OLD DOMINION FREIGHT LINE, INC. 10-Q

Item 1. Financial Statements OLD DOMINION FREIGHT LINE, INC. CONDENSED BALANCE SHEETS September 30, 2021 December 31, (In thousands, except share and per share data) (Unaudited) 2020 ASSETS Current assets: Cash and cash equivalents $ 339,761 $ 401,430 Short-term investments 224,899 330,274 Customer receivables, less allowances of $ 10,348 and $ 8,979 , respectively 591,783 444,653 Other receivables 62,266 9,569 Prepaid expenses and other current assets 60,143 57,413 Total current assets 1,278,852 1,243,339 Property and equipment: Revenue equipment 2,096,973 1,885,649 Land and structures 2,352,569 2,218,290 Other fixed assets 502,907 475,264 Leasehold improvements 13,055 12,226 Total property and equipment 4,965,504 4,591,429 Accumulated depreciation ( 1,855,390 ) ( 1,677,398 ) Net property and equipment 3,110,114 2,914,031 Other assets 224,154 212,040 Total assets $ 4,613,120 $ 4,369,410 Note: The Condensed Balance Sheet at December 31, 2020 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. 1 OLD DOMINION FREIGHT LINE, INC. CONDENSED BALANCE SHEETS (CONTINUED) September 30, 2021 December 31, (In thousands, except share and per share data) (Unaudited) 2020 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 135,044 $ 68,511 Compensation and benefits 244,168 191,303 Claims and insurance accruals 58,253 53,092 Other accrued liabilities 96,826 51,513 Income taxes payable — 8,711 Total current liabilities 534,291 373,130 Long-term liabilities: Long-term debt 99,943 99,931 Other non-current liabilities 330,321 349,851 Deferred income taxes 228,667 220,210 Total long-term liabilities 658,931 669,992 Total liabilities 1,193,222 1,043,122 Commitments and contingent liabilities Shareholders’ equity: Common stock - $ 0.10 par value, 280,000,000 shares authorized, 115,011,172 and 117,057,696 shares outstanding at September 30, 2021 and December 31, 2020, respectively 11,501 11,706 Capital in excess of par value 170,340 226,451 Retained earnings 3,238,057 3,088,131 Total shareholders’ equity 3,419,898 3,326,288 Total liabilities and shareholders’ equity $ 4,613,120 $ 4,369,410 Note: The Condensed Balance Sheet at December 31, 2020 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. 2 OLD DOMINION FREIGHT LINE, INC. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, (In thousands, except share and per share data) 2021 2020 2021 2020 Revenue from operations $ 1,400,046 $ 1,058,166 $ 3,845,970 $ 2,941,740 Operating expenses: Salaries, wages and benefits 649,685 524,658 1,806,862 1,510,047 Operating supplies and expenses 146,509 90,269 408,242 273,374 General supplies and expenses 37,312 27,383 102,907 86,872 Operating taxes and licenses 34,028 29,923 98,550 86,280 Insurance and claims 15,674 11,821 43,579 32,581 Communications and utilities 8,738 7,622 25,324 23,075 Depreciation and amortization 65,160 64,983 193,094 196,153 Purchased transportation 52,037 25,405 130,678 65,188 Miscellaneous expenses, net 7,493 5,858 17,623 15,590 Total operating expenses 1,016,636 787,922 2,826,859 2,289,160 Operating income 383,410 270,244 1,019,111 652,580 Non-operating expense (income): Interest expense 371 1,071 1,343 1,936 Interest income ( 178 ) ( 123 ) ( 660 ) ( 1,602 ) Other expense, net 266 961 1,781 4,205 Total non-operating expense 459 1,909 2,464 4,539 Income before income taxes 382,951 268,335 1,016,647 648,041 Provision for income taxes 96,317 66,467 261,078 165,191 Net income $ 286,634 $ 201,868 $ 755,569 $ 482,850 Earnings per share: Basic $ 2.48 $ 1.72 $ 6.52 $ 4.09 Diluted $ 2.47 $ 1.71 $ 6.48 $ 4.07 Weighted average shares outstanding: Basic 115,411,032 117,188,398 115,905,834 117,946,805 Diluted 116,161,555 117,933,440 116,655,504 118,696,836 Dividends declared per share $ 0.20 $ 0.15 $ 0.60 $ 0.45 The accompanying notes are an integral part of these condensed financial statements. 3 OLD DOMINION FREIGHT LINE, INC. CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2021 2020 2021 2020 Common stock: Beginning balance $ 11,581 $ 11,734 $ 11,706 $ 11,953 Share repurchases ( 80 ) — ( 209 ) ( 223 ) Share-based compensation and share issuances — ( 1 ) 6 6 Taxes paid in exchange for shares withheld — — ( 2 ) ( 2 ) Cash paid for fractional shares — — — ( 1 ) Ending balance 11,501 11,733 11,501 11,733 Capital in excess of par value: Beginning balance 160,204 181,895 226,451 218,462 Share-based compensation and share issuances 3,886 4,096 10,928 8,371 Taxes paid in exchange for shares withheld — — ( 4,539 ) ( 2,731 ) Forward contract (settlements) for accelerated share repurchases 6,250 — ( 62,500 ) ( 37,500 ) Cash paid for fractional shares — — — ( 611 ) Ending balance 170,340 185,991 170,340 185,991 Retained earnings: Beginning balance 3,230,593 2,788,839 3,088,131 2,850,302 Share repurchases ( 256,170 ) — ( 536,256 ) ( 306,568 ) Cash dividends declared ( 23,000 ) ( 17,598 ) ( 69,387 ) ( 53,475 ) Net income 286,634 201,868 755,569 482,850 Ending balance 3,238,057 2,973,109 3,238,057 2,973,109 Total shareholders' equity $ 3,419,898 $ 3,170,833 $ 3,419,898 $ 3,170,833 The accompanying notes are an integral part of these condensed financial statements. 4 OLD DOMINION FREIGHT LINE, INC. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30, (In thousands) 2021 2020 Cash flows from operating activities: Net income $ 755,569 $ 482,850 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 193,106 196,157 (Gain) Loss on disposal of property and equipment ( 179 ) 255 Provision for deferred income taxes 9,193 ( 25,155 ) Other, net 22,915 16,668 Changes in operating assets and liabilities, net ( 107,989 ) 15,683 Net cash provided by operating activities 872,615 686,458 Cash flows from investing activities: Purchase of property and equipment ( 384,688 ) ( 166,459 ) Proceeds from sale of property and equipment 18,635 3,411 Purchase of short-term investments ( 254,832 ) ( 205,301 ) Proceeds from maturities of short-term investments 360,203 — Other investing, net ( 500 ) ( 100 ) Net cash used in investing activities ( 261,182 ) ( 368,449 ) Cash flows from financing activities: Proceeds from issuance of long-term debt — 99,923 Payments for share repurchases ( 536,465 ) ( 306,791 ) Forward contract for accelerated share repurchases ( 62,500 ) ( 37,500 ) Dividends paid ( 69,387 ) ( 53,471 ) Other financing activities, net ( 4,750 ) ( 3,345 ) Net cash used in financing activities ( 673,102 ) ( 301,184 ) (Decrease) Increase in cash and cash equivalents ( 61,669 ) 16,825 Cash and cash equivalents at beginning of period 401,430 403,571 Cash and cash equivalents at end of period $ 339,761 $ 420,396 The accompanying notes are an integral part of these condensed financial statements. 5 NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 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 the composition of our revenue is summarized below: Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2021 2020 2021 2020 LTL services $ 1,378,339 $ 1,044,640 $ 3,787,721 $ 2,903,140 Other services 21,707 13,526 58,249 38,600 Total revenue from operations $ 1,400,046 $ 1,058,166 $ 3,845,970 $ 2,941,740 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 September 30, 2021 are not necessarily indicative of the results that may be expected for the subsequent quarterly periods or the year ending December 31, 2021. 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, 2020. 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, 2020, 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. Stock Repurchase Programs 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 upon the termination of our $ 350.0 million repurchase program on May 29, 2020. 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. On July 28, 2021, we announced that our Board of Directors had approved a new 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, will begin after the completion of the 2020 Repurchase Program. 6 On May 29, 2020, we entered into an accelerated share repurchase agreement (the “May 2020 ASR Agreement”) with a third-party financial institution. The May 2020 ASR Agreement was settled during the fourth quarter of 2020, 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. Under the May 2020 ASR Agreement, we repurchased 683,434 shares for $ 125.0 million. On February 25, 2021, we entered into an accelerated share repurchase agreement (the “February 2021 ASR Agreement”) with a third-party financial institution. The February 2021 ASR Agreement was settled during the third quarter of 2021, 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. Under the February 2021 ASR Agreement, we repurchased 1,101,046 shares for $ 275.0 million. On August 26, 2021, we entered into an accelerated share repurchase agreement (the “August 2021 ASR Agreement”) with a third-party financial institution. Under the August 2021 ASR Agreement, we paid the third-party financial institution $ 250.0 million and received an initial delivery of 655,365 shares of our common stock for $ 187.5 million, representing approximately 75 % of the total value of shares to be received by us under the August 2021 ASR Agreement. The remaining shares are expected to settle no later than the first quarter of 2022. At final settlement, we may receive additional shares of our common stock, or, under certain circumstances, we may be required to provide the third-party financial institution additional shares or may elect to make a cash payment to the third-party financial institution as part of the final settlement. The total shares repurchased will be based on the daily volume-weighted average share price of our common stock over the term of the agreement, less a negotiated discount. 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 share delivery 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 Condensed Statements of Changes in Shareholders’ Equity. During the three and nine months ended September 30, 2021, we repurchased 796,081 shares of our common stock for $ 256.3 million and 2,082,598 shares of our common stock for $ 536.5 million under our repurchase programs, respectively, including shares repurchased under our accelerated share repurchase agreements. At September 30, 2021, our repurchase programs had $ 2.02 billion remaining available, including $ 62.5 million that is deferred until final settlement occurs on the August 2021 ASR Agreement, leaving $ 1.96 billion remaining available and uncommitted. 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 unvested restricted stock. Unvested restricted stock is included in common shares 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 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: Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Weighted average shares outstanding - basic 115,411,032 117,188,398 115,905,834 117,946,805 Dilutive effect of share-based awards 750,523 745,042 749,670 750,031 Weighted average shares outstanding - diluted 116,161,555 117,933,440 116,655,504 118,696,836 7 Note 3. Long-Term Debt Long-term debt, net of unamortized debt issuance costs, consisted of the following: (In thousands) September 30, 2021 December 31, 2020 Senior notes $ 99,943 $ 99,931 Revolving credit facility — — Total long-term debt 99,943 99,931 Less: Current maturities — — Total maturities due after one year $ 99,943 $ 99,931 Senior 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 (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 May 4, 2023. Pursuant to the Note Agreement, we issued $ 100.0 million aggregate principal amount of senior promissory notes (the “Series B Notes”) on May 4, 2020. 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. Principal payments are required annually beginning on May 4, 2023 in equal 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 second amended and restated credit agreement with Wells Fargo Bank, National Association serving as administrative agent for the lenders, which we entered into on November 21, 2019 (the “Credit Agreement”) or 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, w hich 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) LIBOR (including applicable successor provisions) plus an applicable margin (based on our ratio of net debt-to-total capitalization) that ranges from 1.000 % to 1.375 %; or (ii) a Base Rate, as defined in the Credit Agreement, plus an applicable margin (based on our ratio of net debt-to-total capitalization) that ranges from 0.000 % to 0.375 %. 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 0.100 % to 0.175 % (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 1.000 % and commitment fees were 0.100 %. There were $ 39.2 million and $ 42.1 million of outstanding letters of credit at September 30, 2021 and December 31, 2020, 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). 8 Note 4. 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 5. Fair Value Measurements Short-term Investments A summary of the fair value of our short-term investments as of September 30, 2021 and December 31, 2020 is shown in the tables below. (In thousands) September 30, 2021 Level 1 Level 2 Level 3 Certificates of deposit $ 45,030 $ — $ 45,030 $ — U.S. government securities — — — — Commercial paper 179,869 — 179,869 — Total $ 224,899 $ — $ 224,899 $ — (In thousands) December 31, 2020 Level 1 Level 2 Level 3 Certificates of deposit $ 75,032 $ — $ 75,032 $ — U.S. government securities 125,379 125,379 — — Commercial paper 129,863 — 129,863 — Total $ 330,274 $ 125,379 $ 204,895 $ — Our certificates of deposit are measured at carrying value including accrued interest, which approximates fair value due to their short-term nature. 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 was $ 99.9 million at September 30, 2021 and December 31, 2020. The estimated fair value of our total long-term debt was $ 104.8 million and $ 105.4 million at September 30, 2021 and December 31, 2020, 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. 9