Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

OLD DOMINION FREIGHT LINE, INC.

BALANCE SHEETS

		December 31,
(In thousands, except share and per share data)		2017				2016
ASSETS
Current assets:
Cash and cash equivalents		$	127,462			$	10,171
Customer receivables, less allowances of $9,465 and $8,346, respectively		394,169				320,087
Other receivables		21,612				14,402
Prepaid expenses and other current assets		41,410				37,962
Total current assets		584,653				382,622
Property and equipment:
Revenue equipment		1,591,036				1,496,697
Land and structures		1,548,079				1,377,106
Other fixed assets		432,146				402,482
Leasehold improvements		8,668				8,699
Total property and equipment		3,579,929				3,284,984
Less: Accumulated depreciation		(1,175,470		)		(1,043,582		)
Net property and equipment		2,404,459				2,241,402
Goodwill		19,463				19,463
Other assets		59,849				52,760
Total assets		$	3,068,424			$	2,696,247
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	73,729			$	89,216
Compensation and benefits		152,566				129,170
Claims and insurance accruals		49,949				47,417
Other accrued liabilities		24,805				22,833
Current maturities of long-term debt		50,000				—
Total current liabilities		351,049				288,636
Long-term debt		45,000				104,975
Other non-current liabilities		205,561				178,879
Deferred income taxes		189,960				272,599
Total long-term liabilities		440,521				556,453
Total liabilities		791,570				845,089
Commitments and contingent liabilities
Shareholders’ equity
Common stock - $0.10 par value, 140,000,000 shares authorized, 82,375,945 and 82,416,657 shares outstanding at December 31, 2017 and 2016, respectively		8,238				8,242
Capital in excess of par value		138,359				135,466
Retained earnings		2,130,257				1,707,450
Total shareholders’ equity		2,276,854				1,851,158
Total liabilities and shareholders’ equity		$	3,068,424			$	2,696,247

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

OLD DOMINION FREIGHT LINE, INC.

STATEMENTS OF OPERATIONS

		Year Ended December 31,
(In thousands, except share and per share data)		2017				2016				2015
Revenue from operations		$	3,358,112			$	2,991,517			$	2,972,442
Operating expenses:
Salaries, wages and benefits		1,802,440				1,652,055				1,569,791
Operating supplies and expenses		381,798				322,997				353,889
General supplies and expenses		107,733				86,626				89,308
Operating taxes and licenses		99,778				92,426				93,292
Insurance and claims		41,718				37,861				37,368
Communications and utilities		27,754				27,904				26,913
Depreciation and amortization		205,763				189,867				165,343
Purchased transportation		84,747				74,051				116,300
Building and office equipment rents		7,984				7,920				9,620
Miscellaneous expenses, net		22,511				15,975				12,378
Total operating expenses		2,782,226				2,507,682				2,474,202
Operating income		575,886				483,835				498,240
Non-operating expense (income):
Interest expense		2,154				4,332				5,210
Interest income		(740		)		(58		)		(209		)
Other (income) expense, net		(1,360		)		1,974				3,222
Total non-operating expense		54				6,248				8,223
Income before income taxes		575,832				477,587				490,017
Provision for income taxes		112,058				181,822				185,327
Net income		$	463,774			$	295,765			$	304,690
Earnings per share:
Basic		$	5.63			$	3.56			$	3.57
Diluted		$	5.63			$	3.56			$	3.57
Weighted average shares outstanding:
Basic		82,308,417				83,112,012				85,378,480
Diluted		82,407,068				83,153,659				85,378,480
Dividends declared per share		$	0.40			—				—

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

OLD DOMINION FREIGHT LINE, INC.

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

										Capital in
		Common Stock								Excess of				Retained
(In thousands)		Shares				Amount				Par Value				Earnings				Total
Balance as of December 31, 2014		86,094				$	8,609			$	134,401			$	1,351,054			$	1,494,064
Net income		—				—				—				304,690				304,690
Share repurchases		(1,682		)		(168		)		—				(113,949		)		(114,117		)
Balance as of December 31, 2015		84,412				$	8,441			$	134,401			$	1,541,795			$	1,684,637
Net income		—				—				—				295,765				295,765
Share repurchases		(2,063		)		(206		)		—				(130,110		)		(130,316		)
Share-based compensation and restricted share issuances, net of taxes		68				7				1,065				—				1,072
Balance as of December 31, 2016		82,417				$	8,242			$	135,466			$	1,707,450			$	1,851,158
Net Income		—				—				—				463,774				463,774
Share repurchases		(92		)		(9		)		—				(8,004		)		(8,013		)
Cash dividends declared		—				—				—				(32,963		)		(32,963		)
Share-based compensation and restricted share issuances, net of taxes		51				5				2,893				—				2,898
Balance as of December 31, 2017		$	82,376			$	8,238			$	138,359			$	2,130,257			$	2,276,854

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

OLD DOMINION FREIGHT LINE, INC.

STATEMENTS OF CASH FLOWS

		Year Ended December 31,
(In thousands)		2017				2016				2015
Cash flows from operating activities:
Net income		$	463,774			$	295,765			$	304,690
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		205,763				189,867				165,343
Loss (gain) on sale of property and equipment		1,274				168				(3,592		)
Deferred income taxes		(82,639		)		34,808				43,642
Share-based compensation		3,242				1,410				—
Changes in assets and liabilities:
Customer and other receivables, net		(76,353		)		(11,176		)		(8,672		)
Prepaid expenses and other assets		(12,885		)		(21,227		)		(6,097		)
Accounts payable		(15,487		)		22,442				21,460
Compensation, benefits and other accrued liabilities		25,330				4,965				14,699
Claims and insurance accruals		1,843				6,548				11,549
Income taxes, net		(4,939		)		21,184				11,511
Other liabilities		27,371				20,829				(653		)
Net cash provided by operating activities		536,294				565,583				553,880
Cash flows from investing activities:
Purchase of property and equipment		(382,125		)		(417,941		)		(462,059		)
Proceeds from sale of property and equipment		12,240				10,541				24,442
Other investing activities, net		2,139				—				—
Net cash used in investing activities		(367,746		)		(407,400		)		(437,617		)
Cash flows from financing activities:
Principal payments under long-term debt agreements		—				(26,488		)		(37,778		)
Net (payments) proceeds on revolving line of credit		(9,975		)		(2,342		)		12,317
Dividends paid		(32,925		)		—				—
Payments for share repurchases		(8,013		)		(130,316		)		(114,117		)
Other financing activities, net		(344		)		(338		)		—
Net cash used in financing activities		(51,257		)		(159,484		)		(139,578		)
Increase (decrease) in cash and cash equivalents		117,291				(1,301		)		(23,315		)
Cash and cash equivalents at beginning of year		10,171				11,472				34,787
Cash and cash equivalents at end of year		$	127,462			$	10,171			$	11,472
Income taxes paid		$	199,404			$	123,395			$	130,058
Interest paid		$	5,442			$	6,417			$	8,414
Capitalized interest		$	3,309			$	2,262			$	2,526

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

OLD DOMINION FREIGHT LINE, INC.

NOTES TO THE FINANCIAL STATEMENTS

Note 1. Significant Accounting Policies

Business

We are a leading, less-than-truckload (“LTL”), union-free motor carrier providing regional, inter-regional and national LTL services, which include ground and air expedited transportation and consumer household pickup and delivery, through a single integrated organization. In addition to our core LTL services, we offer a range of value-added services including container drayage, truckload brokerage, supply chain consulting and warehousing.

We have one operating segment and no single customer exceeds 5% of our revenue. The composition of our revenue is summarized below:

		Year Ended December 31,
(In thousands)		2017				2016				2015
LTL services		$	3,303,611			$	2,939,572			$	2,893,683
Other services		54,501				51,945				78,759
Total revenue		$	3,358,112			$	2,991,517			$	2,972,442

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 services have been completed in accordance with the bill of lading contract, our general tariff provisions or contractual agreements with our customers. Generally, this occurs when we complete the delivery of a shipment. For transportation 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.

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. 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 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

OLD DOMINION FREIGHT LINE, INC.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

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 require 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.

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.

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, which includes the amortization of capital leases, was $205.6 million, $189.6 million and $164.8 million for 2017, 2016 and 2015, respectively.

Goodwill

Intangible assets have been acquired in connection with business combinations and are comprised of goodwill. Goodwill is calculated as the excess cost over the fair value of assets acquired and is not subject to amortization. We review goodwill annually for impairment as a single reporting unit, unless circumstances dictate more frequent assessments, in accordance with Accounting Standards Update (“ASU”) 2011-08, Testing Goodwill for Impairment. ASU 2011-08 permits an initial assessment, commonly referred to as "step zero", of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount and also provides a basis for determining whether it is necessary to perform the goodwill impairment test required by Accounting Standards Codification ("ASC") Topic 350.

We performed the qualitative assessment of goodwill on our annual measurement date of October 1, 2017 and determined that it was more likely than not that the fair value of our reporting unit would be greater than its carrying amount. Therefore, we determined it was not necessary to perform the quantitative goodwill impairment test. Furthermore, there has been no historical impairment of our goodwill.

OLD DOMINION FREIGHT LINE, INC.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Claims and Insurance Accruals

As of December 31, 2017, we maintained a self-insured retention ("SIR") of $2.75 million per occurrence for bodily injury and property damage (“BIPD”) claims, plus a one-time, $2.5 million aggregate corridor deductible applicable per annual policy period to any claim that exceeds $5.0 million and occurs after March 30, 2016; a deductible of $100,000 per occurrence for cargo loss and damage; and a deductible of $1.0 million per occurrence for workers' compensation claims. We also had a SIR of $1.0 million per covered person paid during 2017 for group health claims.

Claims and insurance accruals reflect the estimated cost of claims for cargo loss and damage, BIPD, workers' compensation, group health and group dental not covered by insurance. 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 costs for cargo loss and damage and BIPD are 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 $127.6 million and $125.8 million at December 31, 2017 and 2016, respectively. The long-term portions of those reserves were $77.7 million and $78.4 million for 2017 and 2016, 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 and restricted stock 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 (benefit) recognized for all share-based compensation awards was $22.7 million, $16.2 million and ($2.5) million during 2017, 2016,and 2015, respectively. The total tax (benefit) expense recognized related to these awards was ($9.0) million, ($6.3) million and $1.0 million during 2017, 2016, and 2015.

Awards of phantom stock are accounted for as a liability under ASC Topic 718 and changes in the fair value of our liability are recognized as compensation cost over the requisite service period for the percentage of requisite service rendered each period. Changes in the fair value of the liability that occur after the requisite service period are recognized as compensation cost during the period in which the changes occur. We remeasure the liability for the outstanding awards at the end of each reporting period and the compensation cost is based on the change in fair market value for each reporting period.

Awards of restricted stock are accounted for as equity under ASC Topic 718. Compensation cost for restricted stock awards is measured at the fair market value of our common stock on the grant date. We recognize compensation cost, net of estimated forfeitures, on a straight-line basis over the requisite service period of each award.

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 $27.3 million, $20.5 million and $22.9 million for 2017, 2016 and 2015, respectively.

Fair Values of Financial Instruments

The carrying values of financial instruments in current assets and current liabilities approximate their fair value due to the short maturities of these instruments. The carrying value of our revolving credit facility approximates fair value due to the variable interest rates of the facility that correlate with current market rates. The carrying value of our total long-term debt, including current maturities, was $95.0 million and $105.0 million at December 31, 2017 and 2016, respectively. The estimated fair value of our total long-term debt, including current maturities, was $97.1 million and $108.3 million at December 31, 2017 and 2016, respectively. The fair value measurement of our senior notes was determined using a discounted cash flow analysis that factors in current market yields for comparable borrowing arrangements under our credit profile. Since this methodology is based upon market yields for comparable arrangements, the measurement is categorized as Level 2 under the three-level fair value hierarchy as established by the Financial Accounting Standards Board (the “FASB”).

OLD DOMINION FREIGHT LINE, INC.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Stock Repurchase Program

During the second quarter of 2016, we completed our stock repurchase program to repurchase up to an aggregate of $200.0 million of our outstanding common stock, previously announced on November 10, 2014. On May 23, 2016, we announced that our Board of Directors had approved a new two-year stock repurchase program authorizing us to repurchase up to an aggregate of $250.0 million of our outstanding common stock (the “2016 Repurchase Program”). Under the 2016 Repurchase Program, 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. As of December 31, 2017, we had $192.0 million remaining authorized under the 2016 Repurchase Program.

Comprehensive Income

The Company has no components of other comprehensive income. Accordingly, net income equals comprehensive income for all periods presented in this report.

Supplemental Disclosure of Noncash Investing and Financing Activities

Investing and financing activities that are not reported in the Statements of Cash Flows due to their non-cash nature are summarized below:

		Year Ended December 31,
(In thousands)		2017				2016				2015
Acquisition of property and equipment by capital lease		$	—			$	—			$	3,552

Recent Accounting Pronouncements

In August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments" (Topic 230) to address how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This ASU is intended to reduce diversity in practice in the classification of certain transactions on the statement of cash flows. The ASU is effective for public companies for fiscal years beginning after December 15, 2017, and early adoption is permitted. We early adopted the provisions of ASU 2016-15 as of January 1, 2017. The adoption resulted in proceeds from Company-owned life insurance policies being classified as cash flows from investing activities, rather than cash flows from operating activities on our Statements of Cash Flows. The adoption did not have a material impact on our financial position, results of operations or cash flows.

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other" (Topic 350). This ASU is intended to simplify the subsequent measurement of goodwill and reduces the complexity of evaluating goodwill for impairment. Under this ASU, an entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. This ASU is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We early adopted the provisions of ASU 2017-04 in 2017. The adoption did not have an impact on our financial position, results of operations or cash flows.

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers" (Topic 606). This ASU supersedes the previous revenue recognition requirements in ASC Topic 605-Revenue Recognition. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers", which deferred the effective date for ASU 2014-09 by one year to fiscal years beginning after December 15, 2017 and also provided for the option to early adopt for fiscal years beginning after December 15, 2016. Transition methods under ASU 2014-09 must be through (i) retrospective application to each prior reporting period presented, or (ii) modified retrospective application with a cumulative effect adjustment at the date of initial application.

We completed our evaluation of the impact of ASU 2014-09 on our financial reporting and disclosures, including but not limited to our accounting policies, internal controls and processes. We will adopt ASU 2014-09 using the modified retrospective

OLD DOMINION FREIGHT LINE, INC.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

application effective January 1, 2018. Based on our assessment, upon adoption, ASU 2014-09 will not have a material impact on our financial position, results of operations or cash flows.

In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842). This ASU requires a lessee to recognize a right-of-use asset and a lease liability under most operating leases in its balance sheet. The ASU is effective for annual and interim periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We are continuing to evaluate the impact of this new standard on our financial reporting and disclosures.

Note 2. Long-term Debt

Long-term debt consisted of the following:

		December 31,
(In thousands)		2017				2016
Senior notes		$	95,000			$	95,000
Revolving credit facility		—				9,975
Total long-term debt		95,000				104,975
Less: Current maturities		(50,000		)		—
Total maturities due after one year		$	45,000			$	104,975

We had one unsecured senior note agreement with an amount outstanding of $95.0 million at each of December 31, 2017 and 2016. Our unsecured senior note agreement calls for two scheduled principal payments of $50.0 million and $45.0 million on January 3, 2018 and January 3, 2021, respectively. Interest rates on the January 3, 2018 and January 3, 2021 scheduled principal payments were 4.00% and 4.79%, respectively. The effective average interest rate on our outstanding senior note agreement was 4.37% at each of December 31, 2017 and 2016.

On December 15, 2015, we entered into an amended and restated credit agreement with Wells Fargo Bank, National Association ("Wells Fargo") serving as administrative agent for the lenders (the "Credit Agreement"). The Credit Agreement originally provided for a five-year, $250.0 million senior unsecured revolving line of credit and a $100.0 million accordion feature, which if exercised and approved, would expand the total borrowing capacity up to an aggregate of $350.0 million.

On September 9, 2016, we exercised a portion of the accordion feature and entered into an amendment to the Credit Agreement to increase the aggregate commitments from existing lenders by $50.0 million to an aggregate of $300.0 million. Of the $300.0 million line of credit commitments under the Credit Agreement, as amended, up to $100.0 million may be used for letters of credit and $30.0 million may be used for borrowings under the Wells Fargo Sweep Plus Loan Program (the "Sweep Program"). We utilize the Sweep Program to manage our daily cash needs, as it automatically initiates borrowings to cover overnight cash requirements primarily for working capital needs.

At our option, borrowings under the Credit Agreement bear interest at either: (i) LIBOR plus an applicable margin (based on our ratio of net debt-to-total capitalization) that ranges from 1.0% to 1.50%; or (ii) a Base Rate plus an applicable margin (based on our ratio of net debt-to-total capitalization) that ranges from 0.0% to 0.5%. Loans under the Sweep Program bear interest at LIBOR plus applicable margin rate. Letter of credit fees equal to the applicable margin for LIBOR loans are charged quarterly in arrears on the daily average aggregate stated amount of all letters of credit outstanding during the quarter. Commitment fees ranging from 0.125% to 0.2% (based upon the ratio of net debt-to-total capitalization) are charged quarterly in arrears on the aggregate unutilized portion of the Credit Agreement. Wells Fargo, as administrative agent, also receives an annual fee for providing administrative services.

For each of the years ended December 31, 2017 and 2016, the applicable margin on LIBOR loans was 1.0% and commitment fees were 0.125% under the Credit Agreement. There were $71.4 million and $74.6 million of outstanding letters of credit at December 31, 2017 and 2016, respectively. Letter of credit fees remained at 1.0% during each of the years ended December 31, 2017 and 2016.

The Credit Agreement includes 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 under the Credit Agreement are ongoing (or would be caused by such restricted payment). Our senior note agreement and Credit Agreement contain customary

OLD DOMINION FREIGHT LINE, INC.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

covenants, including financial covenants that require us to observe a maximum ratio of debt to total capital and a minimum fixed charge coverage ratio. Any future wholly-owned material domestic subsidiaries of the Company would be required to guarantee payment of all of our obligations under these agreements.

As of December 31, 2017, aggregate maturities of long-term debt are as follows:

(In thousands)	Total
2018	$	50,000
2019	—
2020	—
2021	45,000
Thereafter	—
	$	95,000

Note 3. Leases

We lease certain assets under operating leases, which primarily consist of real estate leases for 34 of our 228 service center locations at December 31, 2017. 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.

Future minimum annual lease payments for assets under operating leases as of December 31, 2017 are as follows:

(In thousands)		Total
2018		$	12,609
2019		10,262
2020		7,907
2021		5,610
2022		4,016
Thereafter		25,362
		$	65,766

Aggregate expense under operating leases was $14.1 million, $13.8 million and $15.2 million for 2017, 2016 and 2015, respectively. Certain operating leases include rent escalation provisions, which we recognize as expense on a straight-line basis. We did not have any assets under capital leases at each of December 31, 2017 and 2016.

OLD DOMINION FREIGHT LINE, INC.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Note 4. Income Taxes

The Tax Cuts and Jobs Act (the "Tax Act") was enacted on December 22, 2017. The Tax Act reduces the U.S. federal corporate income tax rate from 35% to 21% and makes several other changes to long-held tax rules. We have not completed our accounting for the tax effects of the Tax Act; however, we have made a reasonable estimate of the effects of the Tax Act on our deferred tax balances and have remeasured them based upon the rates at which they are expected to reverse in the future. We have recognized a provisional income tax benefit of $104.9 million in our provision for income taxes in the current year ended December 31, 2017. We will continue to refine our estimates related to the Tax Act as clarifying guidance and interpretations are issued and our 2017 tax returns are completed.

The components of the provision for income taxes are as follows:

		Year Ended December 31,
(In thousands)		2017				2016				2015
Current:
Federal		$	169,053			$	126,903			$	120,437
State		25,644				20,111				21,248
		194,697				147,014				141,685
Deferred:
Federal		(81,551		)		29,354				38,549
State		(1,088		)		5,454				5,093
		(82,639		)		34,808				43,642
Total provision for income taxes		$	112,058			$	181,822			$	185,327

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 2017, 2016 and 2015:

		Year Ended December 31,
(In thousands)		2017				2016				2015
Tax provision at statutory rate		$	201,541			$	167,156			$	171,506
State income taxes, net of federal benefit		20,277				16,711				17,097
Revaluation of deferred taxes in connection with the Tax Act		(104,864		)		—				—
Other, net		(4,896		)		(2,045		)		(3,276		)
Total provision for income taxes		$	112,058			$	181,822			$	185,327

OLD DOMINION FREIGHT LINE, INC.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

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)		2017				2016
Deferred tax assets:
Claims and insurance reserves		$	29,008			$	43,409
Accrued vacation		17,832				24,227
Deferred compensation		29,220				40,742
Other		15,157				11,593
Total deferred tax assets		91,217				119,971
Deferred tax liabilities:
Depreciation and amortization		(266,730		)		(376,034		)
Unrecognized revenue		(10,007		)		(11,465		)
Other		(1,703		)		(2,334		)
Total deferred tax liabilities		(278,440		)		(389,833		)
Net deferred tax liability		$	(187,223	)		$	(269,862	)

As of December 31, 2017, the Company had various state tax credit carryforwards of approximately $4.2 million that are scheduled to expire in one to 14 years.

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 2012 through 2017. We also remain open to examination by various state tax jurisdictions for tax years 2012 through 2017.

The Company's liability for unrecognized tax benefits was immaterial as of December 31, 2017 and 2016. 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

Family Relationships

Each of Earl E. Congdon, David S. Congdon and John R. Congdon, Jr. are related to one another and served in various management positions and/or on our Board of Directors during 2017. Our employment agreements with Earl E. Congdon and David S. Congdon are incorporated by reference as exhibits to this Annual Report on Form 10-K. 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.

Transactions with Old Dominion Truck Leasing, Inc.

From time to time, we have utilized the services of Old Dominion Truck Leasing, Inc. (“Leasing”), leased property to Leasing, and collaborated with Leasing for the purchase of certain equipment and fuel. Leasing, which historically had been primarily engaged in the business of leasing tractors, trailers and other vehicles as well as providing contract dedicated fleet services, was acquired by Penske Truck Leasing during the third quarter of 2017 (the “Penske Acquisition”). Prior to the Penske Acquisition, John R. Congdon, Jr. served as Leasing’s Chairman of the Board and CEO, and Earl E. Congdon and David S. Congdon each served on Leasing’s board of directors.

OLD DOMINION FREIGHT LINE, INC.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Our business relationships with Leasing, as well as the positions held at Leasing by John R. Congdon, Jr., Earl E. Congdon and David S. Congdon, ceased in the third quarter of 2017 in connection with the Penske Acquisition. Prior to the Penske Acquisition, we purchased $110,000, $254,000 and $313,000 of maintenance and other services from Leasing in 2017, 2016 and 2015, respectively. In addition, we received $6,000, $12,000 and $12,000 from Leasing for the rental of property in 2017, 2016 and 2015, respectively.

Note 6. Employee Benefit Plans

Defined Contribution Plan

Substantially all employees meeting certain service requirements are eligible to participate in our 401(k) employee retirement plan. 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 2017, 2016 and 2015 were $35.9 million, $28.9 million and $30.3 million, respectively.

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 $61.5 million and $53.8 million at December 31, 2017 and 2016, respectively, of which $59.5 million and $51.0 million were included in "Other non-current liabilities" on our Balance Sheets as of December 31, 2017 and 2016, 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 and includes the impact of shares of unvested restricted stock.

The following table provides a reconciliation of the number of common shares used in computing basic and diluted earnings per share:

		Year Ended December 31,
(In thousands)		2017			2016			2015
Weighted average shares outstanding - basic		82,308,417			83,112,012			85,378,480
Dilutive effect of share-based awards		98,651			41,647			—
Weighted average shares outstanding - diluted		82,407,068			83,153,659			85,378,480

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 2,000,000 shares.

OLD DOMINION FREIGHT LINE, INC.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Restricted Stock Awards

During 2017 and 2016, 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 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 or service. The restricted stock awards accrue dividends while the award is unvested and only carry rights to receive the accrued dividends once vested.

Compensation cost for restricted stock awards is measured at the grant date based on the fair market value per share of our common stock. Compensation cost is recognized on a straight-line basis over the requisite service period of each award and is presented in "Salaries, wages and benefits" for employees and “Miscellaneous expenses, net” for non-employee directors in the accompanying Statements of Operations.

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, 2017		72,695			$	63.94
Granted		59,314			$	90.16
Vested		(30,653	)		63.94
Forfeited		(4,258	)		72.66
Unvested at December 31, 2017		97,098			$	79.58

The weighted average grant date fair value per restricted stock award granted during fiscal years 2017 and 2016 was $90.16 and $63.94, respectively. We did not grant any restricted stock awards during fiscal year 2015. The total fair value of vested restricted stock awards for fiscal year 2017 was $2.7 million. No restricted stock awards vested during fiscal years 2016 and 2015. At December 31, 2017, the Company had $4.6 million of unrecognized stock-based compensation cost, net of estimated forfeitures, related to unvested restricted stock awards that will be recognized over a weighted average period of 1.8 years.

Phantom Stock Plan

On October 30, 2012, our Board of Directors approved and we adopted the Old Dominion Freight Line, Inc. 2012 Phantom Stock Plan, as amended on January 29, 2015 (the "2012 Phantom Stock Plan"). Under the 2012 Phantom Stock Plan, 1,000,000 shares of phantom stock may be awarded, each of which represents a contractual right to receive an amount in cash equal to the fair market value of a share of our common stock on the settlement date, which is the earliest of the date of the participant's (i) termination of employment for any reason other than for cause, (ii) death or (iii) total disability. Each award vests in 20% increments on the anniversary of the grant date provided that the participant (i) has been continuously employed by us since the grant date, (ii) has been continuously employed by us for ten years and (iii) has reached the age of 65. Vesting also occurs on the earliest of (i) a change in control, (ii) death or (iii) total disability. Awards are settled in cash after the required vesting period has been satisfied and upon termination of employment. Unvested shares are forfeited upon termination of employment, although our Board of Directors has authority to modify and/or accelerate the vesting of awards.

On May 16, 2005, our Board of Directors approved, and the Company adopted, the Old Dominion Freight Line, Inc. Phantom Stock Plan, as amended, effective January 1, 2009, May 18, 2009, May 17, 2011 and January 29, 2015 (the “2005 Phantom Stock Plan” and together with the 2012 Phantom Stock Plan, the “Employee Phantom Plans”). The 2005 Phantom Stock Plan expired in May 2012; however, grants under the 2005 Phantom Stock Plan remain outstanding. Each share of phantom stock awarded to eligible employees under the 2005 Phantom Stock Plan represents a contractual right to receive an amount in cash equal to the fair market value of a share of our common stock on the settlement date, which generally is the earlier of the eligible employee’s (i) termination from the Company after reaching 55 years of age, (ii) death or (iii) total disability. Awards are settled in cash after the required vesting period has been satisfied and upon termination of employment.

OLD DOMINION FREIGHT LINE, INC.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Awards under the 2005 Phantom Stock Plan vest upon the earlier to occur of the following: (i) the date of a change of control in our ownership; (ii) the fifth anniversary of the grant date of the award, provided the participant is employed by us on that date; (iii) the date of the participant’s death while employed by us; (iv) the date of the participant’s total disability; or (v) the date the participant attains the age of 65 while employed by us. Awards that are not vested upon termination of employment are forfeited. If termination occurs prior to attaining the age of 55, all vested and unvested awards are generally forfeited unless the termination results from death or total disability. The 2005 Phantom Stock Plan does, however, provide the Board of Directors with discretionary authority to modify and/or accelerate the vesting of awards.

A summary of cash payments for settled shares and compensation costs recognized in “Salaries, wages and benefits” on our Statements of Operations for the Employee Phantom Plans is provided below:

		Year Ended December 31,
(In thousands)		2017				2016				2015
Cash payments for settled shares		$	3,066			$	2,442			$	1,682
Compensation expense (benefit)		16,910				12,694				(1,612		)

Unrecognized compensation cost for all unvested shares under the Employee Phantom Plans as of December 31, 2017 was $12.7 million based on the fair market value of the award on that date.

On May 28, 2008, our Board of Directors approved, and the Company adopted, the Old Dominion Freight Line, Inc. Director Phantom Stock Plan, as amended on April 1, 2011, February 20, 2014, August 7, 2014 and February 25, 2016 (the “Director Phantom Stock Plan” and together with the Employee Phantom Plans, the “Phantom Plans”). Under the Director Phantom Stock Plan, each eligible non-employee director was granted an annual award of phantom shares. Our Board of Directors approved the initial grant under this plan at its May 2008 meeting and authorized the subsequent annual grants to be made thereafter. For each vested phantom share, participants are entitled to an amount in cash equal to the fair market value of the award on the date that service as a director terminates for any reason. Our shareholders approved the Stock Incentive Plan at our 2016 Annual Meeting of Shareholders; therefore, no phantom shares were granted under the Director Phantom Stock Plan in 2016 or 2017.

Director Phantom Stock Plan awards vest upon the earlier to occur of the following: (i) the one-year anniversary of the grant date; (ii) the date of the first annual meeting of shareholders that occurs after the grant date provided the participant is still in service as a director; (iii) the date of a change of control in our ownership provided that the participant is still in service as a director; or (iv) the date of the participant’s death or total disability while still in service as a director. Awards that are not vested upon termination of service as a director are forfeited.

OLD DOMINION FREIGHT LINE, INC.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

A summary of cash payments for settled shares and compensation costs recognized in “Miscellaneous expenses, net” on our Statements of Operations for the Director Phantom Stock Plan is provided below:

		Year Ended December 31,
(In thousands)		2017				2016				2015
Cash payments for settled shares		$	474			$	278			$	—
Compensation expense (benefit)		2,588				2,098				(916		)

A summary of the changes in the number of outstanding phantom stock awards during the year ended December 31, 2017 for the Phantom Plans is provided below. Of these awards, 360,481 and 333,570 phantom shares were vested at December 31, 2017 and 2016, respectively.

		Employee Phantom Plans			Director Phantom Stock Plan			Total
Balance of shares outstanding at December 31, 2016		517,693			68,162			585,855
Granted		—			—			—
Settled		(21,506	)		—			(21,506	)
Forfeited		(4,722	)		—			(4,722	)
Balance of shares outstanding at December 31, 2017		491,465			68,162			559,627

The liability for unsettled phantom stock awards under the Phantom Plans consists of the following:

		December 31,
(In thousands)		2017				2016
Employee Phantom Plans		$	48,148			$	33,116
Director Phantom Stock Plan		8,436				5,848
Total		$	56,584			$	38,964

While the Stock Incentive Plan currently serves as our primary equity plan, the terms of the Phantom Stock Plans will continue to govern all awards granted under the Phantom Stock Plans until such awards have been settled, forfeited, canceled or have otherwise expired or terminated.

Note 9. Commitments and Contingencies

We are involved in or addressing various legal proceedings and claims, governmental inquiries, notices and investigations that have arisen in the ordinary course of our business and have not been fully adjudicated, some of which may be covered in whole or in part by insurance. Certain of these matters include class-action allegations. We do not believe that the resolution of any of these matters will have a material adverse effect upon our financial position, results of operations or cash flows.

OLD DOMINION FREIGHT LINE, INC.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Note 10. Quarterly Financial Information (Unaudited)

A summary of our unaudited quarterly financial information for 2017 and 2016 is provided below. Our tonnage levels and revenue mix are subject to seasonal trends common in the motor carrier industry. Our revenue and operating margins in the first and fourth quarters are typically lower than those during the second and third quarters due to reduced shipments during the winter months. Harsh winter weather or natural disasters, such as hurricanes, tornadoes and floods, can also adversely impact our performance by reducing demand and increasing operating expenses.

		Quarter
(In thousands, except per share data)		First				Second				Third				Fourth				Total
2017
Revenue		$	754,096			$	839,912			$	872,987			$	891,117			$	3,358,112
Operating income		108,122				160,432				163,875				143,457				575,886
Net income (1)		65,792				98,418				102,314				197,250				463,774
Earnings per share:
Basic		0.80				1.20				1.24				2.40				5.63
Diluted		0.80				1.19				1.24				2.39				5.63
Cash dividends declared		0.10				0.10				0.10				0.10				0.40
2016
Revenue		$	707,733			$	755,435			$	782,611			$	745,738			$	2,991,517
Operating income		99,548				133,436				137,404				113,447				483,835
Net income		60,285				81,388				85,581				68,511				295,765
Earnings per share:
Basic		0.72				0.98				1.03				0.83				3.56
Diluted		0.72				0.98				1.03				0.83				3.56
Cash dividends declared		—				—				—				—				—

(1)	During the fourth quarter of 2017, we recorded a provisional tax benefit of $104.9 million due to the remeasurement of our deferred taxes to reflect the impact of the Tax Act.

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, 2017 and 2016, the related statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and 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, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, 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, 2017, 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 27, 2018 expressed an unqualified opinion thereon.

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.

			/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1994.

Raleigh, North Carolina

February 27, 2018