UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant To Section 13 or 15(d)
of The Securities Exchange Act of 1934
For The Quarter Ended June 30, 1997 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
PO Box 2819, Olathe, Kansas 66063-0819
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (913) 829-1616
Former name, former address and former fiscal year, if changed since last
report.
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.
(1) Yes X No (2) Yes X No __
1,840,515
(Number of shares of common stock outstanding as of July 31, 1997)
PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OTR EXPRESS, INC.
BALANCE SHEETS
June 30 December 31
1997 1996
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 119,190 $ 43,107
Accounts receivable, freight 7,489,479 6,139,335
Accounts receivable, other 352,257 297,585
Inventory 586,910 590,165
Prepaid expenses and other 858,655 610,868
TOTAL CURRENT ASSETS 9,406,491 7,681,060
PROPERTY AND EQUIPMENT 46,972,030 42,894,525
TOTAL ASSETS $ 56,378,521 $ 50,575,585
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, bank $ - $ 1,389,000
Accounts payable, trade 1,449,571 1,396,760
Accrued payroll and taxes 1,633,902 823,811
Other accrued expenses 1,321,393 1,180,900
Current portion of long-term debt 14,511,767 14,361,651
TOTAL CURRENT LIABILITIES 18,916,633 19,152,122
NOTE PAYABLE, BANK 2,876,136 -
LONG-TERM DEBT 24,275,194 21,019,354
DEFERRED INCOME TAXES 1,553,368 1,599,014
STOCKHOLDERS' EQUITY 8,757,190 8,805,095
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 56,378,521 $ 50,575,585
OTR EXPRESS, INC.
STATEMENTS OF OPERATIONS
Second Quarter Ended Six Months Ended
June 30 June 30
(Unaudited) 1997 1996 1997 1996
OPERATING REVENUE
Freight revenue $14,772,396 $12,599,874 $27,644,872 $24,915,486
Brokerage revenue 890,529 806,513 1,849,044 1,523,250
Total operating
revenue 15,662,925 13,406,387 29,493,916 26,438,736
OPERATING EXPENSES
Salaries, wages and
benefits 6,216,571 5,255,914 11,740,174 10,659,446
Purchased
transportation 846,968 733,775 1,787,379 1,380,574
Fuel 1,876,073 1,696,242 3,700,475 3,335,531
Maintenance 932,475 792,804 1,788,299 1,597,510
Depreciation 1,810,702 1,755,076 3,527,092 3,454,036
Insurance and claims 534,870 361,195 851,388 752,720
Taxes and licenses 1,512,610 1,441,736 2,967,285 2,964,487
Supplies and other 894,550 662,676 1,701,284 1,285,678
Total operating
expenses 14,624,819 12,699,418 28,063,376 25,429,982
Operating income 1,038,106 706,969 1,430,540 1,008,754
Interest expense 799,826 646,297 1,520,468 1,337,083
Income (loss)
before income taxes 238,280 60,672 (89,928) (328,329)
Income tax
expense (benefit) 90,546 24,980 (34,173) (142,765)
Net income (loss) $ 147,734 $ 35,692 $ (55,755) $ (185,564)
Average shares
outstanding 1,840,515 1,835,518 1,840,685 1,835,783
Net income (loss)
per share $ 0.08 $ 0.02 $ (0.03) $ (0.10)
OTR EXPRESS, INC.
STATEMENTS OF CASH FLOWS
Six Months Ended
June 30
(Unaudited) 1997 1996
OPERATING ACTIVITIES
NET CASH PROVIDED BY OPERATING
ACTIVITIES $ 2,797,238 $ 2,778,545
INVESTING ACTIVITIES
Acquisition of property
and equipment (10,884,554) (4,549,487)
Proceeds from disposition
of property and equipment 3,279,957 975,000
NET CASH USED IN
INVESTING ACTIVITIES (7,604,597) (3,574,487)
FINANCING ACTIVITIES
Proceeds from issuance
of long-term debt 14,168,142 11,910,687
Repayments of long-term debt (10,762,186) (8,462,340)
Net increase (decrease) in
bank note payable 1,487,136 (2,522,555)
Other (9,650) (6,999)
NET CASH PROVIDED BY
FINANCING ACTIVITIES 4,883,442 918,793
NET INCREASE IN CASH 76,083 122,851
CASH, BEGINNING OF PERIOD 43,107 36,101
CASH, END OF PERIOD $ 119,190 $ 158,952
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest $ 1,520,905 $ 1,356,024
Cash received for income taxes (3,526) (81,460)
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
and Form 10-K for the year ended December 31, 1996.
NOTE 2 - LONG-TERM DEBT AND COMMITMENTS
During the six months ended June 30, 1997, the Company financed the
purchase of revenue equipment through the issuance of long-term debt
totaling $10,918,000. This debt bears interest at effective rates between
8.00% and 8.73%. The Company refinanced encumbered revenue equipment
through the issuance of long-term debt totaling $3,300,000. This debt
bears interest at an effective rate of 8.66%.
At June 30, 1997, the Company had purchase and finance commitments
outstanding for additional revenue equipment totaling $5,030,174. The
Company anticipates receiving proceeds from the sale or trade-in of 48
tractors and 190 trailers in association with these commitments.
NOTE 3 - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 ("FAS 128"), "Earnings Per Share", which simplifies the
computation of earnings per share. FAS 128 is effective for financial
statements issued for periods ending after December 15, 1997 and requires
restatement for all prior period earnings per share data presented. The
Company will be required to adopt FAS No. 128 in the fourth quarter of
1997, but does not expect that adoption will have a material effect on
earnings per share.
NOTE 4 - RECLASSIFICATIONS
Certain reclassifications have been made to the balance sheet for the prior
period to conform to the current period presentation.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
2nd Quarter 1997 v. 1996
Operating Revenue. Operating revenue improved by 16.8% to $15.7
million in the second quarter ended June 30, 1997 from $13.4 million in
1996. Freight revenue increased by 17.2% and brokerage revenue increased
by 10.4%.
Freight revenue improved primarily due to an increase in the rate per
mile to $1.032 in the second quarter of 1997 compared to $0.991 in 1996.
The higher rate is primarily a result of a higher level of direct shipper
miles in 1997 compared to 1996. The average number of tractors in service
were 525 in the second quarter of 1997 compared to 508 in 1996. Average
miles per truck per week increased to 2,106 from 1,928 due to increased
freight demand. The Company's empty mile percent increased to 7.3% from
6.5% in 1996.
Brokerage revenue decreased to 5.7% of revenue from 6.0% in 1996.
Operating Expenses. The operating ratio (total operating expenses
as a percent of operating revenue) improved to 93.4% in the second quarter
of 1997 compared to 94.7% in 1996.
Salaries, wages and benefits increased to 39.7% of revenue in 1997 from
39.2% in 1996 due to the hiring of additional customer service and dispatch
personnel.
Purchased transportation represents payments to other trucklines for
hauling loads contracted through the Company's freight brokerage division.
Purchased transportation decreased to 5.4% of revenue in 1997 from 5.5% in
1996.
Fuel was 12.0% of revenue in 1997 compared to 12.7% in 1996. The
Company's blended average cost per gallon was $1.124 in 1997 compared to
$1.142 in 1996, as a result of lower diesel fuel prices nationwide in the
second quarter of 1997.
Depreciation as a percent of revenue decreased to 11.6% in 1997 from
13.1% in 1996 as a result of higher revenue per mile.
Taxes and licenses as a percent of revenue decreased from 10.8% in 1996
to 9.7% in 1997 as a result of the increased revenue per mile.
Supplies and other expenses were 5.7% of revenue in 1997 compared to
4.9% in 1996 as a result of an increase in advertising for drivers and the
cost of on-board satellite communications, which were installed in all of
the Company's tractors in August 1996.
Interest Expense. Interest expense increased to 5.1% of revenue in
1997 from 4.8% in 1996 as a result of higher debt levels per unit.
Net Income (Loss). The Company reported net income of $148,000, or
$0.08 per share, for the second quarter of 1997 compared to net income of
$36,000, or $0.02 per share, in 1996. The effective income tax rate was
38.0% in 1997 compared to 41.2% in 1996.
Six Months Comparison 1997 v. 1996
Operating Revenue. Operating revenue for the six months ended June
30, 1997 increased by 11.6% to $29.5 million from $26.4 million in 1996.
Freight income increased by 11.6% during the period while brokerage income
increased by 21.4%. Average revenue per mile increased from $0.983 in 1996
to $1.022 in 1997. Average miles per week per truck increased to 2,039 in
1997 from 1,923 in 1996. The average number of tractors increased for the
first six months of 1997 to 516 units in service from 510 in 1996. In
addition, empty miles were 7.3% of total miles in the first six months of
1996 compared to 6.7% in 1995.
Operating Expenses. The operating ratio for the first six months of
1997 improved to 95.1% compared to 96.2% in 1996.
Salaries, wages and benefits decreased to 39.8% of revenue for the first
six months of 1997 compared to 40.3% in 1996 as a result of the higher
revenue per mile.
Fuel decreased slightly to 12.5% of revenue in 1997 from 12.6% in 1996
as a result of higher revenue per mile. The Company's blended average cost
per gallon was $1.166 in 1997 compared to $1.122 in 1996.
Depreciation as a percent of revenue decreased to 12.0% in 1997 from
13.1% as a result of the higher revenue per mile.
Taxes and licenses as a percent of revenue declined from 11.2% in 1996
to 10.1% as a result of higher revenue per mile.
Supplies and other expenses were 5.8% of revenue in 1997 compared to
4.9% in 1996 as a result of an increase in advertising for drivers and
service costs of on-board communications.
Interest Expense. Interest expense increased to 5.2% of revenue in
1997 from 4.1% in 1996 as a result of increased borrowings per unit in1997.
Net Income (Loss). For the first six months of 1997, the Company
reported a net loss of $56,000, or $0.03 per share, compared to net loss of
$186,000, or $0.10 per share, in 1996. The effective income tax rate for
the first six months of 1997 was 38.0% compared to 43.5% in 1996.
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 $10,885,000 for the six months ended
June 30, 1997. The Company received $3,280,000 in proceeds from the
disposition of revenue equipment. The Company has outstanding purchase
commitments for 41 replacement tractors at a cost of $3.3 million and 75
replacement trailers at a cost of $1.5 million. The Company has finance
commitments for 100% of the equipment purchases at rates that will be fixed
at time of origination. The Company's other capital expenditures will be
financed through internally generated funds and secured borrowings.
Historically, the Company has obtained loans for revenue equipment which
are of shorter duration (three years for trailers, four years for tractors)
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, management believes 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. However, in 1997 the Company began financing tractors over
fifty-four months to reflect a longer holding period for the tractors.
Trailers will be financed over sixty months. This method of financing can
be expected to continue to produce working capital deficits in the future.
The Company's working capital deficit at June 30, 1997 was $9.5 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.
In June 1997, the Company entered into a new revolving line of credit
agreement with a financial institution. The maximum borrowing on the line
is $7 million through December 31, 1997. Should the Company's tangible net
worth exceed $9 million based on the December 31, 1997 audited financial
statements, the maximum borrowing on the line increases to $8 million. The
line bears interest at a variable rate, based upon the prime rate or LIBOR,
at the Company's election, expires June 9, 2000 and is secured by accounts
receivable of the Company. The agreement allows for maximum advances of
85% of eligible accounts receivable less than 60 days past invoice date.
The agreement 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 at June 30, 1997. The Company
had borrowings of $2.9 million under this line at June 30, 1997. A total
of $1.5 million of the available credit line was committed for letters of
credit issued by the financial institution.
In management's opinion, the Company has adequate liquidity for the
foreseeable future based upon funds expected to be generated from
operations, the availability of equity in the Company's assets and the
Company's ability to obtain secured equipment financing.
Certain of the preceding paragraphs contain forward-looking statements
that are based on current expectations and are subject to risks and
uncertainties. Actual results could differ materially from current
expectations due to a number of factors, including general economic
conditions, competitive factors, pricing pressures and other factors.
PART II OTHER INFORMATION
ITEM 1 - Legal Proceedings...............................*
ITEM 2 - Changes in Securities............................*
ITEM 3 - Defaults Upon Senior Securities...................*
ITEM 4 - Submission of Matters to a Vote of Security Holders........*
ITEM 5 - Other Information.................................*
* No information submitted under this caption.
ITEM 6 - Exhibits and Reports on Form 8-K
Exhibit 10(l) - Loan and Security Agreement Dated June 11, 1997
The Company did not file any reports on Form 8-K during the six months
ended June 30, 1997.
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: August 13, 1997
/s/ William P. Ward
By: William P. Ward
Chairman of the Board,
President and Principal
Executive Officer
Date: August 13, 1997
/s/ Steven W. Ruben
By: Steven W. Ruben
Principal Financial
Officer and Principal
Accounting Officer