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, 1999
[ ] 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
1,831,671
(Number of shares of common stock outstanding as of April 30, 1999)
PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OTR EXPRESS, INC.
BALANCE SHEETS
March 31 December 31
(Unaudited) 1999 1998
ASSETS
CURRENT ASSETS
Cash $ 164,945 $ 521,484
Accounts receivable, freight 8,588,060 8,192,252
Accounts receivable, other 278,628 217,080
Inventory 537,055 534,623
Prepaid expenses and other 1,311,599 545,734
TOTAL CURRENT ASSETS 10,880,287 10,011,173
PROPERTY AND EQUIPMENT 51,801,693 49,209,269
TOTAL ASSETS $62,681,980 $59,220,442
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, trade $ 2,101,503 $ 2,060,251
Accrued payroll and taxes 1,551,137 1,007,735
Other accrued expenses 1,572,004 1,365,739
Current portion of long-term debt 13,892,075 13,837,296
TOTAL CURRENT LIABILITIES 19,116,719 18,271,021
LONG-TERM DEBT 31,063,053 28,658,211
DEFERRED INCOME TAXES 2,488,000 2,400,000
STOCKHOLDERS' EQUITY 10,014,208 9,891,210
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $62,681,980 $59,220,442
OTR EXPRESS, INC.
STATEMENTS OF OPERATIONS
Three Months Ended
March 31
(Unaudited) 1999 1998
OPERATING REVENUE
Freight revenue $16,673,104 $15,759,958
Logistics revenue 2,008,359 987,396
Total operating revenue 18,681,463 16,747,354
OPERATING EXPENSES
Salaries, wages and benefits 7,190,861 6,498,210
Purchased transportation 2,934,264 1,390,237
Fuel 1,072,240 1,588,549
Maintenance 1,196,719 1,074,117
Depreciation 1,628,790 1,876,068
Insurance and claims 603,176 546,360
Taxes and licenses 1,844,566 1,608,973
Supplies and other 1,143,311 1,123,672
Total operating expenses 17,613,927 15,706,186
Operating income 1,067,536 1,041,168
Interest expense 835,369 838,418
Income before income taxes 232,167 202,750
Income tax expense 88,000 77,197
Net income $ 144,167 $ 125,553
Weighted average number of shares
Basic 1,832,035 1,836,342
Diluted 1,832,434 1,850,656
Earnings per share
Basic $ 0.08 $ 0.07
Diluted 0.08 0.07
OTR EXPRESS, INC.
STATEMENTS OF CASH FLOWS
Three Months Ended
March 31
(Unaudited) 1999 1998
OPERATING ACTIVITIES
NET CASH PROVIDED BY OPERATING ACTIVITIES $1,453,495 $2,629,275
INVESTING ACTIVITIES
Acquisition of property and equipment (6,134,395) (1,209,072)
Proceeds from disposition of property and
equipment 1,885,909 43,873
NET CASH USED IN INVESTING ACTIVITIES (4,248,486) (1,165,199)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 6,104,852 5,140,552
Repayments of long-term debt (4,348,356) (5,907,464)
Net increase (decrease) in bank note payable 703,125 (859,068)
Other (21,169) (57,473)
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 2,438,452 (1,683,453)
NET DECREASE IN CASH (356,539) (219,377)
CASH, BEGINNING OF PERIOD 521,484 318,760
CASH, END OF PERIOD $ 164,945 $ 99,383
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest $ 835,369 $ 838,418
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
on Form 10-K for the year ended December 31, 1998.
NOTE 2 - LONG-TERM DEBT
During the three months ended March 31, 1999, the Company financed the
purchase of revenue equipment through the issuance of long-term debt
totaling $6,105,000. This debt bears interest at effective rates between
6.13% and 7.13%.
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
The Company has 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. 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. In April 1999, one of the executives resigned from the
Company and the Company repaid the principal balance of his loan.
The amount of the Company's guarantee as of March 31, 1999 was
approximately $297,000. Stockholders' equity was reduced by this amount and
long-term debt was increased by this amount to record the guarantee.
At March 31, 1999, the Company had purchase and finance commitments
outstanding for additional revenue equipment of approximately $17,280,000.
The Company anticipates receiving proceeds from the sale or trade-in of 186
tractors in association with these commitments.
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
Three Months Ended
March 31
(Unaudited) 1999 1998
Operating Revenue $18,681,463 $16,747,354
Operating Expenses 17,613,927 15,706,186
Interest Expense 835,369 838,418
Net Income 144,167 125,553
1st Quarter 1999 v. 1998
Operating Revenue. Operating revenue improved by 11.5% in the first
quarter ended March 31, 1999 compared to 1998. Freight revenue increased
by 5.8% and logistics revenue increased by 103.4%.
Freight revenue improved due to increases in rate per mile and average
number of units in service. The rate per mile increased to $1.059 in the
first quarter of 1999 compared to $1.041 in 1998. The higher rate is
primarily a result of a rate increase implemented in May 1998.
The average number of tractors in service increased by
8.0% to 592 in the first quarter of 1999 compared to 548 in 1998. Tractors
in service includes 51 owner operators in 1999 and 27 owner operators in
1998. Average miles per truck per week decreased to 2,085 from 2,161 in
1998.
Logistics revenue increased due to the addition of the rail logistics
division in Salt Lake City, Utah in October 1998.
Operating Expenses. The operating ratio (total operating expenses as a
percent of operating revenue) increased to 94.3% in the first quarter of
1999 compared to 93.8% in 1998.
Salaries, wages and benefits decreased to 38.5% of revenue in 1999 from
38.8% in 1998 primarily because of the increase in revenue from the logistics
division and the increase in owner operators. Also, 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 15.7% of
revenue in 1999 from 8.3% in 1998. The increase is a result of the 100%
increase in logistics revenue and the increase in the number of owner
operators.
Fuel was 5.7% of revenue in 1999 compared to 9.5% in 1998. This is a
result of lower diesel fuel prices nationwide in 1999, higher revenue rates
per mile and the addition of owner operators.
Insurance and claims represented 3.2% and 3.3% of revenue in the first
quarter of 1999 and 1998, respectively. This is a result of more favorable
loss experience, lower premium rates per mile and increased revenue rate
per mile. 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 decreased to 8.7% in 1999 from
11.2% in 1998 as a result of the increase in owner operators and the
increase in logistics revenue.
Supplies and other expenses decreased to 6.1% of revenue in 1999 from
6.7% in 1998 as a result of a decrease in advertising costs for new drivers
and a reduction in independent agents' sales commissions.
Interest Expense. Interest expense decreased to 4.5% of revenue in 1999
from 5.0% in 1998 as a result of lower interest rates, the addition of
owner operators and the increase in logistics revenue.
Net Income. The Company reported net income of $144,000, or $0.08 per
share (basic and diluted), for the first quarter of 1999 compared to net
income of $126,000, or $0.07 per share (basic and diluted), in 1998. The
effective income tax rate was 37.9% in 1999 compared to 38.1% in 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 $6,105,000 for the three months ended March 31, 1999. The
Company received $1,886,000 in proceeds from the disposition of revenue
equipment. The Company has outstanding purchase commitments for 186
replacement tractors and 30 expansion tractors at a cost of $17.3 million.
The Company has finance commitments for all of the expansion tractors and
replacement tractors totaling $17.3 million 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, 1999 was
$8.2 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 credit line of $8.0 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 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, 1999. The Company had borrowings of $4.3 million under this line
at March 31, 1999. A total of $1.3 million of the available credit line
was committed for letters of credit issued by the financial institution.
Additionally, approximately $297,000 of the available line of credit was
committed for the Company's Guaranty of Executive Officer Stock Loans as
more fully described in Note 4 to the financial statements.
At March 31, 1999, the Company owned 47 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 $1.8
million.
In management's opinion, the Company has adequate liquidity for the
foreseeable future based upon funds expected to be generated from
operations, the Company's equity position, the potential for refinancing
assets owned by the Company and the Company's ability to obtain secured
equipment financing.
Year 2000 Issue
The Company has completed a comprehensive inventory and assessment of
its Year 2000 issues and its internal systems (both information technology
"IT" and non-IT). The Company's application software programs which have
been developed internally will be Year 2000 compliant with minor
modifications that the Company's IT department will complete. Computer
hardware consists almost exclusively of Apple Macintosh computers which are
Year 2000 compliant according to Apple Computer, Inc. Non-Macintosh
computer hardware has been replaced. Certain of the Company's application
and equipment software programs are purchased from and/or maintained by
vendors. The
Company is working with these software vendors to verify that these
applications become Year 2000 compliant.
The Company believes that with modifications to existing software, the
cost of which is not expected to be material, the Year 2000 issue will not
pose significant operational problems for the Company. The Company
expensed less than $10,000 in costs relating to the Year 2000 issue in the
first quarter ended March 31, 1999.
As part of the Company's comprehensive review, it is continuing to
verify the Year 2000 readiness of third parties (vendors and customers)
with whom the Company has material relationships. The Company has material
vendor relationships with financial institutions and telecommunications
companies. These vendors indicate that they expect to achieve compliance
and do not anticipate business interruptions as the century changes. The
Company is developing contingency plans to address Year 2000 issues that
may arise with these key vendors. At present the Company is not able to
determine with certainty the effect on the Company's results of operations,
liquidity, and financial condition in the event the company's material
vendors and customers are not Year 2000 compliant. The Company will
continue to monitor the progress of its material vendors and customers
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 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, 1999
and represented no significant market exposure.
There was no material change in the Company's exposure to market risk in
the first quarter ended March 31, 1999 as compared to December 31, 1998. 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, 1998.
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.....................................*
* No information submitted under this caption.
ITEM 6 - Exhibits and Reports on Form 8-K......................*
Exhibit 10(x) - Contract to purchase tractors dated March
23, 1999 between Registrant and Kansas City Peterbilt
The Company did not file any exhibits or reports on Form 8-K during the
three months ended March 31, 1999.
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 17, 1999 /s/ Gary J. Klusman
By: Gary J. Klusman
President and Principal
Executive Officer
Date: May 17, 1999 /s/ Steven W. Ruben
By: Steven W. Ruben
Principal Financial Officer
and Principal Accounting
Officer