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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, 2001
[ ] 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
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1,782,022
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(NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF APRIL 30, 2001)
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PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OTR EXPRESS, INC.
BALANCE SHEETS
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March 31 December 31
(Unaudited) 2001 2000
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ASSETS
CURRENT ASSETS
Cash $ 525 $ 203,576
Accounts receivable, less allowance 5,240,142 9,155,128
Inventory 115,688 214,386
Assets held for sale 4,095,607 3,001,499
Prepaid expenses and other 1,100,869 506,085
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TOTAL CURRENT ASSETS 10,552,831 13,080,674
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation 24,409,814 35,580,981
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TOTAL ASSETS $ 34,962,645 48,661,655
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Checks outstanding $ 441,198 $ --
Accounts payable, trade 1,855,108 2,130,814
Accrued payroll and payroll taxes 892,811 885,017
Insurance and claims and other 1,491,526 1,490,416
Debt currently payable 30,479,581 42,003,353
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TOTAL CURRENT LIABILITIES 35,160,224 46,509,600
LONG-TERM DEBT, less current portion above -- --
DEFERRED INCOME TAXES -- --
STOCKHOLDERS' EQUITY (DEFICIT) (197,579) 2,152,055
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 34,962,645 $ 48,661,655
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OTR EXPRESS, INC.
STATEMENTS OF OPERATIONS
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Three Months Ended
March 31
(Unaudited) 2001 2000
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OPERATING REVENUE
Freight revenue $ 11,642,895 $ 18,516,184
Logistics revenue 1,172,288 2,460,959
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Total operating revenue 12,815,183 20,977,143
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OPERATING EXPENSES
Salaries, wages and benefits 5,041,798 7,469,839
Purchased transportation 2,580,164 4,728,253
Fuel 1,467,016 2,233,918
Maintenance 608,238 1,022,645
Depreciation 1,682,934 2,133,279
Insurance and claims 597,836 583,053
Taxes and licenses 1,217,567 1,934,668
Supplies and other 1,007,969 1,198,188
Write down of equipment 142,926 --
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Total operating expenses 14,346,448 21,303,843
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Operating income (loss) (1,531,265) (326,700)
Interest expense 805,817 935,229
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Income (loss) before income taxes and cumulative effect
of accounting change (2,337,082) (1,261,929)
Income tax expense (benefit) -- (479,729)
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Income (loss) before cumulative effect of accounting change (2,337,082) (782,200)
Cumulative effect on prior year of change in revenue
recognition method, less related income tax effect -- 31,442
Cumulative effect on prior year of change in method of
accounting for derivatives and hedging activities 22,552 --
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Net loss $ (2,359,634) $ (813,642)
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Weighted average number of shares
Basic 1,782,022 1,782,129
Diluted 1,782,022 1,782,129
Earnings (loss) per share before cumulative effect of
accounting change
Basic $ (1.31) $ (0.44)
Diluted (1.31) (0.44)
Earnings (loss) per share
Basic $ (1.32) $ (0.46)
Diluted (1.32) (0.46)
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OTR EXPRESS, INC.
STATEMENTS OF CASH FLOWS
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Three Months Ended
March 31
(Unaudited) 2001 2000
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OPERATING ACTIVITIES
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 3,077,651 $ 409,277
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INVESTING ACTIVITIES
Acquisition of property and equipment (3,080) (1,326,737)
Proceeds from disposition of property and equipment 240,650 464,455
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NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 237,570 (862,282)
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FINANCING ACTIVITIES
Proceeds from issuance of long-term debt -- 1,316,465
Repayments of long-term debt (44,846) (3,376,512)
Net increase (decrease) in revolving line of credit (3,473,426) 2,619,860
Other -- (1,544)
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NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (3,518,272) 558,269
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NET INCREASE (DECREASE) IN CASH (203,051) 105,264
CASH, BEGINNING OF PERIOD 203,576 113,284
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CASH, END OF PERIOD $ 525 $ 218,548
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest $ 156,941 $ 918,015
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES
Decrease in guarantee of executive officers' stock
purchase plan loans $ -- $ (10,000)
Return of tractors and trailers in exchange for
forgiveness of debt $ 8,005,500 $ --
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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, 2000.
The financial statements have been prepared under the assumption that the
Company will continue as a going concern. As discussed in Note 6, subsequent to
March 31, 2001, the Company has decided to shut down operations and wind up its
business. These financial statements have not been prepared assuming a
liquidation scenario. Under such a scenario, the value of the assets and
liabilities could be substantially different than those presented in the
balance sheets.
The Company changed its method of accounting for its fuel derivative instruments
effective January 1, 2001. In June 1998, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standard No. 133, (SFAS
133) "Accounting for Derivative Instruments and Hedging Activities." In June
1999, the FASB issued No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of SFAS No. 133." In June
2000, the FASB issued SFAS No. 137, "Accounting for Certain Instruments and
Certain Hedging Activity", to amend SFAS No. 133. Collectively, these statements
are intended to represent the comprehensive guidance on accounting for
derivatives and hedging activities. These statements establish accounting and
reporting standards requiring that certain derivative instruments (including
certain derivative instruments imbedded in other contracts) be recorded in the
balance sheet as either an asset or a liability measured at its fair value. The
Company has certain fuel derivative instruments to manage a small portion of
its exposure to variable diesel fuel prices. The Company did not designate such
instruments as hedges and as such has recorded a $22,552 charge as a cumulative
effect of an accounting change on January 1, 2001.
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 charge
associated with this accounting change was $31,442, net of tax, which was
recorded in the first quarter of 2000.
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The Company reduced the value of approximately 338 trailers, 26 tractors and the
Ohio remote fuel facility during the first quarter of 2001. These represent
assets which are held for sale, pursuant to Statement of Financial Accounting
Standards No. 121, "Impairment of Long-Lived Assets." The charge needed to write
these assets down to net realizable value approximated $143,000. The Company
expects to sell or return to lenders substantially all of these tractors and
trailers prior to June 30, 2001.
NOTE 2 - LONG-TERM DEBT
During the three months ended March 31, 2001, the Company did not purchase any
new revenue equipment and did not incur any new installment debt.
As a result of the Company's announcement on May 9, 2001 that it will be winding
down operations within the next sixty days, all of the Company's long-term debt
is classified as currently payable at March 31, 2001.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
In 1998, the Company entered into Stock Purchase Assistance Agreements
("Agreements") with four of its executive officers that allowed them to purchase
company stock in the amount of $480,000 collectively, with funds from personal
loans which are partially guaranteed by the Company. The loans are payable in
six equal principal installments plus interest payable on January 1st of each
year. The loans bear interest at the prime rate (9.50 percent at December 31,
2000). If the executive officers remain with the Company for the entire year,
the Company will pay to the executive officers, as compensation, an amount equal
to the principal installment loan payments due for such year. The executive
officers are then responsible for paying to the lender the principal installment
loan payment due and any accrued interest for the year. Additionally, the
executive officers are responsible for paying income taxes on the principal
installment loan payments out of their own funds. The Company does not guarantee
the accrued interest portion of the loans. During 2000, the Company amended the
agreements to provide for accelerated principal payments to the executive
officers.
During 2000, one of the executive officers terminated his employment with the
Company. The Company paid off a portion of his stock loan and he paid off the
remaining balance on his loan. The balance of the guarantee was reduced as a
result of the payoff of this loan.
During February 2001, the Company paid off the remaining loan balance of $23,333
at the bank for the one executive officer still subject to the plan. The
executive is now obligated to the Company should he resign from the Company or
be terminated with cause and the obligation amortizes at the rate of $3,333
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per month (recorded as compensation expense), with the executive's obligation
reduced to zero at September 1, 2001. Should the executive be terminated by the
Company without cause, the unamortized balance will be forgiven. The remaining
obligation to the Company is non-interest bearing. As of March 31, 2001, the
remaining obligation for the executive is $20,000. The Company has recorded the
executive's remaining obligation as a reduction of stockholders' equity
(deficit).
NOTE 4 - LIQUIDITY
Higher fuel prices, unseated tractors, a weak economy, increased driver payroll
costs and weak used truck and trailer markets contributed to losses of
$2,359,634 in the first quarter of 2001 and $6,926,985 and $892,085 in the years
ended December 31, 2000 and 1999, respectively. Additional losses are expected.
These losses have made it difficult for the Company to achieve a positive cash
flow on a consistent basis and to timely meet its current obligations as they
become due in the normal course of business. In order to improve cash flow and
reduce debt, the Company sold more than one hundred tractors and nearly two
hundred trailers in 2000, and negotiated revised and extended terms on most of
its remaining equipment obligations. During the first quarter of 2001, the
Company announced a significant fleet reduction. Proceeds from the sale of this
revenue equipment were used to reduce debt. The Company is in violation of its
debt covenants and has not received waivers of these violations.
Through the cooperation of its four largest equipment lenders, the Company was
able to negotiate certain changes to its existing equipment obligations. These
changes included omitting certain monthly debt payments, stated periods for
which interest only is due, and extended note maturity dates to reduce current
monthly obligations. While these efforts have provided some relief, the Company
continues to face difficulties in meeting all debt obligations as they come due
and is delinquent on certain obligations to its equipment lenders. In late March
2001, the Company determined that it needed to further modify its debt repayment
schedule and will be required to seek additional deferrals of debt repayments.
Management has attempted to improve cash flow and reduce losses through
reduction in the size of its tractor and trailer fleet, workforce reductions and
continued negotiations with its lenders. By lowering the size of the fleet,
management hopes to reduce its debt obligations and improve the profitability of
freight that it carries.
To address its cash flow deficit, the Company made efforts to obtain new
capital. However, management was unable to raise new capital, and, in the view
of management, it is unlikely that such new capital is available.
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NOTE 5 - SEGMENT INFORMATION
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies in the company's 2000 Annual Report
to Shareholders. The following table summarizes the Company's continuing
operations by business segment (in thousands):
RESULTS OF OPERATIONS
SEGMENT INFORMATION First Quarter Ended
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March 31
(UNAUDITED) 2001 2000
Operating Revenue
Freight revenue $ 11,642,895 $ 18,516,184
Logistics revenue 1,172,288 2,460,959
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Total operating revenue 12,815,183 20,977,143
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Operating Expenses
Freight expenses 13,145,471 18,940,209
Logistics expenses 1,200,977 2,363,634
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Total operating expenses 14,346,448 21,303,843
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Operating Income (loss)
Freight operating loss (1,502,576) (424,025)
Logistics operating income (loss) (28,689) 97,325
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Total operating loss (1,531,265) (326,700)
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Interest Expense 805,817 935,229
Net Loss (2,359,634) (813,642)
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NOTE 6 - SUBSEQUENT EVENT
On May 9, 2001, the Company filed a Form 8-K Current Report with the SEC in
which it announced that it will cease operations within 60 days because of
adverse business conditions, including a difficult freight market, high fuel
costs, high insurance costs and declining used truck and trailer values. These
factors would preclude the Company from achieving operational profitability in
the foreseeable future. The Company expects to complete its shutdown of
truckload operations in the next several weeks and wind up its business within
60 days. The Company stated that its line of credit lender has a security
interest in the Company's accounts receivable, and that its equipment lenders
are secured by the revenue equipment (trucks and trailers) purchased, but that
the value of such equipment did not fully collateralize the equipment lenders,
especially due to the unprecedented decrease in value of used truck equipment.
The Company anticipates that it may lack sufficient funds to fully pay unsecured
creditors, and that stockholders should not expect any distributions in the
liquidation.
In connection with the Company's ceasing of operations, the Company filed a Form
8-K Current Report on May 11, 2001 in which it announced that it had applied to
the SEC to remove its shares of Common Stock ("Common Stock"), par value $0.01
per share, from listing on the American Stock Exchange (AMEX). The Company had
not met AMEX continued listing requirements for some time. Trading in shares of
the Company's common stock was halted on May 9, 2001 when the Company announced
that it will cease operations within sixty days and liquidate and that
shareholders should not expect any distributions in such liquidation. The
Company has been informed by AMEX that trading will remain halted until the
delisting is completed. The Company expects that the delisting will be granted
by the SEC, whereupon it is unknown whether and to what extent a trading market
will exist for the Common Stock.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS 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 Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, 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
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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; the
ability of the Company to realize the benefits of its wind down plan, and risks
described from time to time in reports filed by the Company with the Securities
and Exchange Commission (SEC). Readers should take these factors into account in
evaluating any such forward looking statements. Readers should review and
consider the various disclosures made by the Company, in reports to
stockholders, and periodic reports on Form 8-K, 10-K and 10-Q filed with the
Securities and Exchange Commission ("SEC"). The Company undertakes no obligation
to update publicly or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.
1ST QUARTER 2001 V. 2000
OPERATING REVENUE. Operating revenue decreased by 38.9% in the first
quarter ended March 31, 2000 compared to 2000. Freight revenue declined by 37.1%
and logistics revenue declined by 52.4%.
Freight revenue decreased due to a decline in the average number of
units in service as a result of a planned fleet reduction. The rate per mile
increased to $1.105 (including fuel surcharge) in the first quarter of 2001
compared to $1.098 in 2000. The average number of tractors in service decreased
by 37.5% to 379 in the first quarter of 2001 compared to 606 in 2000. Tractors
in service at March 31, 2001 was 278 compared to 615 in 2000. Tractors in
service includes 56 owner operators in 2001 and 112 owner operators in 2000.
Logistics revenue decreased primarily due to the closing of the Salt
Lake City rail division office in January 2001 and moving the operations to
Company headquarters in Olathe, Kansas. None of the Salt Lake City employees
were retained as employees. Truck brokerage revenue decreased by 7.5% and rail
division revenue decreased by 76.0%.
OPERATING EXPENSES. The operating ratio (total operating expenses as a
percent of operating revenue) increased to 111.9% in the first quarter of 2001
compared to 101.6% in 2000.
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Salaries, wages and benefits increased to 39.3% of revenue in 2001 from
35.6% in 2000 primarily because of the decrease in logistics revenue and the
decrease in owner operators. Additionally, the Company incurred severance costs
in 2001 as a result of its planned fleet reduction. 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, decreased to 20.1% of revenue in 2001
from 22.5% in 2000. The cost of owner operators decreased 43.0% due to the 50%
decrease in the number of owner operators contracting with the Company.
Purchased transportation for the logistics division decreased 49.3% primarily
due to the decrease in logistics revenue as described above.
Fuel was 11.4% of revenue in 2001 compared to 10.6% in 2000. This is a
result of lower logistics revenue in 2001 and continued high diesel fuel prices
nationwide in the first quarter of 2001. Additionally, owner operator miles made
up a lower percentage of total miles in the first quarter of 2001 as compared to
2000. Owner operators pay their own fuel costs.
Maintenance was 4.7% of revenue in 2001 compared to 4.9% of revenue in
2000. This decline is primarily a result of a change in the Company's policy on
tractor and trailer washes to reduce costs.
Depreciation as a percent of revenue increased to 13.1% in 2001 from
10.2% in 2000 primarily as a result of the lower logistics revenue as a percent
of total revenue. Additionally, owner operator miles made up a lower percentage
of total miles in the first quarter of 2001 as compared to 2000. Owner operators
drive their own tractors. Consistent with industry practices, gains and losses
on disposal are classified in depreciation expense. The Company recorded gain
(loss) on disposal of property and equipment of ($128,877) and $702 for the
quarters ended March 31, 2001 and 2000, respectively.
Insurance and claims represented 4.7% and 2.8% of revenue in the first
quarter of 2001 and 2000, respectively. The increase is primarily due to a
significant increase in the insurance rates on the Company's primary umbrella
and liability insurance policies. 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.
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Taxes and licenses was 9.5% of revenue in 2001 compared to 9.2% in
2000. The increase is primarily a result of lower logistics revenue.
Supplies and other expenses increased to 7.9% of revenue in 2001 from
5.7% in 2000 as a result of the decrease in logistics revenue and increases in
legal fees, utilities and bad debt expense as a percent of revenue.
Additionally, certain expenses did not decline significantly in the first
quarter despite the fleet downsizing such as utilities, rent and telephone
expenses.
Write down of assets available for sale was 1.1% of revenue in 2001.
The Company reduced to net realizable value certain tractors and trailers in
connection with its fleet downsizing in the first quarter of 2001. This write
down represents the estimated further impairment of certain of those assets
held for sale but not yet disposed as of March 31, 2001. The write down is in
accordance with Statement of Financial Accounting Standards No. 121,
"Impairment of Long-Lived Assets." The Company has sold or intends to dispose
of these assets in connection with its planned downsizing of operations.
INTEREST EXPENSE. Interest expense was 6.3% of revenue in 2001 and 4.5%
in 2000. The increase is primarily a result of lower logistics revenue and
higher interest rates charged by equipment lenders as a result of debt
restructuring.
NET INCOME (LOSS). The Company reported a net loss of $2,360,000, or
$1.32 per share (basic and diluted), for the first quarter of 2001 compared to
a net loss of $814,000, or $0.46 per share (basic and diluted), in 2000. The
Company changed its method of accounting for derivative instruments effective
January 1, 2001. This change resulted in the cumulative effect adjustment of
$0.01 per share in 2001. The Company changed its method of revenue recognition
from pickup method to the proportionate method effective January 1, 2000. This
change resulted in the cumulative effect adjustment of $0.02 per share in 2000.
The Company did not report income tax benefit in the first quarter of 2001
because a valuation allowance is currently being utilized to offset the deferred
tax asset as a result of uncertainty about future levels of taxable income. The
effective income tax rate was 38.0% in 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically made significant investments in new
revenue equipment acquired primarily through secured borrowings. The Company did
not purchase any revenue equipment during the three months ended March 31, 2001
and currently has no outstanding purchase commitments for replacement tractors.
The Company's capital expenditures would generally be expected to be generated
through secured borrowings and as a result of the Company's announcement on May
9, 2001 that it will be ceasing operations within the next sixty days, the
Company does not expect to make any significant capital expenditures.
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Historically, the Company has obtained loans for its revenue equipment
which are of shorter duration (three to five years for trailers, four and a half
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 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.
Should the Company purchase revenue equipment, it intends to continue
to obtain loans with shorter maturities than the useful lives of its revenue
equipment. This method of financing could be expected to continue to produce
working capital deficits in the future. The Company's working capital deficit at
March 31, 2001 was $24.6 million. The Company's revolving line of credit, as
amended, is classified as a current liability as of December 31, 2000 because it
is due and payable on August 1, 2001. Primarily due to the Company's historical
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. As a
result of the Company's announcement on May 9, 2001 that it will be ceasing
operations within the next sixty days, the Company does not expect to borrow
additional funds.
The Company has a credit line with HSBC Business Credit (USA), Inc.
("HSBC"), as amended, of $7.5 million, or 85% of eligible accounts receivable,
whichever is less, with its primary lending bank that bears interest at a
variable rate, based upon the prime rate, or LIBOR plus 2.75%, at the Company's
election. The agreement, as amended, contains certain covenants relating to
tangible net worth leverage ratios, debt service coverage and other factors.
Effective August 1, 2000, HSBC amended the amended line of credit agreement to
include a $1,000,000 reserve against accounts receivable. The $1,000,000 is
subtracted from the Company's receivables borrowing base, as defined, when
calculating the amount of borrowing capacity. The Company was in default on the
tangible net worth, leverage ratios and debt service coverage covenants as of
March 31, 2001. Borrowings under this amended line were $1,475,437 at March 31,
2001, and $1,181,000 of the available amended credit line was committed for
letters of credit issued by the bank. The amended line expires August 1, 2001
and is secured by accounts receivable. During the first quarter of 2001, HSBC
lowered the maximum borrowings available on the line of credit to $7.5 million
from $10.0 million, and lowered the $1,000,000 reserve against accounts
receivable to $750,000. Unused borrowing capacity is approximately $771,000 at
March 31, 2001.
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Beginning in July 2000, the Company began working with its four largest
equipment lenders ("equipment lenders") to make interest only payments for a
period of three months. The Company made those interest-only payments and then
requested additional principal abatements from the equipment lenders. The
Company agreed to make interest and partial principal payments to the equipment
lenders during October, November and December 2000, with no payment to be made
in January 2001. The Company made those reduced payments during October and
November but, as a result of cash flow difficulties, they were unable to make
the reduced December payment. The Company has not made a February or March 2001
payment.
In February 2001, the Company reached agreement in principle with the
equipment lenders to provide the Company with modified payment terms to provide
for no payments until April 1, 2001, at which time an interest payment is due.
Regularly scheduled principal and interest payments are due on May 1, 2001. In
connection with this agreement, the Company also reduced its fleet size and
payroll during the first quarter of 2001. OTR eliminated more than 100 jobs
during the first quarter of 2001, including driver-manager positions nationwide
and home-office positions in Olathe, Kansas.
In exchange for the modified payment terms and the return of the
tractors and trailers, the Company provided additional collateral to the
equipment lenders. The Company may be considered to be in technical default on
certain debt obligations and as a result of the Company's announcement on May 9,
2001 to cease its operations, the Company does not expect to be able to meet the
terms of its financing arrangements or receive waivers on loan covenant
violations if and when they arise.
In order to accomplish this reduction, the Company returned these
tractors and trailers to the equipment lenders in exchange for debt relief at a
mutually agreed-upon price for each unit. The Company recorded the writedown
based on estimated net realizable value upon sale of the equipment. Ultimate
sales price could vary significantly depending on several factors, including
continued volatility in the used truck market and availability of qualified
buyers. This reduction resulted in a charge to operations of $2.6 million in the
fourth quarter of 2000. During the first quarter of 2001, the Company recorded
an additional writedown on its remaining revenue equipment held for sale of
approximately $143,000 as a result of continued volatility in the used tractor
and trailer market.
The Company licensed 265 tractors (including approximately fifty owner
operators) in February 2001. With the reduced fleet, the Company intended to
consolidate certain office functions, reduce reliability on less profitable
broker freight, and improve miles per unit.
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The Company met again with equipment lenders on March 28, 2001. Given
the continued deterioration in the Company's financial condition and further
declines in value in the used equipment market since year-end, the Company was
required to seek additional debt repayment deferrals from its equipment lenders.
Diesel fuel prices approached ten year highs during 2000, and sustained
high fuel prices can have a substantial negative impact on the Company's
liquidity and operating ratio. The Company is making efforts to mitigate the
increased cost of fuel by implementing a fuel surcharge to customers.
Additionally, the Company's fuel hedging program only offsets a small percentage
of the increased fuel costs.
The trucking industry is facing a nationwide shortage of qualified
over-the-road drivers. Many trucking companies have a relatively high percentage
of unseated trucks as a result of the shortage. Competition for qualified over
the road drivers is strong and the Company may increase pay in order to continue
to keep its trucks staffed, which could negatively impact the Company's
liquidity and operating ratio. The Company had eleven unseated trucks, or 5.0%
of its Company-owned fleet, at March 31, 2001.
The audit report for the Company's financial statements for the year
ending December 31, 2000 issued by the Company's independent public accountants
contains the qualification that the Company's financing and cash flow
contingencies raise substantial doubt about the Company's ability to continue as
a going concern.
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 did not hold any heating
oil option contracts as of March 31, 2001.
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The Company maintained fuel inventories for use in normal operations at March
31, 2001 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, 2001 as compared to December 31, 2000. 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, 2000.
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PART II OTHER INFORMATION
ITEM 1 - Legal Proceedings...................................................*
ITEM 2 - Changes in Securities and Use of Proceeds...........................*
ITEM 3 - Defaults Upon Senior Securities
The Company has a revolving line of credit agreement, as amended, which contains
certain covenants relating to net worth, leverage ratios, debt service coverage
and other factors. The Company was in default on the net worth and leverage
ratio covenants at December 31, 2000 and at March 31, 2001. The Company has not
obtained waivers of these violations and is currently operating in default on
this agreement. As a result of the Company's announcement on May 9, 2001 to
cease operations within the next sixty days, the Company does not anticipate
that its line of credit lender will waive default on these covenants.
The Company made arrangements with certain lenders to make interest-only note
payments for periods from sixty to ninety days beginning July 1, 2000. In
October 2000, the Company reached agreement with these lenders to modify its
payment terms through the first quarter of 2001, subject to certain terms,
conditions and documentation. In February 2001, the Company reached agreement in
principle with these equipment lenders to provide the Company with modified
payment terms to provide for no payments until April 1, 2001, at which time an
interest payment is due. In April 2001, the Company made approximately $160,000
in interest payments. On May 9, 2001, the Company announced that it will be
ceasing operations within the next sixty days. As a result of this announcement,
the Company expects to remain in default on these loans. See "Item
2-Management's Discussion And Analysis Of Operations And Financial
Condition-Liquidity And Capital Resources."
ITEM 4 - Submission of Matters to a Vote of Security Holders.................*
ITEM 5 - Other Information...................................................*
ITEM 6 - Exhibits and Reports on Form 8-K....................................*
*No information submitted under this caption.
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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, 2001 /s/ William P. Ward
--------------------- -------------------------
By: WILLIAM P. WARD
Chairman of the Board,
President and Principal
Executive Officer
Date: May 15, 2001 /s/ Steven W. Ruben
--------------------- -------------------------
By: STEVEN W. RUBEN
Principal Financial Officer and
Principal Accounting Officer
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