ( 24,881 ) 118.99 Forfeited ( 28,441 ) 119.69 Balance of shares outstanding at December 31, 2023 559,198 $ 120.50 Of these outstanding awards, 1,722 phantom shares remain unvested with a weighted average grant date fair value per share of $ 114.76 . The outstanding phantom stock awards will be settled in shares of our common stock equal to the number of vested shares of phantom stock on the applicable settlement date. The shares of common stock will generally be distributed in twenty-four substantially equal monthly installments commencing on the first day of the sixth calendar month following such settlement date. Note 9. Fair Value Measurements Short-term investments We held no short-term investments as of December 31, 2023. A summary of the fair value of our short-term investments as of December 31, 2022 is shown in the table below. (In thousands) December 31, 2022 Level 1 Level 2 Level 3 Commercial paper $ 49,355 $ — $ 49,355 $ — Total Our commercial paper is valued using broker quotes that utilize observable market inputs. Long-term debt The carrying value of our total long-term debt, including current maturities, was $ 80.0 million and $ 100.0 million at December 31, 2023 and 2022, respectively. The estimated fair value of our total long-term debt, including current maturities, was $ 75.4 million and $ 92.6 million at December 31, 2023 and 2022, respectively. The fair value measurement of our Series B 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. Note 10. 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 collective and/or 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. Note 11. Subsequent Event On February 16, 2024, we announced that our Board of Directors approved a two -for-one split of our common stock for shareholders of record as of the close of business on the record date of March 13, 2024. The additional shares will be distributed by our transfer agent, Computershare Trust Company, N.A., on March 27, 2024. 44 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Old Dominion Freight Line, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of Old Dominion Freight Line, Inc. (the Company) as of December 31, 2023 and 2022, the related statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes, as well as the financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2024 expressed an unqualified opinion. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Self-Insurance Reserves for Bodily Injury/Property Damage (“BIPD”) and Workers’ Compensation Description of the Matter The liability for claims and insurance totaled $153.8 million at December 31, 2023, and the majority of this amount represents the self-insurance reserves for BIPD and workers’ compensation claims. The long-term portion of this liability was $90.4 million, which was included in “Other non-current liabilities”, and the remainder was included in “Claims and insurance accruals” on the Company’s Balance Sheets. As described in Note 1 to the financial statements, claims and insurance accruals include the estimated cost of claims for BIPD and workers' compensation. These accruals include estimates for both future claims development on reported claims as well as claims incurred but not yet reported. The Company uses historical claims experience, known trends and third-party actuarial estimates to determine the liabilities for each of the BIPD and workers’ compensation reserves. These analyses are complex and require significant judgment as the models utilize multiple valuation methods and reflect subjective assumptions, including 1) the 45 weighting of such methods, 2) the loss ratio, 3) the loss trend factor, and 4) the loss development factor, among other assumptions. How We Addressed the Matter in Our Audit We identified and tested internal controls over management’s review of the estimate for self-insurance reserves for BIPD and workers’ compensation claims, including controls over the completeness and accuracy of data inputs used in the Company’s third-party calculations, the assumptions and reserve calculations, as well as management’s evaluation of service organization controls and user controls over certain of the Company’s claims data that is managed by a third-party administrator. To test the self-insurance reserves for BIPD and workers’ compensation claims balances, our audit procedures included, among others, evaluating the methodologies used and the significant assumptions discussed above, as well as performing procedures with respect to underlying data and calculations used in the Company’s third-party analyses. We involved our actuarial specialists to assist in our evaluation of the appropriateness of the methods and assumptions used as well as to independently calculate ranges of reasonable reserve estimates developed based on independently selected assumptions and to compare such ranges to the Company’s recorded reserves. We tested claims data by comparing the data to supporting source documentation and payment information as well as performing trend analyses. /s/ Ernst & Young LLP We have served as the Company’s auditor since 1994. Raleigh, North Carolina February 26, 2024 46 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCO UNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.