Old Dominion Freight Line(ODFL) - 2021 Q4 - Annual Report

Part I Business Old Dominion Freight Line is a leading North American LTL carrier, operating a union-free network focused on organic growth and superior service - The company is one of the largest North American less-than-truckload (LTL) carriers, with over 98% of its revenue historically derived from LTL shipments[13] - Operates through an expansive network of 251 service centers as of December 31, 2021, focusing on organic market share growth over acquisitions[14][23] - The largest customer accounted for 5.4% of revenue in 2021, with the top 20 customers representing 30.2%, indicating a diversified customer base[34] Full-Time Employee Profile (as of Dec 31, 2021) | Full-Time Employees | Number of Employees | | :--- | :--- | | Drivers | 11,802 | | Platform | 5,350 | | Fleet technicians | 609 | | Sales, administrative and other | 5,902 | | Total | 23,663 | Equipment Fleet and Average Age (as of Dec 31, 2021) | Type of Equipment | Number of Units | Average Age (In years) | | :--- | :--- | :--- | | Tractors | 10,403 | 5.0 | | Linehaul trailers | 27,917 | 7.8 | | P&D trailers | 13,303 | 7.5 | Risk Factors The company faces diverse risks including operational, industry, labor, cybersecurity, and regulatory challenges - Business and operational risks include the inability to execute its growth strategy, potential shortages of real estate for expansion, and strains on management and resources from growth[57][58] - The COVID-19 pandemic has had and may continue to have adverse effects, including demand volatility, customer payment issues, and supply chain disruptions, heightening other business risks[60] - The company operates in a highly competitive industry, facing pressure on pricing and the need to continually invest in technology to remain competitive against carriers of varying sizes and service offerings[78][79] - Labor risks include potential unionization of its currently union-free workforce, which could increase operating costs, and intense competition for qualified drivers and technicians, which could impact growth and profitability[85][86] - Cybersecurity risks are significant, as the company relies heavily on IT systems for operations and customer service. A cyber incident could lead to operational delays, loss of customers, and significant expense[88][89] - The Congdon family controls approximately 18% of the outstanding common stock, which may allow them to significantly influence shareholder votes[102] Unresolved Staff Comments The company reports no unresolved staff comments - None[107] Properties The company operates 251 service centers, mostly owned, with sufficient capacity for current and anticipated business - The company owns its principal executive office and 227 of its 251 service centers[108] - Owned service centers represent about 95% of the total door capacity in the network[108] Legal Proceedings The company faces various legal proceedings, none expected to materially impact financials, with one ongoing waste handling investigation - The company does not believe that the resolution of any ordinary course legal matters will have a material adverse effect on its financial position[111] - A civil investigation concerning waste handling practices in California, initiated in 2017, is ongoing, and the company is in discussions to resolve the matter[113] Mine Safety Disclosures This item is not applicable to the company - Not applicable[114] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq, with no repurchases in Q4 2021, and has significantly outperformed market indices - The company's common stock (ODFL) is traded on the Nasdaq Global Select Market[117] - No shares of common stock were repurchased during the fourth quarter of 2021[118] Cumulative Total Return Comparison (2016-2021) | | 12/31/16 | 12/31/17 | 12/31/18 | 12/31/19 | 12/31/20 | 12/31/21 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Old Dominion Freight Line, Inc. | $100 | $153 | $144 | $221 | $341 | $631 | | S&P 500 Total Return Index | $100 | $122 | $116 | $153 | $181 | $233 | | Dow Jones Transportation Average | $100 | $119 | $104 | $126 | $147 | $196 | | Nasdaq Industrial Transportation Index | $100 | $128 | $116 | $146 | $191 | $242 | Selected Financial Data This item is not applicable - Not applicable[122] Management's Discussion and Analysis of Financial Condition and Results of Operations Old Dominion achieved record 2021 revenue of $5.3 billion and a 73.5% operating ratio, driven by LTL growth and strong liquidity management - 2021 financial results reflect the highest annual revenue and profitability in the company's history, with revenue reaching $5.3 billion[131] - The operating ratio improved by 390 basis points to 73.5% for 2021, down from 77.4% in 2020[130][131] - Net income increased by 53.8% to $1.03 billion, and diluted EPS increased by 56.5% to $8.89 in 2021 compared to 2020[131] - Capital expenditures are estimated to be approximately $825 million for 2022, a significant increase from $546.6 million in 2021[147][149] Results of Operations Revenue increased 30.9% to $5.26 billion in 2021, driven by LTL shipment growth and improved operating ratio to 73.5% Key Financial and Operating Metrics (2021 vs 2020) | Metric | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Revenue (in thousands) | $5,256,328 | $4,015,129 | 30.9% | | Operating ratio | 73.5% | 77.4% | -3.9 pts | | Net income (in thousands) | $1,034,375 | $672,682 | 53.8% | | Diluted EPS | $8.89 | $5.68 | 56.5% | | LTL shipments (in thousands) | 12,880 | 10,869 | 18.5% | | LTL revenue per hundredweight | $25.59 | $22.62 | 13.1% | - Revenue growth was driven by a significant increase in LTL shipment volumes (up 18.5%), partially offset by a 2.7% decrease in LTL weight per shipment[130][132] - Excluding fuel surcharges, LTL revenue per hundredweight increased 8.8% in 2021 compared to 2020[133] - Salaries, wages, and benefits increased by $414.1 million (20.2%) due to a 15.9% increase in average full-time employees and higher wage rates[135] - Operating supplies and expenses increased by $194.2 million (52.0%), primarily due to a 60.3% increase in the average cost per gallon of diesel fuel[138] Liquidity and Capital Resources Liquidity remains strong with $462.6 million cash, $1.21 billion from operations, and planned $825 million capital expenditures for 2022 Cash Flow Summary (in thousands) | | 2021 | 2020 | | :--- | :--- | :--- | | Cash flows from operating activities | $1,212,606 | $933,024 | | Cash flows used in investing activities | ($455,288) | ($551,663) | | Cash flows used in financing activities | ($696,184) | ($383,502) | | Cash and cash equivalents at end of year | $462,564 | $401,430 | Net Capital Expenditures (in thousands) | Category | 2021 | 2020 | | :--- | :--- | :--- | | Land and structures | $252,155 | $181,221 | | Tractors | $130,772 | $17,518 | | Trailers | $140,595 | $2,151 | | Technology & Other | $42,589 | $24,191 | | Less: Proceeds from sales | ($19,548) | ($3,690) | | Total | $546,563 | $221,391 | - The company announced a new $2.0 billion stock repurchase program in July 2021. As of Dec 31, 2021, $1.96 billion remained available and uncommitted after accounting for an ASR[150][152] - Quarterly cash dividends totaled $0.80 per share for 2021, up from $0.60 per share in 2020[154] Critical Accounting Policies Critical accounting policies include revenue recognition, claims and insurance accruals, and property and equipment depreciation, requiring significant judgment - Revenue for shipments in transit at period-end is recognized using a percentage of completion method based on days in transit versus standard delivery time[166] - Accruals for claims and insurance are established using historical claims data, known trends, and third-party actuarial estimates. The total accrued liability for insurance, BIPD, and workers' compensation was $126.4 million at year-end 2021[167][169] - Property and equipment are depreciated on a straight-line basis over estimated useful lives (e.g., 4 to 15 years for revenue equipment). Depreciation expense was $259.9 million in 2021[170][171] Quantitative and Qualitative Disclosures about Market Risk The company is exposed to interest rate, investment, and commodity price risks, primarily managing fuel price volatility through surcharges - Exposure to interest rate risk is primarily from the variable-rate Credit Agreement and short-term investments, but a 100 basis point change is not expected to have a material effect[176][177] - The company is exposed to market risk on $59.9 million of investments in company-owned life insurance contracts; a 10% change in market value would have a $6.0 million impact on pre-tax income[178] - Commodity price risk for diesel fuel is managed mainly through the application of fuel surcharges to customers[179] Financial Statements and Supplementary Data This section presents the company's audited financial statements and notes, with an unqualified auditor opinion on financials and internal controls Balance Sheet Highlights (in thousands) | | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $1,383,787 | $1,243,339 | | Net Property and Equipment | $3,215,686 | $2,914,031 | | Total Assets | $4,821,544 | $4,369,410 | | Total Current Liabilities | $464,234 | $373,130 | | Total Long-term Liabilities | $677,503 | $669,992 | | Total Liabilities | $1,141,737 | $1,043,122 | | Total Shareholders' Equity | $3,679,807 | $3,326,288 | Statement of Operations Highlights (in thousands) | | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Revenue from operations | $5,256,328 | $4,015,129 | $4,109,111 | | Operating income | $1,391,602 | $906,882 | $818,706 | | Net income | $1,034,375 | $672,682 | $615,518 | - The independent auditor, Ernst & Young LLP, issued an unqualified opinion on the financial statements and internal controls over financial reporting[272][273] - The critical audit matter identified by the auditor was the estimation of self-insurance reserves for Bodily Injury/Property Damage (BIPD) and Workers' Compensation, due to the complexity and significant judgment involved[277][278][279] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no disagreements with its accountants on any accounting or financial disclosure matters - None[280] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021 - The CEO and CFO concluded that disclosure controls and procedures were effective as of December 31, 2021[281] - Management concluded that internal control over financial reporting was effective as of December 31, 2021, based on the COSO 2013 framework[282] - The effectiveness of internal control over financial reporting was audited by Ernst & Young LLP, who issued an unqualified opinion[284][289] Other Information The company reports no other information - None[297] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[298] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 proxy statement - Required information is incorporated by reference from the 2022 Annual Meeting of Shareholders proxy statement[300] Executive Compensation Information regarding executive compensation is incorporated by reference from the 2022 proxy statement - Required information is incorporated by reference from the 2022 Annual Meeting of Shareholders proxy statement[302] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the 2022 proxy statement - Required information is incorporated by reference from the 2022 Annual Meeting of Shareholders proxy statement[303] Certain Relationships and Related Transactions, and Director Independence Information regarding related party transactions and director independence is incorporated by reference from the 2022 proxy statement - Required information is incorporated by reference from the 2022 Annual Meeting of Shareholders proxy statement[304] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the 2022 proxy statement - Required information is incorporated by reference from the 2022 Annual Meeting of Shareholders proxy statement[305] Part IV Exhibits, Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K - Lists the financial statements included in Item 8 and the financial statement schedule, Schedule II – Valuation and Qualifying Accounts[308][309] - A detailed Exhibit Index is provided, listing all filed exhibits, including articles of incorporation, bylaws, debt agreements, and executive compensation plans[312][313] Form 10-K Summary The company reports no Form 10-K summary - None[315]