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, 1998
[ ] 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, Olathe, Kansas 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
1,835,955
(Number of shares of common stock outstanding as of April 30, 1998)
PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OTR EXPRESS, INC.
BALANCE SHEETS
March 31 December 31
1998 1997
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 99,383 $ 318,760
Accounts receivable, freight 7,211,680 7,542,557
Accounts receivable, other 297,749 193,803
Inventory 631,739 687,303
Prepaid expenses and other 1,210,251 480,976
TOTAL CURRENT ASSETS 9,450,802 9,223,399
PROPERTY AND EQUIPMENT 46,100,855 46,810,777
TOTAL ASSETS $55,551,657 $56,034,176
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, trade $ 2,018,214 $ 1,603,654
Accrued payroll and taxes 1,495,215 861,857
Other accrued expenses 1,359,737 1,414,721
Current portion of long-term debt 13,271,486 14,259,700
TOTAL CURRENT LIABILITIES 18,144,652 18,139,932
NOTE PAYABLE, BANK 2,802,244 3,481,312
LONG-TERM DEBT 23,428,347 23,207,045
DEFERRED INCOME TAXES 1,937,000 1,859,803
STOCKHOLDERS' EQUITY 9,239,414 9,346,084
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $55,551,657 $56,034,176
OTR EXPRESS, INC.
STATEMENTS OF OPERATIONS
Three Months Ended
March 31
(Unaudited) 1998 1997
OPERATING REVENUE
Freight revenue $15,759,958 $12,872,476
Brokerage revenue 987,396 958,515
Total operating revenue 16,747,354 13,830,991
OPERATING EXPENSES
Salaries, wages and benefits 6,498,210 5,523,603
Purchased transportation 1,390,237 940,411
Fuel 1,588,549 1,824,402
Maintenance 1,074,117 855,824
Depreciation 1,876,068 1,716,390
Insurance and claims 546,360 316,518
Taxes and licenses 1,608,973 1,454,675
Supplies and other 1,123,672 806,734
Total operating expenses 15,706,186 13,438,557
Operating income 1,041,168 392,434
Interest expense 838,418 720,642
Income (loss) before income taxes 202,750 (328,208)
Income tax expense (benefit) 77,197 (124,719)
Net income (loss) $ 125,553 $ (203,489)
Weighted average number
of shares
Basic 1,836,342 1,841,205
Diluted 1,850,656 1,841,205
Earnings (loss) per share
Basic $ 0.07 $ (0.11)
Diluted 0.07 (0.11)
OTR EXPRESS, INC.
STATEMENTS OF CASH FLOWS
Three Months Ended
March 31
(Unaudited) 1998 1997
OPERATING ACTIVITIES
NET CASH PROVIDED BY OPERATING ACTIVITIES $2,629,275 $1,053,151
INVESTING ACTIVITIES
Acquisition of property and equipment (1,209,072) (4,044,607)
Proceeds from disposition of property and equipment 43,873 1,360,000
NET CASH USED IN INVESTING ACTIVITIES (1,165,199) (2,684,607)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 5,140,552 7,291,017
Repayments of long-term debt (5,907,464) (6,759,453)
Net increase (decrease) in bank note payable (859,068) 1,137,000
Other (57,473) (9,649)
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (1,683,453) 1,658,915
NET INCREASE (DECREASE) IN CASH (219,377) 27,459
CASH, BEGINNING OF PERIOD 318,760 43,107
CASH, END OF PERIOD $ 99,383 $ 70,566
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest $ 838,418 $ 720,436
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES
Guarantee of executive officers stock
purchase plan loans $ 180,000 $ -
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 and Form 10-K
for the year ended December 31, 1997.
NOTE 2 - LONG-TERM DEBT AND COMMITMENTS
During the three months ended March 31, 1998, the Company financed the
purchase of revenue equipment through the issuance of long-term debt totaling
$1,100,000. This debt bears interest at effective rate of 7.14%. The Company
refinanced encumbered revenue equipment through the issuance of long-term debt
totaling $4,040,000. This debt bears interest at an effective rate of
7.45%.
At March 31, 1998, the Company had purchase and finance commitments
outstanding for additional revenue equipment approximately $6,600,000.
The Company anticipates receiving proceeds from the sale or trade-in of 34
tractors in association with these commitments.
NOTE 3 - EARNINGS PER SHARE
In February, 1997 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, "Earnings Per Share",
effective for periods ending after December 15, 1997, requiring presentation
of basic and diluted earnings per share. SFAS 128 supersedes Accounting
Principles Board Opinion (APB) No. 15 and related pronouncements and replaces
the computations of primary and fully diluted earnings per share (EPS) with
basic and diluted EPS, respectively. Basic earnings per share is based upon
the weighted average common shares outstanding during the year. Diluted
earnings per share is based upon the weighted average common and common
equivalent shares outstanding during each year. Employee stock options are
the company's only common stock equivalents; there are no other
potentially dilutive securities.
There was no effect of this accounting change on previously reported
earnings per share.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
As more fully described below in Item 5, the Company has agreed to guaranty
payment of two key executive stock loans for such executives' private purchase
of a total of 49,380 shares of the Company's common stock. The Company has
agreed to guaranty 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.
The amount of the Company's guaranty as of March 31, 1998 was $180,000.
Stockholders'equity was reduced by this amount and long-term debt was
increased by this amount to record the guaranty.
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 OPERATIONS
First Quarter Ended
March 31
1998 1997
Operating Revenue $16,747,354 $13,830,991
Operating Expenses 15,706,186 13,438,557
Interest Expense 838,418 720,642
Net Income (Loss) 125,553 (203,489)
1st Quarter 1998 v. 1997
Operating Revenue. Operating revenue improved by 21.1% to $16.7
million in the first quarter ended March 31, 1998 from $13.8 million in 1997.
Freight revenue increased by 22.4% and brokerage revenue increased by 3.0%.
Freight revenue improved due to an increase in the rate per mile to
$1.041 in the first quarter of 1998 compared to $1.012 in 1997. The higher
rate is primarily a result of a higher level of direct shipper miles in 1998
compared to 1997. The average number of tractors in service was 548 in the
first quarter of 1998 compared to 506 in 1997. The average number of
tractors in service in 1998
includes 27 owner operator drivers. There were no owner operator drivers
in the first quarter of 1997. Average miles per truck per week also increased
to 2,161 from 1,974 due to improved demand from the Company's direct shipper
customers. The Company's empty mile percent increased to 8.5% from
7.3% in 1997.
Brokerage revenue decreased to 5.9% of revenue from 6.9% in 1997.
Operating Expenses. The operating ratio (total operating expenses as a
percent of operating revenue) improved to 93.8% in the first quarter of 1998
compared to 97.2% in 1997.
Salaries, wages and benefits decreased to 38.8% of revenue in 1998
from 39.9% in 1997 primarily because of increased revenue rates per mile.
Purchased transportation, which represents payments to other
trucklines for hauling loads contracted through the Company's freight brokerage
division, and the cost of owner operator drivers, increased to 8.3% of revenue
in 1998 from 6.8% in 1997. The increase is a result of the addition of
owner operators to the fleet beginning in September 1997.
Fuel was 9.5% of revenue in 1998 compared to 13.2% in 1997. This is a
result of lower diesel fuel prices nationwide in the first quarter of 1998 and
higher revenue rates per mile.
Insurance and claims represented 3.3% and 2.3% of operating revenue in
the first quarter of 1998 and 1997, 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 11.2% in 1998 from
12.4% in 1997 as a result of higher revenue per truck per week.
Taxes and licenses as a percent of revenue decreased from 10.5% in
1997 to 9.6% in 1998 as a result of the increased revenue per mile.
Supplies and other expenses increased to 6.7% of revenue in 1998 from
5.8% in 1997 as a result of an increase in advertising costs for new drivers
and an increase in commissions paid to independent sales agents.
Interest Expense. Interest expense decreased to 5.0% of revenue in 1998
from 5.2% in 1997 as a result of lower debt levels per unit.
Net Income. The Company reported net income of $126,000, or $0.07 per
share, for the first quarter of 1998 compared to a net loss of $203,000, or
$0.11 per share, in 1997. The effective income tax rate was 38.0% in 1997 and
1998.
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
$1,100,000 for the three months ended March 31, 1998. The Company received
$44,000 in proceeds from the disposition of revenue equipment. The Company
has outstanding purchase commitments for 34 replacement tractors at a
cost of $2.7 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 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 was management's belief that
these factors were 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, 1998 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 was
$7.0 million through December 31, 1997. Since the Company's tangible net worth
exceeded $9.0 million based on the December 31, 1997 audited financial
statements, under the terms of the credit agreement the maximum borrowing on
the line increased to $8.0 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 March 31,
1998. The Company had borrowings of $2.8 million under this line
at March 31, 1998. A total of $1.5 million of the available credit line was
committed for letters of credit issued by the financial institution.
At March 31, 1998, the Company owned 26 tractors 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 $1.0 million.
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...............*
ITEM 5 - Other Information
Guaranty of Executive Officer Stock Loans
The Company has entered into certain agreements designed to help facilitate
increased investments in the Company's common stock by certain key executive
officers in order to better align such officers' interests with those of
stockholders and to provide incentives for such officers to remain with
the Company for the next several years.
In relation to personal loans of $240,000 and $120,000 (the "Stock
Loans") obtained from HSBC Business Loans, Inc. ("HSBC") by Gary J. Klusman,
the Company's President and Chief Executive Officer and Steven W. Ruben, the
Company's Vice President-Finance and Chief Financial Officer,
respectively, for such officers' private purchase of 32,920 shares and
16,460 shares, respectively, of Company common stock, the Company has agreed
to guaranty payment of the Stock Loans to the extent that the pledge value of
the stock purchased (equal to one-half of its market value) is less than
the outstanding principal balance of such loans. Copies of the Guaranty
Agreement dated February 27, 1998 by the Company in favor of HSBC as secured
party evidencing such guaranties are filed as exhibits hereto and incorporated
by reference.
In addition, pursuant to the Stock Purchase Assistance Agreements
("Assistance Agreements") dated February 27, 1998 between the Company and
Messrs. Klusman and Ruben, respectively (copies of which are filed as exhibits
hereto and incorporated by reference), the Company has agreed to pay to such
officers during the six year term of the Stock Loans the amount of principal
owed from time to time under their respective Stock Loans (I) for such periods
as such officer remains employed by the Company in an officer position or (ii)
if such officer's employment is terminated without cause by the Company (or by
a successor entity after a change of control). Such officers remain the primary
obligors under their respective Stock Loans, however, and to the extent
the Company is required to pay amounts to HSBC under Guaranty Agreements
described in the preceding paragraph, such officer's have agreed to reimburse
the Company and failure by either such officer to make such reimbursement
entitles the Company to terminate officer's employment for cause (thereby
eliminating the Company's obligations to make further payments under such
officer's Assistance Agreement).
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10 (p) - Guaranty Agreement dated February 2 , 1998 by the
Company in favor of HSBC Business Loans, Inc. as secured party relating to
payment of $240,000 principal amount loan to Gary J. Klusman.
Exhibit 10 (q) - Guaranty Agreement dated February 27, 1998 by the
Company in favor of HSBC Business Loans, Inc. as secured party relating to
payment of $120,000 principal amount loan to Steven W. Ruben.
Exhibit 10(r) - Stock Purchase Assistance Agreement dated February 27,
1998 between the Company and Gary J. Klusman.
Exhibit 10(s) - Stock Purchase Assistance Agreement dated February 27,
1998 between the Company and Steven W. Ruben.
(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 March 31, 1998.
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 11, 1998 /s/ Gary J. Klusman
By: Gary J. Klusman
President and Principal
Executive Officer
Date: May 11, 1998 /s/ Steven W. Ruben
By: Steven W. Ruben
Principal Financial Officer and
Principal Accounting Officer