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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
(Mark One)
 
x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
      OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2002
 
¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d )
      OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                      to                     .
 
Commission File Number: 0-19582
 

 
OLD DOMINION FREIGHT LINE, INC.
(Exact name of registrant as specified in its charter)
 
VIRGINIA
 
56-0751714
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
500 Old Dominion Way
Thomasville, NC 27360
(Address of principal executive offices)
 
Telephone Number (336) 889-5000
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ¨
 
As of August 9, 2002, there were 8,317,940 shares of the registrant’s Common Stock ($.10 par value) outstanding.
 


PART I.    FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATEMENTS
 
OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 
    
Three Months Ended

    
Six Months Ended

 
    
June 30,
2002
  
June 30,
2001
    
June 30,
2002
  
June 30,
2001
 
(In thousands, except share and per share data)
  
(Unaudited)
  
(Unaudited)
    
(Unaudited)
  
(Unaudited)
 









Revenue from operations
  
$
139,669
  
$
128,605
 
  
$
266,816
  
$
248,875
 
Operating expenses:
                               
Salaries, wages and benefits
  
 
83,830
  
 
77,917
 
  
 
162,591
  
 
152,024
 
Purchased transportation
  
 
4,504
  
 
4,959
 
  
 
8,840
  
 
9,561
 
Operating supplies and expenses
  
 
13,694
  
 
13,560
 
  
 
25,559
  
 
26,262
 
Depreciation and amortization
  
 
7,741
  
 
7,521
 
  
 
15,195
  
 
14,809
 
Building and office equipment rents
  
 
1,904
  
 
1,847
 
  
 
3,719
  
 
3,815
 
Operating taxes and licenses
  
 
5,709
  
 
5,204
 
  
 
11,154
  
 
10,437
 
Insurance and claims
  
 
4,257
  
 
3,435
 
  
 
8,218
  
 
6,306
 
Communications and utilities
  
 
2,708
  
 
2,308
 
  
 
5,110
  
 
4,877
 
General supplies and expenses
  
 
5,256
  
 
4,602
 
  
 
10,013
  
 
8,759
 
Miscellaneous expenses, net
  
 
1,388
  
 
1,215
 
  
 
2,659
  
 
2,783
 
    

  


  

  


Total operating expenses
  
 
130,991
  
 
122,568
 
  
 
253,058
  
 
239,633
 
    

  


  

  


Operating income
  
 
8,678
  
 
6,037
 
  
 
13,758
  
 
9,242
 
Other deductions:
                               
Interest expense, net
  
 
1,459
  
 
1,532
 
  
 
2,780
  
 
3,026
 
Other expense (income), net
  
 
70
  
 
(572
)
  
 
153
  
 
(502
)
    

  


  

  


Total other deductions
  
 
1,529
  
 
960
 
  
 
2,933
  
 
2,524
 
    

  


  

  


Income before income taxes
  
 
7,149
  
 
5,077
 
  
 
10,825
  
 
6,718
 
Provision for income taxes
  
 
2,788
  
 
1,980
 
  
 
4,222
  
 
2,620
 
    

  


  

  


Net income
  
$
4,361
  
$
3,097
 
  
$
6,603
  
$
4,098
 
    

  


  

  


Basic and diluted earnings per share:
  
$
0.52
  
$
0.37
 
  
$
0.79
  
$
0.49
 
Weighted average shares outstanding:
                               
Basic
  
 
8,316,674
  
 
8,312,840
 
  
 
8,314,904
  
 
8,312,840
 
Diluted
  
 
8,321,377
  
 
8,313,491
 
  
 
8,319,602
  
 
8,313,166
 
 
The accompanying notes are an integral part of these financial statements.

2


OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED BALANCE SHEETS
 
    
June 30,
2002

    
December 31,
2001

 
(In thousands, except share data)
  
(Unaudited)
    
(Audited)
 





ASSETS
                 
Current assets:
                 
Cash and cash equivalents
  
$
1,075
 
  
$
761
 
Customer receivables, less allowances of $6,671 and $6,816, respectively
  
 
63,676
 
  
 
51,061
 
Other receivables
  
 
684
 
  
 
1,097
 
Tires on equipment
  
 
7,853
 
  
 
7,346
 
Prepaid expenses
  
 
6,105
 
  
 
12,728
 
Deferred income taxes
  
 
873
 
  
 
873
 
    


  


Total current assets
  
 
80,266
 
  
 
73,866
 
Property and equipment:
                 
Revenue equipment
  
 
218,590
 
  
 
204,416
 
Land and structures
  
 
127,016
 
  
 
117,570
 
Other equipment
  
 
48,855
 
  
 
42,851
 
Leasehold improvements
  
 
4,732
 
  
 
4,679
 
    


  


Total property and equipment
  
 
399,193
 
  
 
369,516
 
Less accumulated depreciation and amortization
  
 
(163,490
)
  
 
(151,333
)
    


  


Net property and equipment
  
 
235,703
 
  
 
218,183
 
Other assets
  
 
18,997
 
  
 
18,791
 
    


  


Total assets
  
$
334,966
 
  
$
310,840
 
    


  


 
The accompanying notes are an integral part of these financial statements.

3


 
OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
 
    
June 30,
  
December 31,
    
2002
  
2001
(In thousands, except share data)
  
(Unaudited)
  
(Audited)





LIABILITIES AND STOCKHOLDERS’ EQUITY
             
Current liabilities:
             
Accounts payable
  
$
22,973
  
$
13,799
Compensation and benefits
  
 
14,250
  
 
9,942
Claims and insurance accruals
  
 
17,694
  
 
14,958
Other accrued liabilities
  
 
3,141
  
 
3,034
Income taxes payable
  
 
222
  
 
425
Current maturities of long-term debt
  
 
17,195
  
 
8,408
    

  

Total current liabilities
  
 
75,475
  
 
50,566
Long-term liabilities:
             
Long-term debt
  
 
81,328
  
 
90,014
Other non-current liabilities
  
 
14,100
  
 
12,840
Deferred income taxes
  
 
20,781
  
 
20,781
    

  

Total long-term liabilities
  
 
116,209
  
 
123,635
Stockholders’ equity:
             
Common stock—$.10 par value, 25,000,000 shares
authorized, 8,316,740 outstanding
  
 
832
  
 
831
Capital in excess of par value
  
 
23,946
  
 
23,907
Retained earnings
  
 
118,504
  
 
111,901
    

  

Total stockholders’ equity
  
 
143,282
  
 
136,639
Commitments and contingencies
  
 
—  
  
 
—  
    

  

Total liabilities and stockholders’ equity
  
$
334,966
  
$
310,840
    

  

 
The accompanying notes are an integral part of these financial statements.

4


OLD DOMINION FREIGHT LINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
    
Six Months Ended June 30,

 
    
2002
    
2001
 
(In thousands)
  
(Unaudited)
    
(Unaudited)
 





Cash flows from operating activities:
                 
Net income
  
$
6,603
 
  
$
4,098
 
Adjustments to reconcile net income to net cash provided by operating activities:
                 
Depreciation and amortization
  
 
15,195
 
  
 
14,809
 
Loss on sale of property and equipment
  
 
171
 
  
 
120
 
Changes in assets and liabilities:
                 
Customer and other receivables, net
  
 
(12,202
)
  
 
(4,922
)
Tires on equipment
  
 
(507
)
  
 
(72
)
Prepaid expenses and other assets
  
 
6,413
 
  
 
5,681
 
Accounts payable
  
 
9,174
 
  
 
(6,843
)
Compensation, benefits and other accrued liabilities
  
 
4,415
 
  
 
3,816
 
Claims and insurance accruals
  
 
3,844
 
  
 
67
 
Income taxes payable
  
 
(203
)
  
 
739
 
Other liabilities
  
 
152
 
  
 
82
 
    


  


Net cash provided by operating activities
  
 
33,055
 
  
 
17,575
 
    


  


Cash flows from investing activities:
                 
Acquisition of business assets, net
  
 
—  
 
  
 
(9,385
)
Purchase of property and equipment
  
 
(33,261
)
  
 
(13,505
)
Proceeds from sale of property and equipment
  
 
379
 
  
 
227
 
    


  


Net cash used in investing activities
  
 
(32,882
)
  
 
(22,663
)
    


  


Cash flows from financing activities:
                 
Proceeds from issuance of long-term debt
  
 
—  
 
  
 
52,563
 
Principal payments under long-term debt agreements
  
 
(4,927
)
  
 
(7,389
)
Net proceeds (payments) on revolving line of credit
  
 
5,028
 
  
 
(37,775
)
Proceeds from conversion of stock options
  
 
40
 
  
 
—  
 
    


  


Net cash provided by financing activities
  
 
141
 
  
 
7,399
 
    


  


Increase in cash and cash equivalents
  
 
314
 
  
 
2,311
 
Cash and cash equivalents at beginning of period
  
 
761
 
  
 
585
 
    


  


Cash and cash equivalents at end of period
  
$
1,075
 
  
$
2,896
 
    


  


 
The accompanying notes are an integral part of these financial statements.

5


OLD DOMINION FREIGHT LINE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

BASIS OF PRESENTATION
 
The accompanying unaudited consolidated interim financial statements reflect, in the opinion of management, all adjustments (consisting of normal recurring items) necessary for a fair presentation, in all material respects, of the financial position and results of operations for the periods presented. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the interim periods are not necessarily indicative of the results for the entire year.
 
There have been no significant changes in the accounting policies of the Company, or significant changes in the Company’s commitments and contingencies as previously described in the 2001 Annual Report to Stockholders and related annual report to the Securities and Exchange Commission on Form 10-K.
 
RECENT ACCOUNTING PRONOUNCEMENTS
 
In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations (“SFAS No. 141”), and No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”). SFAS No. 141 requires that the purchase method of accounting be used for all business combinations subsequent to June 30, 2001 and specifies criteria for recognizing intangible assets acquired in a business combination. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. Intangible assets with definite useful lives will continue to be amortized over their respective estimated useful lives.
 
The Company adopted SFAS No. 142 effective January 1, 2002, the measurement date, and has completed the required analysis of the fair value of its single reporting unit compared to the carrying value as of that date. Based upon that analysis, the Company concluded that there was no impairment of the $10,663,000 of intangible assets included in “Other Assets” on the measurement date. The Company plans to complete a similar analysis in the fourth quarter of 2002. As a result of the adoption, quarterly amortization expense of $184,000 was not recognized in the first or second quarters of 2002.
 
In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”). This Statement establishes a single accounting model for the impairment or disposal of long-lived assets. As required by SFAS No. 144, the Company adopted this new accounting standard on January 1, 2002. The Company has no indicators of impairment on its long-lived assets and therefore believes the adoption of SFAS No. 144 will not have any material effect on its financial statements.
 
In July 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 146, Obligations Associated with Disposal Activities (“SFAS 146”), which is effective for disposal activities initiated after December 31, 2002. SFAS 146 requires that a liability for a disposal obligation should be recognized and measured at its fair value when it is incurred. The Company has not determined what the effect of SFAS 146 will be the on earnings and financial position of the Company.
 
RELATED PARTY TRANSACTIONS
 
On June 19, 2002, the Company entered into a real estate purchase contract to purchase a service center facility located in Greensboro, N.C. for $6,000,000 from an irrevocable trust created for the benefit of the families of Earl E. Congdon and John R. Congdon, the Chairman and Vice Chairman of the Board of Directors, respectively. The property is currently leased to the Company on a month-to-month basis for $31,705, which will cease upon the closing of this contract in the third quarter of 2002.

6


OLD DOMINION FREIGHT LINE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 
EARNINGS PER SHARE
 
Net income per share of common stock is based on the weighted average number of shares outstanding during each period.
 
SUBSEQUENT EVENTS
 
None

7


ITEM  2.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Results of Operations for the Three Months and Six Months Ended June 30, 2002, Compared to the Three Months and Six Months Ended June 30, 2001
 
Expenses as a Percentage of Revenue from Operations
 
    
Three Months Ended June 30,

    
Six Months Ended June 30,

 
    
2002

    
2001

    
2002

    
2001

 
Revenue from operations
  
100.0
%
  
100.0
%
  
100.0
%
  
100.0
%
    

  

  

  

Operating expenses:
                           
Salaries, wages and benefits
  
60.0
 
  
60.6
 
  
60.9
 
  
61.1
 
Purchased transportation
  
3.2
 
  
3.9
 
  
3.3
 
  
3.8
 
Operating supplies and expenses
  
9.8
 
  
10.5
 
  
9.6
 
  
10.6
 
Depreciation and amortization
  
5.5
 
  
5.8
 
  
5.7
 
  
6.0
 
Building and office equipment rents
  
1.4
 
  
1.4
 
  
1.4
 
  
1.5
 
Operating taxes and licenses
  
4.1
 
  
4.0
 
  
4.2
 
  
4.2
 
Insurance and claims
  
3.0
 
  
2.7
 
  
3.1
 
  
2.5
 
Communications and utilities
  
2.0
 
  
1.8
 
  
1.9
 
  
2.0
 
General supplies and expenses
  
3.8
 
  
3.6
 
  
3.7
 
  
3.5
 
Miscellaneous expenses
  
1.0
 
  
1.0
 
  
1.0
 
  
1.1
 
    

  

  

  

Total operating expenses
  
93.8
 
  
95.3
 
  
94.8
 
  
96.3
 
    

  

  

  

Operating income
  
6.2
 
  
4.7
 
  
5.2
 
  
3.7
 
Interest expense, net
  
1.0
 
  
1.2
 
  
1.0
 
  
1.2
 
Other expense, net
  
.1
 
  
(.4
)
  
.1
 
  
(.2
)
    

  

  

  

Income before income taxes
  
5.1
 
  
3.9
 
  
4.1
 
  
2.7
 
Provision for income taxes
  
2.0
 
  
1.5
 
  
1.6
 
  
1.1
 
    

  

  

  

Net income
  
3.1
%
  
2.4
%
  
2.5
%
  
1.6
%
    

  

  

  

8


 
Results of Operations
 
During the second quarter and throughout the first half of 2002, the Company continued to achieve revenue growth, improve operating efficiencies and increase profitability, even while the U.S. economy remained sluggish. Revenue for the second quarter of 2002 was $139,669,000 compared to $128,605,000 for the prior-year quarter, an increase of 8.6%. For the first half of 2002, revenue grew 7.2% to $266,816,000, compared to $248,875,000 for the same period in 2001.
 
Operating expenses for the second quarter 2002 were 93.8% of revenue compared to 95.3% for the second quarter 2002 and were 94.8% for the first half of 2002 compared to 96.3% for the same period in 2001. The combination of revenue growth and improved operating efficiency produced net income for the second quarter of $4,361,000 compared to $3,097,000 for the second quarter of 2001, an increase of 40.8%. For the first half of 2002, net income increased by 61.1% to $6,603,000 compared to $4,098,000 in 2001.
 
Revenue
 
Old Dominion’s revenue growth strategy for 2002 is to increase market share in existing areas of operation by offering improved service products, faster transit times and expanded coverage. Consistent with these objectives, the Company announced full state coverage for the state of New Hampshire in June 2002, bringing the number of states in which it provides 100% coverage to 24. While expansion plans are closely tied to the strength of the national economy, the Company seeks to produce long-term profitable growth by positioning itself to expand significantly in stronger economic times and avoiding the risk of overextending itself in weaker economic cycles.
 
Revenue growth in the second quarter 2002 was primarily due to a 7.6% increase in the number of shipments handled, combined with a 1.0% increase in revenue per shipment when compared to the prior year quarter. For the first six months of 2002, shipments increased 7.7% and revenue per shipment decreased .4%. For the first half of the year, weight per shipment was down slightly by 1.1% but showed improvement during the last two months of the second quarter.
 
Revenue per hundredweight increased by .9% for the quarter and .7% for the year over comparable periods due more to a 4.5% increase in the Company’s length of haul for the year than to its ability to raise rates or maintain the general price increase that was implemented in August 2001. The average length of haul for the quarter and the first six months of 2002 was 903 miles compared with 866 miles and 864 miles for the second quarter of 2001 and first half of 2001, respectively.
 
The Company also benefited from a full six months of revenue in 2002 generated by its service center expansion on February 10, 2001, resulting from the acquisition of certain assets and markets of Carter & Sons Freightways, Inc. of Carrollton, Texas, which operated a regional less-than-truckload network of 23 service centers, primarily in Texas and surrounding states. The Company anticipates that these markets will continue to mature and be a source of growth in 2002 when compared with the previous-year periods. While the Company is on track to meet its targeted revenue growth for 2002 of between 7% and 9%, the length and severity of the economic slowdown experienced in 2001 and early 2002 will certainly influence the achievement of that growth objective.
 
Operating Costs
 
Tonnage increases of 7.6% and 6.4% for the second quarter and first half of 2002, respectively, enabled the Company to obtain certain economies of scale and efficiency, which led to the reduction in operating costs. The Company’s operating ratio, a measure of profitability calculated by dividing operating expenses by revenue, was 93.8% for the second quarter compared to 95.3% for the prior-year period. For the first half of the year, the operating ratio was 94.8% compared to 96.3%.
 
Wages directly related to freight movement decreased to 32.5% of revenue from 32.9% for the second quarter 2001, and during this same period, the Company reduced its usage of purchased transportation to 3.2% of revenue from 3.9%. Cartage expense, the most significant element of purchased transportation, decreased to 1.5% of revenue in the second quarter from 2.1%. For the first six months of

9


 
2002, wages directly related to freight movement was 32.8% compared to 33.2% in the prior-year period and purchased transportation was 3.3% compared to 3.8%.
 
The Carter & Sons acquisition and the subsequent opening of 13 new service centers in the Company’s South Central Area contributed to the significant reduction in cartage expense for the second quarter and first six months of 2002. As freight density and market share builds in outlying and remote areas, the Company will continue to replace cartage agents with direct service utilizing its own employees and equipment.
 
Fuel costs, including fuel taxes, decreased to 7.2% of revenue in the second quarter 2002 from 8.2% for the prior-year quarter. For the first six months of 2002, fuel costs decreased to 7.0% from 8.4% for the same period of 2001. The Company’s general tariffs and contracts generally include provisions for a fuel surcharge, recorded in net revenue, which have effectively offset significant diesel fuel price fluctuations. These surcharges decrease or are eliminated as fuel prices approach certain floor levels. The Company incurred a $.036 per gallon increase in net fuel costs, after deducting the applicable fuel surcharges, when comparing the second quarter 2002 with the second quarter 2001, as fuel surcharges decreased faster than the cost of fuel.
 
The adoption of SFAS No. 142 on Jaunary 1, 2002 resulted in a decrease in amortization expenses of $184,000 per quarter. In the addition to the impact of the SFAS No. 142 adoption, the Company also increased its asset utilization as more tonnage moved through its network. As a result, depreciation and amortization dropped to 5.5% of revenue in the second quarter from 5.8% and to 5.7% for the first six months of 2002 from 6.0% for the prior-year period.
 
Insurance and claims expense increased to 3.0% in the second quarter from 2.7% for the second quarter 2001. On April 1, 2002, the Company renewed many of its major insurance policies at significantly higher renewal rates, even after substantially increasing its self-insured retention levels. These higher rates are due to overall increases in insurance markets, which affect the entire transportation industry, rather than the Company’s specific loss experience. For the first half of 2002, insurance and claims expense was 3.1% of revenue compared to 2.5% for the prior-year comparable period. The Company expects insurance and claims expense to remain at higher levels for the remainder of the year.
 
Long-term debt including current maturities was $98,523,000 at June 30, 2002 compared to $90,941,000 on June 30, 2001, an increase of 8.3%. Interest expense, however, decreased to $1,459,000 in the second quarter 2002 from $1,532,000 for the prior-year comparable quarter. For the first six months, interest expense decreased to $2,780,000 compared to $3,026,000 for the same period in 2001. Lower interest expense, even with higher debt levels in 2002, was achieved through a decrease in the weighted average interest rate on outstanding debt in the current year.
 
The effective tax rate for both 2002 and 2001 was 39.0%.
 
Liquidity and Capital Resources
 
Expansion in both the size and number of service center facilities, the planned tractor and trailer replacement cycle and revenue growth have required continued investment in property and equipment. In order to support these requirements, the Company incurred net capital expenditures of $32,882,000 during the first half of 2002, which were funded through internally generated cash flows. At June 30, 2002, long-term debt including current maturities increased slightly to $98,523,000 from $98,422,000 at December 31, 2001.
 
The Company estimates net capital expenditures to be approximately $58,000,000 to $60,000,000 for the year ending December 31, 2002. Of that, approximately $32,000,000 is allocated for the purchase of revenue equipment, $19,000,000 is allocated for the purchase or construction of larger replacement service centers or expansion of existing service centers and the balance is allocated for investments in technology and other assets. The Company plans to fund these expenditures primarily through cash flows from operations supplemented by additional borrowings.

10


 
On May 31, 2000, the Company entered into an uncollateralized committed credit facility with First Union National Bank, which, as amended, consists of a $20,000,000 line of credit and a $20,000,000 line to support standby letters of credit. This facility has a term of three years that expires on May 31, 2003. Interest on the line of credit is charged at rates that vary based upon a certain financial performance ratio. The applicable interest rate for the first half of 2002 under this agreement was based upon LIBOR plus .70% to .85%. A fee ranging from .20% to .25% was charged on the unused portion of the line of credit, and fees ranging between .70% to .75% were charged on outstanding standby letters of credit. Standby letters of credit are primarily issued as collateral for self-insured retention reserves for bodily injury, property damage and workers’ compensation claims. At June 30, 2002, there were $17,288,000 outstanding on the line of credit and $14,035,000 outstanding on the standby letter of credit facility. Approximately $9,907,000 of the amount outstanding on the line of credit was reclassified to long-term debt in accordance with SFAS No. 6, as this debt was specifically replaced after the end of the second quarter 2002 with debt that has a term of more than one year.
 
On July 10, 2002, the Company entered into a $16,000,000 Loan Agreement with First Union Commercial Corporation. Under this agreement, the Company may enter into one or more promissory notes not to exceed the maximum aggregate amount of the loan. The applicable interest rate and payment schedules for any notes will be determined at the time of issuance. This agreement’s provisions for issuance of promissory notes expires when the maximum amount has been borrowed or December 31, 2002, whichever occurs first. On July 19, 2002 the Company executed a $14,165,000 promissory note under this agreement carrying an interest rate of 4.39% and a maturity date of July 1, 2006.
 
The Company has five individual senior note agreements outstanding that total $79,929,000. These notes call for periodic principal and interest payments with maturities ranging from 2002 through 2008, of which $9,107,000 is due within the next 12 months. Interest rates on these notes are fixed and range from 6.35% to 7.59%. Under the terms of one of these notes, the Company may authorize the issuance and sale of amounts not to exceed $15,000,000 in additional senior notes. The applicable interest rate and payment schedules for any new notes will be determined and mutually agreed upon at the time of issuance.
 
With the exception of the line of credit, interest rates are fixed on all of the Company’s debt instruments. Therefore, short-term exposure to fluctuations in interest rates is limited to the outstanding balance of its line of credit facility, which was $17,288,000 at June 30, 2002. The Company does not currently use interest rate derivative instruments to manage exposure to interest rate changes. Also, the Company does not use fuel hedging instruments, as its tariff provisions generally allow for fuel surcharges to be implemented in the event that fuel prices exceed stipulated levels.
 
A significant decrease in demand for the Company’s services could limit its ability to generate cash flow and effect profitability. Most of the Company’s debt agreements have covenants that require stated levels of financial performance, which if not achieved could cause acceleration of the payment schedules. The Company does not anticipate a dramatic decline in business levels or financial performance and believes the combination of its existing credit facilities along with its additional borrowing capacity are sufficient to meet seasonal and long-term needs.
 
The following table summarizes the Company’s significant contractual obligations and commercial commitments as of June 30, 2002:
 
    
Payments Due by Period (in Thousands)

Contractual Obligations (1)

  
Total

  
Less than 1 year

  
1-3 years

  
4-5 years

  
After 5 years

Long-Term Debt
  
97,279
  
16,550
  
34,551
  
29,678
  
16,500
Capital Lease Obligations
  
1,244
  
645
  
599
  
—  
  
—  
Operating Leases
  
19,652
  
8,906
  
8,220
  
2,150
  
376

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Amount of Commitment Expiration Per Period
(In Thousands)

Contractual Obligations (2)

  
Total Amounts Committed

  
Less than 1 year

  
1-3 years

  
4-5 years

    
After 5 years

Standby Letters of Credit
  
14,035
  
14,035
  
—  
  
—  
    
—  
 
(1)
 
Contractual obligations include long-term debt consisting primarily of senior notes totaling $79,929,000 and an outstanding line of credit of $17,288,000; capital lease obligations for revenue and computer equipment; and off-balance sheet operating leases primarily consisting of real estate leases.
 
(2)
 
Other commercial commitments consist of standby letters of credit used as collateral for self-insured retention of insurance claims.
 
Critical Accounting Policies
 
In preparing the consolidated financial statements, the Company applies the following critical accounting policies that affect judgments and estimates of amounts recorded in certain assets, liabilities, revenue and expenses:
 
Revenue and Expense Recognition—Operating revenue is recognized on a percentage of completion method based on average transit time. Expenses associated with operating revenue are recognized when incurred.
 
Allowance for Uncollectible Accounts—The Company maintains an allowance for uncollectible accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
 
Claims and Insurance Accruals – Claims and insurance accruals reflect the estimated ultimate total cost of claims, including amounts for claims incurred but not reported, for cargo loss and damage, bodily injury and property damage, workers’ compensation, long-term disability and group health not covered by insurance. These costs are charged to insurance and claims expense except for workers’ compensation, long-term disability and group health, which are charged to employee benefits expense.
 
From April 1, 2001 through March 31, 2002, the Company was self-insured for bodily injury and property damage claims up to $250,000 per occurrence. Cargo claims were self-insured up to $100,000; however, after the first two losses exceeded $100,000 in the policy year, the retention under the Company’s excess insurance policy was reduced to $50,000 per occurrence. The Company also was self-insured for workers’ compensation in certain states and had first dollar or high deductible plans in the remaining states.
 
Due to recent loss experience incurred by the insurance industry, rates offered by insurers for many types of coverage have dramatically increased over the prior year renewal rates. As a result, the Company determined that additional risk in the form of higher retention levels was warranted and, effective April 1, 2002, self-insured retention for bodily injury and property damage increased to $1,750,000 per claim while the self-insured retention for cargo claims increased to $100,000 per claim. These increases in retention levels had no impact on the financial results of the Company in the first quarter 2002 but are projected to increase the Company’s overall insurance costs in 2002 by approximately $2,400,000. This estimate is based upon increased premiums for insurance coverage and projected losses under the new retention levels, which could vary dramatically.

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Inflation
 
Most of the Company’s expenses are affected by inflation, which generally results in increased operating costs. In response to fluctuations in the cost of petroleum products, particularly diesel fuel, the Company has implemented a fuel surcharge in its tariffs and contractual agreements. The fuel surcharge is designed to offset the cost of fuel above a base price and increases as fuel prices escalate over the base. For the second quarter and the first half of 2002, the net effect of inflation on the Company’s results of operations was minimal.
 
Seasonality
 
The Company’s tonnage levels and revenue mix are subject to seasonal trends common in the motor carrier industry. Financial results in the first and fourth quarters are normally lower due to reduced shipments during the winter months. Harsh winter weather can also adversely impact the Company’s performance by reducing demand and increasing operating expenses. The second and third quarters reflect increased demand for services during the spring and summer months, which generally result in improved operating margins.
 
Environmental
 
The Company is subject to federal, state and local environmental laws and regulations, particularly relative to underground storage tanks. The Company believes it is in compliance with applicable environmental laws and regulations, including those relating to underground storage tanks, and does not believe that the cost of future compliance will have a material adverse effect on the Company’s operations or financial condition.
 
Forward-Looking Information
 
Forward-looking statements in this report, including, without limitation, statements relating to future events or the future financial performance of the Company, appear in the preceding Management’s Discussion and Analysis of Financial Condition and Results of Operations and in other written and oral statements made by or on behalf of the Company, including, without limitation, statements relating to the Company’s goals, strategies, expectations, competitive environment, regulation and availability of resources. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties that could cause actual events and results to be materially different from those expressed or implied herein, including, but not limited to, the following: (1) changes in the Company’s goals, strategies and expectations, which are subject to change at any time at the discretion of the Company; (2) the Company’s ability to maintain a nonunion, qualified work force; (3) the competitive environment with respect to industry capacity and pricing; (4) the availability and cost of fuel, additional revenue equipment and other significant resources; (5) the ability to impose and maintain fuel surcharges to offset increases in fuel prices; (6) the impact of regulatory bodies; (7) various economic factors such as insurance costs, liability claims, interest rate fluctuations, the availability of qualified drivers or owner-operators, fluctuations in the resale value of revenue equipment, increases in fuel or energy taxes, economic recessions and downturns in customers’ business cycles and shipping requirements; (8) the Company’s ability to raise capital or borrow funds on satisfactory terms, which could limit growth and require the Company to operate its revenue equipment for longer periods of time; (9) the Company’s ability to purchase, build or lease facilities suitable for its operations; and (10) other risks and uncertainties indicated from time to time in the Company’s filings with the Securities and Exchange Commission.
 
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
 
The information called for by this item is provided under the caption “Liquidity and Capital Resources” under Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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PART II. OTHER INFORMATION
 
ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
The Company held its 2002 Annual Meeting of Stockholders on May 20, 2002. The only item on the agenda was the election of directors for which votes were cast or withheld as follows:
 
Nominee

  
For

  
Withheld

Earl E. Congdon
  
7,130,677
  
108,021
John R. Congdon
  
7,130,677
  
108,021
David S. Congdon
  
7,178,227
  
60,471
John R. Congdon, Jr.
  
7,204,298
  
34,400
John A. Ebeling
  
7,204,698
  
34,000
Harold G. Hoak
  
7,204,698
  
34,000
Franz F. Holscher
  
7,204,298
  
34,400
 
ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K
 
a) Exhibits:
 
Exhibit No.

  
Description

4.6.8
  
Loan agreement between First Union Commercial Corporation and Old Dominion Freight Line, Inc. dated July 10, 2002.
4.7.4
  
Third Amendment and Agreement between Wachovia Bank, National Association (formerly known as First Union National Bank) and Old Dominion Freight Line, Inc., dated May 31, 2002.
10.16
  
Real Estate Purchase Contract between Robert A. Cox, Jr., as trustee for the Earl E. Congdon and John R. Congdon Irrevocable Trust, and Old Dominion Freight Line, Inc., dated June 19, 2002.
99.1
  
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the     Sarbanes-Oxley Act of 2002.
99.2
  
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the     Sarbanes-Oxley Act of 2002.
 
b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter ended June 30, 2002.

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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
       
OLD DOMINION FREIGHT LINE, INC.
DATE:    AUGUST 9, 2002
     
By:
 
                  /s/     J. WES FRYE                            

               
J. Wes Frye
Senior Vice President – Finance
(Principal Financial Officer)
 
         
DATE:    AUGUST 9, 2002
     
By:
 
            /s/     JOHN P. BOOKER III                    

               
John P. Booker III
Vice President—Controller
(Principal Accounting Officer)

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