Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Quarterly Report Pursuant To Section 13 or 15 (d) of The Securities
Exchange Act of 1934 For The Quarter Ended March 31, 2000
[ ] Transition Report Pursuant To Section 13 or 15 (d) of The Securities
Exchange Act of 1934
Commission file number 1-19773
OTR EXPRESS, INC.
(Exact name of registrant as specified in its charter)
Kansas 48-0993128
(State or other jurisdiction of (IRS Employer
incorporation of organization) Identification No.)
804 N. Meadowbrook Drive 66063-0819
PO Box 2819, Olathe, Kansas (Zip Code)
(Address of principal executive offices)
(913) 829-1616
(Registrant's telephone number, including area code)
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 ____
1,782,022
(Number of shares of common stock outstanding as of April 30, 2000)
PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OTR EXPRESS, INC.
BALANCE SHEETS
(Unaudited) March 31 December 31
2000 1999
ASSETS
CURRENT ASSETS
Cash $ 218,548 $ 113,284
Accounts receivable, freight 10,128,218 9,899,107
Accounts receivable, other 221,877 152,379
Inventory 455,770 449,735
Prepaid expenses and other 1,515,321 564,009
TOTAL CURRENT ASSETS 12,539,734 11,178,514
PROPERTY AND EQUIPMENT 51,080,867 52,397,851
TOTAL ASSETS $63,620,601 $63,576,365
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, trade $ 2,524,009 $ 2,274,541
Accrued payroll and taxes 1,780,663 1,284,506
Other accrued expenses 1,525,416 1,472,432
Current portion of long-term debt 13,762,732 13,842,822
TOTAL CURRENT LIABILITIES 19,592,820 18,874,301
LONG-TERM DEBT 34,519,483 33,889,580
DEFERRED INCOME TAXES 1,332,900 1,831,900
STOCKHOLDERS' EQUITY 8,175,398 8,980,584
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $63,620,601 $63,576,365
OTR EXPRESS, INC.
STATEMENTS OF OPERATIONS
Three Months Ended
March 31
(Unaudited) 2000 1999
OPERATING REVENUE
Freight revenue $18,516,184 $16,673,104
Logistics revenue 2,460,959 2,008,359
Total operating revenue 20,977,143 18,681,463
OPERATING EXPENSES
Salaries, wages and benefits 7,469,839 7,190,861
Purchased transportation 4,728,253 2,934,264
Fuel 2,233,918 1,072,240
Maintenance 1,022,645 1,196,719
Depreciation 2,133,279 1,628,790
Insurance and claims 583,053 603,176
Taxes and licenses 1,934,668 1,844,566
Supplies and other 1,198,188 1,143,311
Total operating expenses 21,303,843 17,613,927
Operating income (loss) (326,700) 1,067,536
Interest expense 935,229 835,369
Income (loss) before income taxes and
cumulative effect of accounting change (1,261,929) 232,167
Income tax expense (benefit) (479,729) 88,000
Income (loss) before cumulative effect of
accounting change (782,200) 144,167
Cumulative effect on prior year of change in
revenue recognition method, less
related income tax effect 31,442 -
Net income (loss) $ (813,642) $ 144,167
Weighted average number
of shares
Basic 1,787,333 1,832,035
Diluted 1,787,463 1,832,434
Earnings (loss) per share
Basic $ (0.46) $ 0.08
Diluted (0.46) 0.08
OTR EXPRESS, INC.
STATEMENTS OF CASH FLOWS
Three Months Ended
March 31
(Unaudited) 2000 1999
OPERATING ACTIVITIES
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 409,277 $ 1,453,495
INVESTING ACTIVITIES
Acquisition of property and equipment (1,326,737) (6,134,395)
Proceeds from disposition of property and
equipment 464,455 1,885,909
NET CASH USED IN INVESTING ACTIVITIES (862,282) (4,248,486)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 1,316,465 6,104,852
Repayments of long-term debt (3,376,512) (4,348,356)
Net increase in bank note payable 2,619,860 703,125
Other (1,544) (21,169)
NET CASH PROVIDED BY
FINANCING ACTIVITIES 558,269 2,438,452
NET INCREASE (DECREASE) IN CASH 105,264 (356,539)
CASH, BEGINNING OF PERIOD 113,284 521,484
CASH, END OF PERIOD $ 218,548 $ 164,945
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest $ 918,015 $ 835,369
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES
Increase (decrease) in guarantee of
executive officers stock purchase
plan loans $ (10,000) $ -
OTR EXPRESS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - FINANCIAL STATEMENT PRESENTATION
The financial statements included herein have been prepared by management,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although management believes that the
disclosures are adequate to enable a reasonable understanding of the
information presented. In the opinion of management, all adjustments
considered necessary for a fair presentation of the financial statements
have been included. For further information, refer to the Company's
financial statements and footnotes thereto included in the Annual Report on
Form 10-K for the year ended December 31, 1999.
The Company changed its method of revenue recognition from the pickup
method to the proportionate method effective January 1, 2000. This change
was made since the proportionate method better matches recorded revenue
with partially completed loads in transit at the end of the period.
Estimated revenue in transit at the end of a period is recognized on the
relative transit time. Direct expenses are recognized as incurred using this
method. The pre-tax charge associated with this accounting change
approximated $50,700.
NOTE 2 - LONG-TERM DEBT
During the three months ended March 31, 2000, the Company financed the
purchase of revenue equipment through the issuance of long-term debt
totaling $1,316,465. This debt bears interest at effective rates between
8.17% and 8.40%.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
The Company agreed to guarantee payment of four key executive stock loans
for such executives' private purchase of approximately 69,000 shares of the
Company's common stock in 1998. The Company has agreed to guarantee
payment of the stock loans to the extent that the pledged value of the
stock purchase (equal to one-half of its market value) is less than the
outstanding principal balance of such loans. During 1999, two of the
executives were terminated and the Company repaid the principal balance of
their loans, which totaled $250,000. The Company recorded the repayments
as compensation expense in 1999.
The amount of the Company's guarantee as of March 31, 2000 was
approximately $120,000. Stockholders' equity was reduced by this amount and
long-term debt was increased by this amount to record the guarantee.
At March 31, 2000, the Company had purchase and finance commitments
outstanding for additional revenue equipment of approximately $1.1 million.
NOTE 4 - LIQUIDITY
Higher fuel prices, unseated tractors and increased driver payroll costs
contributed to losses of $327,746, $926,744 and $813,642 being incurred in
the third and fourth quarters of 1999 and first quarter of 2000,
respectively. Additional losses are expected through at least the second
quarter of 2000. Management believes adequate liquidity to maintain
operations is available through the Company's line of credit and its
ability to refinance revenue equipment.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS AND FINANCIAL CONDITION
Overview. The discussion set forth below as well as other documents
incorporated by reference herein and oral statements made by officers of
the Company relating thereto that are not purely historical, may contain
forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, that are based on current expectations and
are subject to risks and uncertainties. These statements include
statements regarding the Company's expectations, hopes, beliefs and
intentions on strategies regarding the future. Such comments are based
upon information currently available to management and management's
perception thereof as of the date of this Form 10-Q. Actual results of the
Company's operations could materially differ from those forward looking
statements. Such differences could be caused by a number of factors
including, but not limited to, potential adverse effects of regulation;
changes in competition and the effects of such changes; changes in fuel
prices; changes in economic, political or regulatory environments; changes
in the value of revenue equipment; litigation involving the Company;
changes in the availability of a stable labor force; ability of the Company
to hire drivers meeting Company standards; availability of affordable
financing and refinancing; changes in management strategies; environmental
or tax matters; and risks described from time to time in reports filed by
the Company with the Securities and Exchange Commission. Readers should
take these factors into account in evaluating any such forward looking
statements.
RESULTS OF OPERATIONS
Segment Information
Three Months Ended
March 31
(Unaudited) 2000 1999
Operating Revenue
Trucking revenue $18,516,184 $16,673,104
Logistics revenue 2,460,959 2,008,359
Total operating revenue 20,977,143 18,681,463
Operating Expenses
Trucking expenses 18,940,206 15,791,823
Logistics expenses 2,363,637 1,822,104
Total operating expenses 21,303,843 17,613,927
Interest Expense 935,229 835,369
Net Income (loss) (813,642) 144,167
1st Quarter 2000 v. 1999
Operating Revenue. Operating revenue improved by 12.3% in the
first quarter ended March 31, 2000 compared to 1999. Freight revenue
increased by 11.1% and logistics revenue increased by 22.5%.
Freight revenue improved due to increases in rate per mile and average
number of units in service. The rate per mile increased to $1.068 (net of
approximately $0.030 fuel surcharge) in the first quarter of 2000 compared
to $1.059 in 1999. A revenue rate increase was implemented in March
2000. The average number of tractors in service increased by 4.7% to 606
in the first quarter of 2000 compared to 579 in 1999. Tractors in service
includes 112 owner operators in 2000 and 51 owner operators in 1999.
Logistics revenue increased due to a 73.1% increase in rail logistics
revenue and a 21.2% decrease in truck logistics revenue.
Operating Expenses. The operating ratio (total operating expenses
as a percent of operating revenue) increased to 101.6% in the first quarter
of 2000 compared to 94.3% in 1999.
Salaries, wages and benefits decreased to 35.6% of revenue in 2000
from 38.5% in 1999 primarily because of the increase in logistics revenue and
the increase in owner operators, despite a driver pay increase in the fourth
quarter of 1999. Additionally, as a result of a planned staff reduction, the
Company had approximately 10% fewer office employees in the
first quarter of 2000 compared to 1999. The addition of owner operators,
who own their trucks and contract with the Company to haul freight,
increased the revenues but not the wages. Owner operators pay their own
expenses, including payroll taxes, fuel, insurance, licenses and interest
expense. The cost of owner operators is classified in purchased
transportation.
Purchased transportation, which represents the cost of owner operators
and payments to other trucklines and rail carriers for hauling loads
contracted through the Company's logistics division, increased to 22.5% of
revenue in 2000 from 15.7% in 1999. The cost of owner operators increased
109.7% due to the more than 100% increase in the number of owner operators
contracting with the Company. Purchased transportation for the logistics
division increased 26.4% due to the increase in logistics revenue.
Fuel was 10.6% of revenue in 2000 compared to 5.7% in 1999. This is a
result of substantially higher diesel fuel prices nationwide in the first
quarter of 2000 compared to 1999.
Maintenance was 4.9% of revenue in 2000 compared to 6.4% of revenue in
1999 primarily as a result of higher logistics revenue, the increase in
owner operators (who pay their own tractor maintenance costs), and a newer
fleet of tractors.
Insurance and claims represented 2.8% and 3.2% of revenue in the first
quarter of 2000 and 1999, respectively. The Company's insurance program
for liability, physical damage, cargo damage and worker's compensation
involves insurance with varying deductible levels. Claims in excess of
these deductible levels are covered by insurance in the amounts management
considers adequate. The Company accrues the estimated cost of the
uninsured portion of pending claims. These accruals are estimated based on
management's evaluation of the nature and severity of individual claims and
an estimate of future claims development based on historical claims
development trends. Insurance and claims expense will vary as a percentage
of revenue from period to period based on the frequency and severity of
claims incurred in a given period as well as changes in claims development
trends.
Depreciation as a percent of revenue increased to 10.2% in 2000 from
8.7% in 1999. In 1999, the Company had several tractors that were held
longer than normal which were depreciated to their salvage value. All of
those tractors were sold in 1999 and as of March 31, 2000 the Company does
not have any tractors that are depreciated to their salvage value.
Licenses and permits was 9.2% of revenue in 2000 compared to 9.9% in
1999. The decrease is a result of higher revenue per mile and the increase
in owner operators and logistics revenue.
Supplies and other expenses decreased to 5.7% of revenue in 2000 from
6.1% in 1999 as a result of the increase in logistics revenue.
Interest Expense. Interest expense was 4.5% of revenue in 2000
and 1999.
Net Income. The Company reported a net loss of $814,000, or $0.46
per share (basic and diluted), for the first quarter of 2000 compared to
net income of $144,000, or $0.08 per share (basic and diluted), in 1999.
The Company changed its method of revenue recognition from pickup method to
the proportionate method. This change resulted in the cumulative effect
adjustment of $0.02 per share. The effective income tax rate was 38.0% in
2000 compared to 37.9% in 1999.
LIQUIDITY AND CAPITAL RESOURCES
The growth of the Company's business has required significant
investments in new revenue equipment, which has been acquired primarily
through secured borrowings. Capital expenditures for revenue equipment
purchases totaled approximately $1,327,000 for the three months ended March
31, 2000. The Company received approximately $464,000 in proceeds from the
disposition of revenue equipment. The Company has outstanding purchase
commitments for 14 replacement tractors at a cost of approximately $1.1
million. The Company has finance commitments for all of the replacement
tractors at rates that will be fixed at time of origination. The Company's
other capital expenditures would be financed through internally generated
funds and secured borrowings.
Historically, the Company has obtained loans for revenue equipment
which are of shorter duration than the economic useful lives of the
equipment. While such loans have current maturities that tend to create
working capital deficits that could adversely affect cash flows, it is
management's belief that these factors are mitigated by the more attractive
interest rates and terms available on these shorter maturities. This
financing practice has been a significant cause of the working capital
deficit which has existed since the Company's inception. This method of
financing can be expected to continue to produce working capital deficits
in the future. The Company's working capital deficit at March 31, 2000 was
$7.1 million. Primarily due to the Company's equity position and the
potential for refinancing of both unencumbered and encumbered assets,
working capital deficits historically have not been a barrier to the
Company's ability to borrow funds for operations and expansion.
The Company has a revolving line of credit, as amended, of $10.0
million with its primary lending bank which bears interest at a variable
rate, based upon the prime rate or LIBOR, at the Company's election,
expires August 1, 2001 and is collateralized by accounts receivable of the
Company. The agreement, as amended, allows for maximum advances of 85% of
eligible accounts receivable less than 60 days past invoice date. The
agreement, as amended, contains certain covenants relating to tangible net
worth, leverage ratios, debt service coverage and other factors. The
Company was in compliance with all required covenants of the amended credit
agreement at March 31, 2000. The Company had borrowings of $4.2 million
under this amended line of credit at March 31, 2000. The Company had
approximately $3.6 million of additional borrowing availability at March
31, 2000, after deducting letters of credit and officers' stock loan
commitments. A total of $981,000 of the available amended credit line was
committed for letters of credit issued by the financial institution.
Additionally,
approximately $120,000 of the available amended line of
credit was committed for the Company's Guaranty of Executive Officer Stock
Loans as more fully described in Note 3 to the financial statements.
In management's opinion, the Company has adequate liquidity for the
remainder of the year based upon funds expected to be generated from
operations, the Company's equity position, equity in revenue equipment, the
potential for refinancing assets owned by the Company and the Company's
ability to obtain secured equipment financing.
Market Risk
The Company is exposed to various market risks, including the effects
of interest rates and fuel prices. The Company utilizes primarily fixed
rate financial instruments with varying maturities. The Company's long-
term financing is all at fixed rates. The Company's amended working
capital line of credit is at a variable rate.
The Company uses call options as hedges on heating oil in order to
manage a portion of its exposure to variable diesel prices. These
agreements provide some protection from rising fuel prices. The Company's
exposure to loss on the call options is limited to the premium cost of the
contract. Based on historical information, the Company believes the
correlation between the market prices of diesel fuel and heating oil is
highly effective. The Company's heating oil option contracts are not
material to the Company's financial position and represent no significant
market exposure. The Company maintained fuel inventories for use in normal
operations at March 31, 2000 which represented no significant market
exposure.
There was no material change in the Company's exposure to market risk
in the three months ended March 31, 2000 as compared to December 31, 1999.
For further information, refer to Management's Discussion and Analysis of
Operations and Financial Condition included in the Annual Report on Form
10-K for the year ended December 31, 1999.
Other
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (FAS) No 133, Accounting for
Derivative Instruments and Hedging Activities. In June 1999, the FASB issued
Statement No. 137, Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133. FAS
133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. FAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement,
and requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting.
FAS 133, as amended, is effective for fiscal years beginning after
June 15, 2000. A company may also implement FAS 133 as of the beginning of
any fiscal quarter after issuance (that is, fiscal quarters beginning June
16, 1998, and thereafter). FAS 133 must be applied to (a) derivative
instruments and (b) certain derivative instruments embedded in hybrid
contracts. With respect to hybrid instrument, a company may elect to apply
FAS 133, as amended, to (1) all hybrid contracts, (2) only those hybrid
instruments that were issued, acquired, or substantively modified after
December 31, 1997, or (3) only those hybrid instruments that were issued,
acquired, or substantively modified after December 31, 1998. The Company
has not yet determined the timing or impact of adoption of statement No.
133. However, FAS 133 could increase volatility in earnings and other
comprehensive income or involve certain changes in our business practices.
PART II OTHER INFORMATION
ITEM 1 - Legal Proceedings........................................*
ITEM 2 - Changes in Securities and Use of Proceeds................*
ITEM 3 - Defaults Upon Senior Securities..........................*
ITEM 4 - Submission of Matters to a Vote of Security Holders......*
ITEM 5 - Other Information........................................*
ITEM 6 - Exhibits and Reports on Form 8-K
Exhibit 10(w) - Amendment No. 4 to Loan and Security Agreement and
other Transaction Documents between Registrant and HSBC Business Loans,
Inc.
*No information submitted under this caption.
The Company did not file any exhibits or reports on Form 8-K during the
three months ended March 31, 2000.
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.
OTR EXPRESS, INC.
(Registrant)
Date: May 15, 2000 /s/ William P. Ward
By: William P. Ward
Chairman of the Board,
President and Principal
Executive Officer
Date: May 15, 2000 /s/ Steven W. Ruben
By: Steven W. Ruben
Principal Financial Officer and
Principal Accounting Officer