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 September 30, 1997
[ ] 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
PO Box 2819 66063-0819
(Address of principal executive offices) (Zip Code)
(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
1,840,515
(Number of shares of common stock outstanding as of October 31, 1997)
PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OTR EXPRESS, INC.
BALANCE SHEETS
September 30 December 31
1997 1996
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 249,786 $ 43,107
Accounts receivable, freight 8,230,384 6,139,335
Accounts receivable, other 309,377 297,585
Inventory 588,662 590,165
Prepaid expenses and other 596,499 610,868
TOTAL CURRENT ASSETS 9,974,708 7,681,060
PROPERTY AND EQUIPMENT 47,812,683 42,894,525
TOTAL ASSETS $ 57,787,391 $ 50,575,585
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Note payable, bank $ - $ 1,389,000
Accounts payable, trade 1,787,215 1,396,760
Accrued payroll and taxes 1,404,819 823,811
Other accrued expenses 1,417,401 1,180,900
Current portion of long-term
debt 14,057,204 14,361,651
TOTAL CURRENT LIABILITIES 18,666,639 19,152,122
NOTE PAYABLE, BANK 3,056,923 -
LONG-TERM DEBT 25,212,915 21,019,354
DEFERRED INCOME TAXES 1,758,479 1,599,014
STOCKHOLDERS' EQUITY 9,092,435 8,805,095
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 57,787,391 $ 50,575,585
OTR EXPRESS, INC.
STATEMENTS OF OPERATIONS
Third Quarter Ended Nine Months Ended
September 30 September 30
(Unaudited) 1997 1996 1997 1996
OPERATING REVENUE
Freight revenue $16,090,407 $13,660,544 $43,735,279 $38,576,030
Brokerage revenue 964,033 809,055 2,813,077 2,332,305
Total operating
revenue 17,054,440 14,469,599 46,548,356 40,908,335
OPERATING EXPENSES
Salaries, wages and
benefits 6,796,283 5,828,271 18,536,457 16,487,717
Purchased transportation 933,557 702,432 2,720,936 2,083,006
Fuel 1,907,885 1,686,933 5,608,360 5,022,464
Maintenance 965,354 834,556 2,753,653 2,432,066
Depreciation 1,936,104 1,729,300 5,463,196 5,183,336
Insurance and claims 543,278 417,320 1,394,666 1,170,040
Taxes and licenses 1,597,689 1,553,720 4,564,974 4,518,207
Supplies and other 946,851 810,065 2,648,135 2,095,743
Total operating expenses 15,627,001 13,562,597 43,690,377 38,992,579
Operating income 1,427,439 907,002 2,857,979 1,915,756
Interest expense 900,833 721,382 2,421,301 2,058,465
Income (loss) before
income taxes 526,606 185,620 436,678 (142,709)
Income tax expense
(benefit) 200,111 81,536 165,938 (61,229)
Net income (loss) $ 326,495 $ 104,084 $ 270,740 $ (81,480)
Average shares
outstanding 1,840,515 1,835,518 1,840,742 1,835,694
Net income (loss)
per share $ 0.18 $ 0.06 $ 0.15 $ (0.04)
OTR EXPRESS, INC.
STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30
(Unaudited) 1997 1996
OPERATING ACTIVITIES
NET CASH PROVIDED BY OPERATING
ACTIVITIES $ 5,040,646 $ 4,051,509
INVESTING ACTIVITIES
Acquisition of property
and equipment (16,051,953) (8,520,587)
Proceeds from disposition
of property and equipment 5,670,599 2,673,000
NET CASH USED IN INVESTING ACTIVITIES (10,381,354) (5,847,587)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 19,397,920 13,987,430
Repayments of long-term debt (15,508,806) (10,765,998)
Net increase (decrease) in bank
note payable 1,667,923 (1,433,555)
Other (9,650) (6,999)
NET CASH PROVIDED BY FINANCING
ACTIVITIES 5,547,387 1,780,878
NET INCREASE (DECREASE) IN CASH 206,679 (15,200)
CASH, BEGINNING OF PERIOD 43,107 36,101
CASH, END OF PERIOD $ 249,786 $ 20,901
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest $ 2,413,733 $ 2,073,556
Cash received for income taxes (3,526) (86,023)
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 nine months ended September 30, 1997, the Company financed the
purchase of revenue equipment through the issuance of long-term debt
totaling $16,142,000. 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 September 30, 1997, the Company had purchase and finance commitments
outstanding for additional revenue equipment approximately $1,300,000.
The Company anticipates receiving proceeds from the sale or trade-in of 73
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
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, may contain forward looking statements. 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;
increased competition; changes in fuel prices; changes in economic,
political or regulatory environments; litigation involving the Company;
changes in the availability of a stable labor force; ability of the Company
to hire drivers meeting Company standards; 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 OPERATION
Third Quarter Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
Operating Revenue $17,054,440 $14,469,599 $46,548,356 $40,908,335
Operating Expenses 15,627,001 13,562,597 43,690,377 38,992,579
Interest Expense 900,833 721,382 2,421,301 2,058,465
Net Income (Loss) $ 326,495 $ 104,084 $ 270,740 $ (81,480)
3rd Quarter 1997 v. 1996
Operating Revenue. Operating revenue improved by 17.9% to $17.1 million
in the third quarter ended September 30, 1997 from $14.5 million in 1996.
Freight revenue increased by 17.9% and brokerage revenue increased by
19.2%.
Freight revenue improved primarily due to an increase in the rate per
mile to $1.039 in the third quarter of 1997 compared to $0.998 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
was 535 in the third quarter of 1997 compared to 510 in 1996. Average
miles per truck per week increased to
2,217 from 2,045 due to improved demand from the Company's direct
shipper customers. The Company's empty mile percent increased to
8.0% from 6.5% in 1996.
Brokerage revenue increased to 5.7% of revenue from 5.6% in 1996.
Operating Expenses. The operating ratio (total operating expenses as a
percent of operating revenue) improved to 91.6% in the third quarter of
1997 compared to 93.7% in 1996.
Salaries, wages and benefits decreased to 39.9% of revenue in 1997 from
40.3% in 1996 primarily because of increased revenue rates.
Purchased transportation represents payments to other trucklines for
hauling loads contracted through the Company's freight brokerage division.
Purchased transportation increased to 5.5% of revenue in 1997 from 4.9% in
1996.
Fuel was 11.2% of revenue in 1997 compared to 11.7% in 1996. The
Company's blended average cost per gallon was $1.078 in 1997 compared to
$1.156 in 1996, as a result of lower diesel fuel prices nationwide in the
third quarter of 1997.
Insurance and claims represented 3.2% and 2.9% of operating revenue in
the third quarter of 1997 and 1996, 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.
Depreciation as a percent of revenue decreased to 11.4% in 1997 from
12.0% in 1996 as a result of higher revenue per mile.
Taxes and licenses as a percent of revenue decreased from 10.7% in 1996
to 9.4% in 1997 as a result of the increased revenue per mile.
Interest Expense. Interest expense increased to 5.3% of revenue in 1997
from 5.0% in 1996 as a result of higher debt levels per unit.
Net Income. The Company reported net income of $326,000, or $0.18 per
share, for the third quarter of 1997 compared to net income of $104,000, or
$0.06 per share, in 1996. The effective income tax rate was 38.0% in 1997
compared to 43.9% in 1996.
Nine Months Comparison 1997 v. 1996
Operating Revenue. Operating revenue for the nine months ended September
30, 1997 increased by 13.8% to $46.5 million from $40.9 million in 1996.
Freight income increased by 13.4%
during the period while brokerage income
increased by 20.6%. Average revenue per mile increased from $0.989 in 1996
to $1.028 in 1997. Average miles per week per truck increased to 2,103 in
1997 from 1,976 in 1996. The average number of tractors increased for the
first nine months of 1997 to 522 units in service from 507 in 1996. In
addition, empty miles were 7.6% of total miles in the first nine months of
1997 compared to 6.6% in 1996.
Operating Expenses. The operating ratio for the first nine months of
1997 improved to 93.9% compared to 95.3% in 1996.
Salaries, wages and benefits decreased to 39.8% of revenue for the first
nine months of 1997 compared to 40.3% in 1996 as a result of the higher
revenue per mile.
Fuel decreased slightly to 12.1% of revenue in 1997 from 12.3% in 1996
as a result of higher revenue per mile. The Company's blended average cost
per gallon was $1.134 in 1997 compared to $1.133 in 1996.
Insurance and claims represented 3.0% and 2.9% of operating revenue in
the first nine months of 1997 and 1996, 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.
Depreciation as a percent of revenue decreased to 11.7% in 1997 from
12.7% as a result of the higher revenue per mile.
Taxes and licenses as a percent of revenue declined from 11.0% in 1996 to
9.8% as a result of higher revenue per mile.
Supplies and other expenses were 5.7% of revenue in 1997 compared to 5.1%
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 5.0% in 1996 as a result of increased borrowings per unit in 1997.
Net Income (Loss). For the first nine months of 1997, the Company
reported net income of $271,000, or $0.15 per share, compared to a net loss
of $81,000, or $0.04 per share, in 1996. The effective income tax rate for
the first six months of 1997 was 38.0% compared to 42.9% in 1996.
Inflation. The effect of inflation on the Company has not been
significant during the last three years. An extended period of inflation
could be expected to have an impact on the Company's
earnings by causing interest rates, fuel and other operating costs to
increase. Unless freight rates could be increased on a timely basis,
operating results could be adversely affected.
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
$16,142,000 for the nine months ended September 30, 1997. The Company
received $5,671,000 in proceeds from the disposition of revenue equipment.
The Company has outstanding purchase commitments for 73 replacement
trailers at a cost of $1.3 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 September 30, 1997 was $8.7
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 September 30, 1997. The
Company had borrowings of $3.1 million under this line at September 30,
1997. A total of $1.5 million of the available credit line was committed
for letters of credit issued by the financial institution.
At September 30, 1997, the Company owned 27 tractors, 16 trailers
which were not pledged as collateral for any liabilities and were free
and clear of any debt obligations. This equipment has an approximate
market value of $1,351,000.
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.
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
The annual meeting of shareholders of the registrant was held on May 1,
1997. In addition to the election of three Class B directors to serve
three-year terms, the shareholders approved the appointment of Arthur
Andersen LLP as independent auditors for the Company.
Stockholders representing 1,367,568 shares or 74% were present in person or
by proxy at the Annual Meeting. A tabulation with respect to each nominee
and the appointment of Arthur Andersen LLP as independent auditors for 1997
is as follows:
Votes
Votes Votes Against or
Cast For Withheld
Frank J. Becker 1,359,056 1,352,382 6,674
Dr. Ralph E. MacNaughton 1,337,366 1,330,632 6,674
William P. Ward 1,367,568 1,360,894 6,674
Appointment of Arhtur
Andersen LLP as independent
auditors 1,334,443 1,305,593 28,850
ITEM 5 - Other
Information..........................................*
ITEM 6 - Exhibits and Reports on Form 8-K............*
(a) Exhibits
(b) Reports on Form 8-K
* No information submitted under this caption.
The Company did not file any exhibits or reports on Form 8-K during the
three months ended September 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: November 12, 1997 /s/ William P. Ward
By: William P. Ward
Chairman of the Board,
President and Principal
Executive Officer
Date: November 12, 1997 /s/ Steven W. Ruben
By: Steven W. Ruben
Principal Financial
Officer and Principal
Accounting Officer