UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant To Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the year ended December 31, 1999 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, Olathe, Kansas 66062
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (913) 829-1616
Securities Registered Pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, $.01 par value
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 the shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
(1) Yes X No (2) Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to
the best of Registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
The aggregate market value of voting stock held by non-affiliates of the
Registrant was $3,564,044 as of February 29, 2000.
1,782,022
(Number of shares of common stock outstanding as of February 29, 2000)
Part II incorporates certain information by reference from the
Registrant's Annual Report to Stockholders for fiscal year ended December 31,
1999. Part III incorporates certain information by reference from the
Registrant's definitive Proxy Statement dated March 30, 2000
<PAGE>
OTR EXPRESS, INC.
1999 Annual Report on Form 10-K
Table of Contents
Page
Part I
Item 1. Business 3
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 10
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 8. Financial Statements and Supplementary Data 10
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 10
Part III
Item 10. Directors and Executive Officers of the Registrant 10
Item 11. Executive Compensation 11
Item 12. Security Ownership of Certain Beneficial Owners and
Management 11
Item 13. Certain Relationships and Related Transactions 11
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 11
<PAGE>
PART I
Item 1. Business
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-K. 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 affects of
regulation; changes in competition and the effects of such changes;
increased competition; changes in fuel prices; changes in used
tractor and trailer values; 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 driver
compensation rates; changes in management strategies; environmental
or tax matters; increases in interest rates and availability of
affordable financing; 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.
The Company
OTR Express, Inc., a Kansas corporation organized in 1985 (the
"Company" or "OTR") operates primarily as a dry van, truckload
carrier and logistics company. The Company transports a diversified
mix of general commodities for a large base of customers (currently
over 1,000) throughout the continental United States. OTR is
headquartered in Olathe, Kansas, a suburb of Kansas City, Missouri.
The Company also provides non-asset based third party logistics
services to its customers, including rail, truckload, and less-than-
truckload services.
Operating Strategy
OTR's business philosophy is to provide high quality
transportation services at a low cost. The Company has historically
achieved this by (1) focusing on technology; (2) operating premium,
late model equipment; (3) hiring experienced drivers; and (4)
maintaining an efficient cost structure. From its founding in 1985
until 1995, the Company's operating strategy differed from that of
most truckload carriers in that OTR serviced a large base of
customers with no long-term contracts or commitments. This strategy
allowed the Company to obtain the most profitable loads available on
a spot basis. To identify the most profitable loads, the Company
utilized its internally developed, proprietary Freight Optimization
System - a next-move probability based freight system. The Freight
Optimization System enables the Company to analyze historical data
to prioritize customers most likely to have freight that will
produce the most profitable combination of rates and destinations.
The Freight Optimization System was designed to maximize freight
opportunities, maximize revenue per mile and minimize empty miles,
but had become dependent to some extent on freight brokers offering
opportunities in the spot market. In mid-1995, using the system,
the Company received as much as 55% of its freight opportunities
from freight brokers who typically pay 10% to 15% less per mile than
direct shippers.
In 1996, due to changing market conditions, the Company
determined that it was necessary to change its operating strategy to
market to larger national accounts and away from the lower priced
spot freight market and its reliance on freight brokers. The
objective of OTR's new operating strategy was to improve revenue per
mile, equipment utilization, stability of the customer base and
reduce reliance on freight brokers. These larger shippers are
capable of offering increased load counts at higher revenue rates.
The larger shippers require additional
<PAGE>
services, including guaranteed equipment availability, drop trailers and
fifty-three foot trailers. Additionally, in 1996, the Company began offering
Qualcomm satellite communications on every truck and electronic data
interchange (EDI) for load status information to serve the Company's
larger national accounts. The Company is working to integrate these
larger shippers into the Company's existing operating strategy
effectively, providing a higher mix of more profitable shipper
freight. In this new operating strategy, the Company will be able
to utilize its Freight Optimization System which will work in
conjunction with the Company's national accounts program to identify
opportunities on non-national account freight and backhaul
opportunities on national account freight.
OTR has regional short-haul operations in Kansas City, Chicago,
and Dallas/Houston to meet customer demand. Based on management's
analysis of the market size, cost of entry and potential long-term
profitability, the Company expects to make further investments in
the short-haul division.
This flexible operating strategy has contributed to the Company's
growth during the five year period ending December 31, 1999, with
revenue increasing to $80.5 million in 1999 from $42.8 million in
1994 (a compound annual growth rate of 13.5%), and a corresponding
increase in its fleet to 588 tractors (505 company-owned tractors
and 83 owner operators) from 394 during such period.
Customers and Marketing
OTR has a large customer base that is diversified in terms of
geographic location and types of commodities shipped. The Company
markets its services based on dependable, time definite delivery and
service.
The Company obtains freight in three different manners: directly
from shippers ("OTR Shippers"), through Company agents ("Agent
Shippers") and from freight brokers. OTR Shippers are marketed
directly by OTR sales representatives. Agent Shippers are marketed
by the Company's outside sales agents. The Company's customer
database includes approximately 500 OTR Shippers, 300 Agent Shippers
and 400 freight brokers. In 1999, OTR Shippers accounted for 68% of
OTR's revenue miles, Agent Shippers accounted for 13% and freight
brokers accounted for 19%.
The freight obtained from OTR Shippers and Agent Shippers is
generally more profitable than freight obtained from brokers, having
freight rates which average 10% to 15% more than brokered freight.
To maximize this more profitable revenue base by generating new OTR
Shippers, OTR increased the number of its sales representatives and
customer service representatives to twenty-one at February 29, 2000
from three at December 31, 1994. From the Company's inception
through 1995, sales representatives operated primarily through
direct telemarketing efforts.
During 1998, the Company divided its operations and sales
departments into seven regional teams to better serve customers in
those regions. In order to capitalize on this structure, the
Company has regional sales managers in the Kansas City, Dallas,
Baltimore, Cleveland, Chicago and Atlanta metropolitan areas. The
focus of these regional sales managers is to enhance freight
opportunities with current customers and to add new national account
customers.
The Company's brokered freight is obtained through a network of
freight brokers who contract for freight directly from shippers and
re-contract with the Company to transport the freight. A freight
broker helps carriers obtain loads in areas where the carrier does
not typically have a large number of customers, thereby minimizing
the empty miles of the carrier. Freight brokers typically earn a
margin based on a percentage of the carrier's freight fee. The
Company has developed a network of approximately 400 freight
brokers. The Company expects to reduce the percentage of revenue
miles from freight brokers in the future.
<PAGE>
For the year ended December 31, 1999, the Company's 20, 10 and
five largest customers accounted for 28.3%, 19.6% and 13.3%,
respectively, of the Company's operating revenue. The largest
customer accounted for 3.9% of the Company's operating revenue for
that period.
Logistics Division
To better serve its customers, OTR has developed a logistics
division which brokers loads to other carriers. The Company
contracts with other trucking companies to haul freight on their
equipment for OTR's customers. The Company is able to increase its
profitability while satisfying its customers' shipping needs without
utilizing Company owned equipment.
In 1998, OTR formed a rail logistics department within its OTR
Logistics division. The intermodal logistics department contracts
with rail carriers to move freight on rail equipment for customers
and is currently based in Salt Lake City, Utah. The department
currently employs eight professionals. OTR expects to utilize its
information technology to improve the operating efficiency and
capacity for the intermodal logistics department. OTR's internal
computer programmers have developed a proprietary load order system
specifically for intermodal logistics services which is integrated
with the Company's current system and will substantially reduce the
amount of time it takes to coordinate the movement of a load. The
intermodal logistics division operates as a non-asset based
transportation service provider and the Company expects that it will
not require the purchase of transportation equipment.
Logistics division revenue increased to $9.7 million in 1999 from
$4.5 million in 1998. OTR expects to expand the rail logistics
department in the future.
Drivers, Other Employees and Owner-Operator Drivers
Recruiting and retaining professional, experienced drivers is
critical to the Company's success, and all of the Company's drivers
must meet specific guidelines relating primarily to safety record,
driving experience and personal evaluation, including drug and
alcohol testing. OTR's drivers have an average age of 46.0 years
and average 12.5 years of driving experience. Within the Company,
drivers are considered "managers" and are given a high level of
responsibility to manage the profitability of their equipment.
The Company's Driver Incentive Management System allows
experienced drivers to earn higher compensation than prevailing
industry wages. The Company provides incentive programs for its
drivers based on number of miles driven, fuel efficiency, safety
record and profitability. OTR considers each tractor and its driver
to be a separate profit center, with profit center reports,
including the actual revenue and expense of the equipment and fixed
expense components for administration, taxes and depreciation,
generated monthly. Under the Company's "profit center" program, on
a quarterly basis, a distribution approved by management is
distributed to the drivers based on the profitability of their
respective profit centers. The program is designed to give OTR's
drivers the incentive to improve their individual productivity,
minimize costs and thereby increase overall Company profitability.
Driver recruitment and retention is essential to the maintenance
of high equipment utilization, particularly during periods of rapid
fleet growth. OTR's drivers are given recruiting bonuses for the
referral of new drivers to the Company. In order to attract and
retain highly qualified drivers and to promote safe operations, the
Company purchases premium quality tractors and equips the tractors
with optimal comfort and safety features, such as on-board satellite
communications, high quality interiors, power steering, automatic
braking systems, engine brakes and oversized sleepers. As a result
of management's attention to driver retention, the Company's driver
turnover rate was 75% in 1999, which management believes to be below
the industry average.
<PAGE>
At December 31, 1999, the Company's ratio of tractors to non-
driving employees was 4.78 to one, which management believes is well
above industry standards. At February 29, 2000, the Company had 624
employees, of whom 503 were drivers and 121 were management and
administrative personnel. At February 29, 2000, the Company also
had contracts with independent contractors (owner-operators) for the
services of 97 tractors that provide both a tractor and a qualified
driver. The Company's employees are not represented by a collective
bargaining unit. Employees may participate in OTR's 401(k) program
and in Company-sponsored health, life and dental plans. The Company
does not have any employees who are receiving post retirement
benefits and does not anticipate offering any post retirement
benefits in the future. Management considers relations with its
employees to be very good.
In 1997, the Company began contracting with owner-operators to
haul freight for the Company's customers. The Company recognizes
that carefully selected owner-operators complement its company
drivers. Owner-operators supply their own tractor and driver, and
are responsible for their operating expenses. Because owner-
operators provide their own tractors, less capital is required from
the company for growth and they provide the Company with another
source of drivers to support its growth. The Company expects to
continue to recruit owner-operators, as well as company drivers.
Revenue Equipment
The Company believes that a key to the successful retention of
drivers is the use of standardized, fuel efficient, late-model
tractors and trailers. The Company purchases all new tractors,
primarily with driver comfort, fuel efficiency, safety and overall
economy in mind. To recruit and retain high-quality drivers, all
the tractors owned by the Company have deluxe interiors and
oversized sleepers. The average age of OTR's tractors and trailers
at December 31, 1999 was 1.4 years and 2.9 years, respectively. The
Company plans its trade cycle based on engine warranties and
routinely replaces its tractors after forty to forty-five months of
use (approximately 450,000 miles).
At December 31, 1999 the Company owned 271 Navistar tractors and
234 Peterbilt tractors. The tractors include engines which are
fully electronic and manufactured by Detroit Diesel and Caterpillar.
Trailers in the fleet at year-end were manufactured by Pines,
Utility, Stoughton and Trailmobile. All of the Company's trailers
have a 110 inch inside and are 102 inches wide, the maximum width
generally allowed by law. The trailer fleet at December 31, 1999
included 797 fifty-three foot trailers and 265 forty-eight foot
trailers. The Company owns only dry van trailers.
The following table shows the age of Company-owned equipment in
service at December 31, 1999.
Acquisition Year Tractors Trailers
1999 261 20
1998 84 280
1997 150 292
1996 10 205
1995 - 130
1994 - 120
1993 - 15
Total 505 1,062
<PAGE>
The Company's preventive maintenance program focuses on early
diagnosis of problems and contracting maintenance out to third-party
providers. In addition to annual Department of Transportation
("DOT") inspections, tractors are inspected when they pass through
the Company's diagnostic facilities at its headquarters. Almost all
tractors are still under warranty and are generally traded in before
their engine warranties expire. The exclusive use of third-party
maintenance providers, coupled with the effective utilization of
manufacturers' warranties and the Company's trade-in policy, allows
the Company to minimize its maintenance costs. Owner-operator
tractors are inspected prior to acceptance by the Company for
compliance with operational and safety requirements of the Company
and the Department of Transportation. These tractors are then
periodically inspected, similar to company-owned tractors, to
monitor continued compliance.
Fuel Availability and Cost
The Company actively manages its fuel costs through a five
component fuel management system which incorporates: wholesale
purchasing for the Company's unmanned fuel facilities, mileage pay
rates based upon fuel economy, the "profit center" incentive driver
compensation program, fuel hedging, and equipment specifications.
See "-Drivers and Other Employees."
The Company owns five automated fuel facilities, one located at
the Company's headquarters in Kansas and one each located on major
traffic lanes in Arizona, Ohio, Texas and Wyoming. Each of the four
remote unmanned fuel facilities consists of an above-ground fuel
tank, pump and a computer modem linking it directly to the Company's
computers. In 1999, the Company purchased 16.0% of its fuel in bulk
for distribution through its automated fuel facilities. These
facilities allow the Company to purchase fuel at wholesale prices.
As a way to protect the Company against major fuel price
increases, since October 1994 the Company has engaged in a fuel
hedging strategy. Pursuant to this program, the Company buys four-
or-six month call options within ten cents of current market prices,
to buy futures contracts for #2 heating oil, in amounts equal to
approximately 20% of the Company's anticipated fuel purchases for
such period.
All of the Company's tractors have fully electronic engines, which
typically deliver enhanced fuel economy compared to tractors with
mechanically governed engines.
Environmental Matters
The Company's operations are subject to federal, state and local
laws and regulations concerning the environment. There is the
possibility of environmental liability as a result of the Company's
use of fuels, from the fuel storage tanks installed at its fuel
facilities and also from the cargo it may transport. The Company's
only underground storage tanks are two fiberglass tanks installed at
its headquarters facility. One tank was installed in 1988 and the
other in 1995. The tanks have overfill protection hardware, spill
containment manhole covers and leak detection equipment. The
Company believes that the use of above-ground storage tanks at its
remote fuel facilities minimizes both potential liability and the
cost of compliance with environmental regulations. The Company
occasionally transports environmentally hazardous substances in
accordance with hazardous material guidelines. To date, the Company
has experienced no material claims for hazardous substance
shipments. The Company believes that its environmental practices
comply with applicable federal, state and local environmental laws
and regulations. In the event the Company should fail to comply
with applicable regulations, the Company could be subject to
substantial fines or penalties and to civil or criminal liability.
Competition
The truckload industry is extremely competitive and highly
fragmented, with numerous regional,
<PAGE>
inter-regional and national truckload carriers, none of which dominates the
market. The Company competes primarily with other long-haul truckload
carriers, rail-truck intermodal transportation, railroads and, to a lesser
degree, with less-than-truckload ("LTL") carriers. Most of OTR's larger
truckload competitors utilize "core carrier" or "lane density"
marketing concepts, which emphasize greater individualized service
to a smaller number of shippers. Many long haul truck load carriers
utilize driver teams which allow them to provide expedited service
while complying with DOT regulations concerning driver's duty hours.
OTR's drivers consist principally of single drivers. Intermodal
transportation and railroads typically have created downward
pressure on the truckload industry's pricing structure. The Company
competes for freight based primarily on freight rates, service and
reliability.
Seasonality
Seasonality causes variations in the operations of the Company as
well as industry-wide operations. Demand for the Company's service
is generally the highest during the summer and fall months.
Historically, expenses are greater during the winter months when
fuel costs are generally higher and fuel efficiency is lower.
Governmental Regulation
The Company is a contract and common motor carrier subject to the
authority of federal and state agencies. These regulatory
authorities have broad powers, but the rates and charges of the
Company are not directly regulated by these authorities. OTR, as
primarily a contract carrier, negotiates competitive rates directly
with its customers as opposed to adhering to scheduled tariffs.
The trucking industry is subject to regulatory and legislative
changes such as increasingly stringent environmental regulations and
limits on weight and size that can affect the economics of the
industry by requiring changes in operating practices or influencing
the demand for, and the costs of providing, services to shippers.
In August 1994, the Federal Aviation Administration Authorization
Act of 1994 (the "1994 FAA Act") became law. Effective January 1,
1995, the 1994 FAA Act preempted certain state and local laws
regulating the prices, routes or services of motor carriers (other
than household carriers). State agencies may continue to impose
tax, license, bonding and insurance requirements. The 1994 FAA Act
does not limit the authority of a state or other political
subdivision to impose safety regulations or highway route
limitations or controls based on the size or weight of the motor
vehicle, the hazardous nature of cargo being transported by motor
vehicles or minimum financial responsibility requirements relating
to insurance and self-insurance authorization.
The Negotiated Rates Act of 1993 ("NRA"), in tandem with the
Trucking Industry Regulatory Reform Act of 1994 ("TIRRA"), further
redefined the regulatory structure applicable to interstate
transportation of goods. The NRA provided further regulation
governing interstate transportation, including prohibitions on off-
bill discounting, certain re-regulation of contract shipping
arrangements, and, with respect to common carriers, regulation
regarding the collection of undercharge claims, and applicable
defenses and exceptions to such claims. The TIRRA further
deregulated the trucking industry by partially repealing the "filed-
rate" doctrine previously applicable to common carriers. Under the
TIRRA, while collectively-made bureau rates must still be published
in tariffs, individually negotiated rates are not.
The Company's drivers must be licensed as "commercial drivers"
pursuant to requirements established by the Federal Highway
Administration ("FHA") of the DOT. In addition to the knowledge and
driving skills tests required to obtain a commercial driver's
license (a "CDL"), there are various disqualifying offenses set
forth in the FHA rules, which, if committed, could result in
suspension or termination of the operator's CDL, as well as
potential civil or criminal liabilities. Also, DOT regulations
impose mandatory drug testing of drivers and the Company has
<PAGE>
its own ongoing drug-testing program. DOT alcohol testing rules require
certain tests for alcohol levels in drivers and other safety
personnel.
Motor carrier operations are also subject to safety, equipment and
operators' hours of service requirements prescribed by the DOT. The
Company currently has a satisfactory rating from the DOT based upon
the DOT's most recent audit of the Company.
Safety
The Company maintains a program for training and supervising
personnel to keep safety awareness at its highest level. The
emphasis on safety begins in the hiring and training process. A
minimum of 2.0 years of over-the-road driving experience is required
for new company drivers. OTR also verifies the driving records of
all new drivers before they begin employment. Prospective employees
are given physical examinations and drug tests, and newly hired
drivers are trained in the Company's safety procedures. In
general, any driver who violates the Company's safety standards will receive
a warning letter, and any driver who has more than two such violations
within certain periods of time is subject to termination. The Company
continuously monitors driver performance and has final authority regarding
employment and retention of drivers. OTR currently has a
"satisfactory" safety and fitness rating from the DOT. See "-Governmental
Regulation."
Item 2. Properties.
The Company owns real estate in Olathe, Kansas, where the Company
is headquartered. The property includes a 22,000 square foot office
facility and a 9,400 square foot diagnostic and inspection facility.
The property also includes approximately 258,000 square feet of
parking space and the Kansas fuel facility. Additionally, the
Company owns tracts, each approximately one acre in size, in
Arizona, Ohio, Texas and Wyoming, on which its remote fuel
facilities are located. See "Item 1 Fuel-Availability and Cost."
Item 3. Legal Proceedings.
The Company is routinely a party to litigation incidental to its
business, primarily involving claims for personal injuries and
property damage incurred in the transportation of freight. The
Company believes that all litigation in which the Company is
currently involved is covered by the Company's liability insurance
(personal injury, physical damage and cargo) or workers'
compensation insurance. The Company believes the ultimate outcome
of current litigation will not have a material adverse effect on its
financial position or results of operations.
The Company maintains liability insurance (including umbrella
coverage) in the amount of $10 million per occurrence for personal
injury, property damage and cargo. Under the terms of the policy,
the Company retains the first $50,000 of losses paid and loss
adjusting expense. The Company is self-insured for workers'
compensation insurance. The Company is responsible for claims up to
$250,000 per occurrence and $900,000 aggregate per year. The
Company carries excess insurance to cover losses over $250,000,
subject to a maximum coverage of $5 million per occurrence.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The information required by this Item is incorporated by reference
from the Company's Annual Report to Stockholders for the fiscal year
ended December 31, 1999, under the caption "Price Range of Stock."
Item 6. Selected Financial Data.
The information required by this Item is incorporated by reference
from the Company's Annual Report to Stockholders for the fiscal year
ended December 31, 1999, under the caption "Financial Highlights."
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The information required by this Item is incorporated by reference
from the Company's Annual Report to Stockholders for the fiscal year
ended December 31, 1999 under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements
The information required by this Item is incorporated by reference
from the Company's Annual Report to Stockholders for the fiscal year
ended December 31, 1999 under the caption "Financial Statements" and
"Quarterly Financial Data."
Annual Report Page
Report of Independent Public Accountants 11
Balance Sheets 12
Statements of Operations 13
Statements of Stockholders' Equity 14
Statements of Cash Flows 15
Notes to Financial Statements 16
Supplemental Financial Information 24
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this Item is incorporated by reference
from the Company's definitive Proxy Statement dated March 30, 2000
under the headings "Proposal One: Election of Class B Directors-
Nominees," "The Board of Directors-Continuing Directors," "Executive
Officers-Information About Other Executive Officers" and
"Miscellaneous-Section 16 Reporting" to be filed with the Commission
not later than 120 days after the end of the fiscal year covered by
this Form 10-K.
<PAGE>
Item 11. Executive Compensation.
The information required by this Item is incorporated by reference
from the Company's definitive Proxy Statement under the heading
"Executive Compensation and Other Information" to be filed with the
Commission not later than 120 days after the end of the fiscal year
covered by this Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information required by this Item is incorporated by reference
from the Company's definitive Proxy Statement dated March 30, 2000
under the heading "Stock Ownership of Certain Beneficial Owners and
Management" to be filed with the Commission not later than 120 days
after the end of the fiscal year covered by this Form 10-K.
Item 13. Certain Relationships and Related Transactions.
The information required by this Item is incorporated by reference
from the Company's definitive Proxy Statement dated March 30, 2000
under the heading "Certain Relationships and Other Transactions" to
be filed with the Commission not later than 120 days after the end
of the fiscal year covered by this Form 10-K.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) List of documents filed as part of this Report on Form 10-K.
(1) Financial Statements
All financial statements of the Registrant as set forth
under Item 8 of this Report on Form 10-K.
(2) Financial Statement Schedules
Page of
Schedule Number Description 1999 10-K
II Valuation and Qualifying Accounts 16
The report of the Registrant's independent public accountants with
respect to the above listed financial statements and financial
statement schedules appears on page 15 of this Annual Report on Form
10-K.
All other financial statement schedules not listed above have
been omitted since the required information is included in the
financial statements or the notes thereto, or is not applicable or
required.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the year ended December 31,
1999.
<PAGE>
Exhibits
Exhibit Page Number or Incorporation
Number Description By Reference To
3(a)(1) Articles of Incorporation, as amended Exhibit 3(a) to Annual Report
prior to July 10, 1998 for the year ended Dec 31,
1994 on Form 10-K (SEC File
No. 1-19773)
3(a)(2) Amendment to Articles of Incorporation, Exhibit 3(a)(2) to Annual
filed July 13, 1998 Report for the year ended
Dec 31, 1998 on Form 10-K
(SEC File No. 1-19773)
3(b) Restated By-Laws Exhibit 3(b) to Annual Report
for the year ended Dec 31,
1995 on Form 10-K (SEC File
No. 1-19773)
4 The Registrant, by signing this Report,
agrees to furnish the Securities and
Exchange Commission, upon its request,
a copy of any instrument which defines
the rights of holders of long-term debt
of the Registrant.
4(a) Specimen Common Stock Certificate Exhibit 4(a) to Amendment No.
1 to Registration Statement
on Form S-18(SEC File No.
33-44422FW)
10(a) 1991 Incentive Stock Option Plan of Exhibit 10(a) to Registration
OTR Express, Inc. Statement on Form S-18 (SEC
File No. 33-44422FW)
10(b) Mortgage note dated January 10, 1995 Exhibit 10(xx) to Annual
between Registrant and Report for the year ended
Toni J. Waggoner and Robert E. Dec 31, 1994 on Form
Waggoner , as Trustees 10-K (SEC File No. 1-19773)
10(c) OTR Express, Inc. 1996 Stock Option Exhibit 10(bbb) to Annual
Plan Report for the year ended
Dec 31, 1995 on Form 10-K
(SEC File No. 1-19773)
10(d) OTR Express, Inc. 1996 Directors' Exhibit 10(ccc) to Annual
Stock Option Plan Report for the year ended
Dec 31, 1995 on Form 10-K
(SEC File No. 1-19773)
10(e) Loan and Security Agreement dated Exhibit 10(ddd) to Quarterly
June 11, 1997 between Report for the period ended
Registrant and HSBC June 30, 1997 on Form
10-Q (SEC File No. 1-19773)
10(f) Guaranty Agreement dated February 27, Exhibit 10(q) to Quarterly
1998 between Registrant and Report for the period ended
HSBC Business Loans, Inc.- Steven W. March 31, 1998 on Form
Ruben 10-Q (SEC File No. 1-19773)
<PAGE>
10(g) Stock Purchase Assistance Agreement Exhibit 10(s)to Quarterly
dated February 27, 1998 between the Report for the period ended
Registrant and Steven W. Ruben March 31, 1998 on Form 10-Q
(SEC File No. 1-19773)
10(h) Guaranty Agreement dated June 8, 1998 Exhibit 10(t) to Quarterly
between Registrant and Report for the period ended
HSBC Business Loans, Inc.- Jeffrey T. June 30, 1998 on Form 10-Q
Brown (SEC File No. 1-19773)
10(i) Stock Purchase Assistance Agreement Exhibit 10(v) to Quarterly
dated June 8, 1998 between the Report for the period ended
Registrant and Jeffrey T. Brown June 30, 1998 on Form 10-Q
(SEC File No. 1-19773)
10(j) Contract to Purchase Tractors in 1999 Exhibit 10(v) to Quarterly
between Registrant and Kansas Report for the period ended
City Peterbilt March 31,1999 on Form 10-Q
(SEC File No. 1-19773)
10(k) Contract to Purchase Tractors in 1999 Exhibit 13(b) to Annual
between Registrant and KCR Report for the year ended
International Trucks, Inc. December 31, 1998 on Form
10-K/A (SEC File No.
1-19773)
10(l) Form of Carrier/Shipper Transportation Page 17 of sequentially
Contract* numbered pages
10(m) Amended Loan and Security Agreement dated Page 21 of sequentially
February 24, 2000 between Registrant and numbered pages
HSBC*
11 Statement re: Computation of Earnings Page 26 of sequentially
per Share* numbered pages
13(a) Annual Report to Stockholders for the Exhibit 13(b) to Annual
year ended December 31, 1998 Report for the year ended
December 31, 1998 on
Form 10-K (SEC File No.
1-19773)
13(b) Annual Report to Stockholders for the Page 27 of sequentially
year ended December 31, 1999* numbered pages
23 Consent of Arthur Andersen LLP* Page 55 of sequentially
numbered pages
* Filed herewith.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registration has duly caused
this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
OTR EXPRESS, INC.
Date: March 27, 2000 /s/ WILLIAM P. WARD
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature Title Date
/s/ WILLIAM P. WARD President, Principal Executive March 27, 2000
William P. Ward Officer and Chairman of the
Board
/s/ JANICE K. WARD Vice President and Director March 27,2000
Janice K. Ward
/s/ STEVEN W. RUBEN Vice President Finance March 27, 2000
Steven W. Ruben Principal Financial Officer and
Principal Accounting Officer
/s/ CHRISTINE D. SCHOWENGERDT Treasurer and Secretary March 27, 2000
Christine D. Schowengerdt
/s/ JAMES P. ANTHONY Director March 27, 2000
James P. Anthony
/s/ DEAN W. GRAVES Director March 27, 2000
Dean W. Graves
/s/ RALPH E. MACNAUGHTON Director March 27, 2000
Ralph E. MacNaughton
/s/ TERRY G. CHRISTENBERRY Director March 27, 2000
Terry G. Christenberry
/s/ CHARLES M. FOUDREE Director March 27, 2000
Charles M. Foudree
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULES
To the Board of Directors and Stockholders of OTR Express, Inc.:
We have audited in accordance with generally accepted auditing
standards, the financial statements included in OTR Express, Inc.'s
annual report to stockholders incorporated by reference in this Form
10-K, and have issued our report thereon dated February 24, 2000.
Our audits were made for the purpose of forming an opinion on those
statements taken as a whole. Schedule II-Valuation and Qualifying
Accounts is the responsibility of the company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a part of the basic financial
statements. This schedule has been subjected to the auditing
procedures applied in our audit of the basic financial statements,
and, in our opinion, fairly states in all material respects, the
financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Kansas City, Missouri
February 24, 2000
<PAGE>
<TABLE>
Schedule II
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Balance at Additions Balance
Beginning Charged to at End
of Year Expense Deductions of Year
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts
1997 57,016 115,522 71,415 101,123
1998 101,123 47,648 71,368 77,403
1999 77,403 141,485 32,668 186,220
</TABLE>
CORPORATE INFORMATION
Corporate Offices Common Stock Listing
OTR Express, Inc. OTR Express, Inc's common
804 N. Meadowbrook Drive stock trades on The American
Olathe, Kansas 66062 Stock Exchange under the
(913) 829-1616 symbol OTR
Mailing address:
PO Box 2819
Olathe, Kansas 66063-0819
<PAGE>
OTR EXPRESS, INC.
CARRIER/SHIPPER TRANSPORTATION CONTRACT
(Revised 8-20-99)
THIS CONTRACT, made this day of by and between (Shipper) and
OTR Express, Inc. (Carrier) for the transportation of specified goods in
accordance with the following conditions:
WITNESSETH:
WHEREAS, Carrier is a motor vehicle contract carrier in interstate
commerce, holding Interstate Commerce Commission operating authority in
Docket MC-181996; and
WHEREAS, Shipper desires to engage the services of Carrier for the
transportation of Shipper's goods in interstate commerce between points
within Carrier's ICC authorized licenses;
NOW, THEREFORE, in consideration of the following mutual covenants, the
Shipper and Carrier agree as follows:
1. BILATERAL COMMITMENT: Shipper shall tender to Carrier and Carrier
shall transport a series of shipments between points designated by
Shipper. Carrier shall advise Shipper if it is unable to supply
transportation service within the time requested by Shipper in which case
Shipper may arrange other transportation. Carrier shall use its best
efforts to transport shipments tendered by Shipper in a timely fashion.
2. DISTINCT NEEDS: Carrier shall provide service to meet the unique,
distinct needs of the Shipper which shall include but not be limited to
team service, driver loading/unloading, overnight delivery, stops in
transit, drop trailers, detention, weekend/holiday shipments and
dedication of equipment.
3. COMMON CARRIER RATES: Rates offered by Carrier under its common
authority in individual or bureau tariffs do not apply to shipments
tendered to Carrier by Shipper under this agreement.
4. RATES AND CHARGES: Shipper shall pay Carrier for the transportation
services described herein at the rates and subject to the rules set forth
in Appendix A or agreements/modifications later written between the
parties which shall be deemed as additional appendices to this contract.
5. INDEMNIFICATION: Carrier shall furnish tractors and trailers to
transport the goods tendered hereunder and to assume all costs and
liabilities incident to the transportation of such goods and shall
indemnify and hold the Shipper harmless from any costs and liabilities
except those caused solely by acts of the Shipper, its employees or
agents.
6. C.O.D. SHIPMENTS: In the absence of advance notification by Shipper
and written acceptance by Carrier, no C.O.D. shipments will be tendered by
Shipper.
<PAGE>
7. INSURANCE: Carrier shall maintain public liability insurance with
a single limit of not less than $1,000,000. Carrier shall maintain cargo
insurance against Carrier's liabilities for loss or damage to goods
shipped pursuant to this Contract with a limit of $500,000 per truckload
which shall be carrier's maximum liability. For those shipments valued in
excess of $500,000 Carrier shall not be liable to pay for a greater
proportion of liability for loss or damage than $500,000 bears to 100% of
the value of the goods. Carrier's insurance shall be primary insurance
irrespective of any other insurance carried by Shipper in effect at the
time of loss.
8. CLAIMS: All loss and damage claims and any salvage arising therefrom
shall be handled and processed in accordance with the regulations of ICC
as published in the Code of Federal Regulations (49 C.F.R. 1005).
9. COLLECTION FEE: If Shipper's account should necessitate outside
collection action, Carrier reserves the right to add collection costs,
finance charges, court costs and/or legal fees to the invoice amounts.
10. DURATION: This Contract shall continue for a period of (1) year and
shall be renewed automatically for the duration of an additional year but
either party shall have the right to cancel this Contract upon 30 days
prior notice to the other party.
11. PAYMENT TERMS: Net/30 Days from date of invoice.
IN WITNESS WHEREOF, the parties hereto have executed this Contract in
duplicate the date above first written.
OTR Express, Inc The Moore Company
(Carrier) (Shipper)
By By
Title Director of Sales Title
<PAGE>
OTR Express, Inc.
804 North Meadowbrook Drive
P.O. Box 2819
Olathe, KS 66063-0819
APPENDIX C TO "CARRIER/SHIPPER TRANSPORTATION CONTRACT" or if OTR
Express is operating as a common carrier because no contract exists
between Shipper and OTR Express, the following shall be the applicable
rates, rules & charges.
Customer: Effective Date:
SCHEDULE OF RATES: (Refer to Appendix A)
RULES AND ACCESSORY CHARGES:
Mileage Calculations: Obtained from Rand-McNally - TDM MileMaker PC
version of HHG Carrier's Bureau Mileage Guide #17 and subsequent versions
thereof. Quoted mileage's may change without notice upon adoption of
subsequent versions.
Driver Loading/Unloading Charges: $85 minimum or all lumper charges.
$25 if driver uses a pallet jack only.
Stop Off Charges: The charge for each pick-up and drop-off to
partially load and unload, exclusive of stops at point of origin and
destination is $65 for the first, $75 for the second, and $90 for the
third and each stop thereafter.
Minimum Charge: $585 per shipment, exclusive of accessory charges.
$300 min charge for shipments that final within a 75 mile radius of KC,Mo;
LA,Ca & SF,Ca or for shipments that originate in the state of Florida.
Excess Value: Carrier's maximum cargo liability per shipment is
$500,000. For those shipments valued in excess of $500,000, Carrier is not
liable to pay for a greater proportion of liability for loss or damage
than $500,000 bears to 100% of the value of the goods.
Truck Ordered But Not Used: $150 minimum/$400 maximum if within 6
hours of loading appointment. $1.25 per mile on all miles driven to
position for load.
Detention: With Power: No charge for the first 2 (two) hrs,
$50/hr thereafter.
Without Power: $75 per day, per trailer.
Fuel Surcharge: Refer to Appendix D
Pallet Exchange: $8 per pallet
Team Service Required: $125.00 minimum. Additional $.05 mile for all
miles over 1250 miles.
Reconsignment: Carrier is not obligated to divert/reconsign a shipment
after commencing pick-up but will do so on a best effort basis subject to
a $100 reconsignment fee. Additional miles shall be paid at the same per
mile rate provided the final destination city does not change. If it does
change, the rate per mile may change based on Carrier's prevailing rates.
C.O.D. Shipment: $75. Advance customer notification & written carrier
acceptance required.
Hazardous Material Loads: $.05 per mile for any shipment containing
product deemed by the EPA/DOT to be hazardous and requiring hazardous
material placards affixed to the truck.
Canadian Pick-ups & Deliveries: $.70 per mile for all miles in excess
of a 125 mile radius of Vancouver,BC; Detroit and Toronto, ON.
Transportation In-Bond: $100, plus $65, $75 or $90 applicable stop off
charge plus any additional miles at applicable rate if Carrier is required
to stop at a custom's office en-route.
New York City Deliveries: $200 for loads finaling in NYC, including Long
Island and the five boroughs.
Note: All Accessorial charges listed are applicable unless otherwise
specified in customer contract or appendix to this tariff.
<PAGE>
OTR Express, Inc.
Olathe, Kansas
Appendix D Fuel Surcharge Program
Fuel Surcharge shall be assessed as follows:
1. Fuel surcharges shall be applied on a per mile basis using the
current Rand McNally Milemaker mileage guide.
2. Fuel surcharge amounts are exclusive of any minimum or flat rate
linehaul charges.
3. Fuel surcharge amounts will be separated and shown as an individual
line item on carrier's invoice.
4. Fuel surcharge will be indexed based on the national on-highway
diesel fuel price as reported by the Department of Energy's (DOE)
Energy Information Administration ("DOE index").
5. A fuel surcharge will be initiated when the DOE index reaches a level
of $1.1375 per gallon and will continue until it falls below this
baseline.
Calculated as follows:
( DOE index - $1.11 ) / 5.5 miles per gallon
= FSC amount per mile (rounded to nearest whole cent).
6. Changes in the fuel surcharge amount shall become effective the
Sunday following the announcement by the DOE of the latest weekly
national fuel index. Updates occur each Monday, unless a holiday, and
may be accessed by calling 202/586-6966.
<PAGE>
AMENDMENT NO. 3
TO LOAN AND SECURITY AGREEMENT
AND OTHER TRANSACTION DOCUMENTS
The Loan and Security Agreement dated June 11, 1997, between OTR EXPRESS,
INC., as Debtor, and HSBC BUSINESS LOANS, INC., as Secured Party (the Loan
and Security Agreement, as amended from time to time, is hereinafter
referred to as the "Loan Agreement"), and the Transaction Documents (as
defined in the Loan Agreement), are hereby amended as follows:
RECITALS
A. Debtor has requested that Secured Party amend the Loan Agreement and
the other Transaction Documents by (i) amending the Tangible Net Worth
covenant, and (ii) amending the Leverage Ratio covenant; and
B. Secured Party is willing to agree to the requested amendments, but
only if Debtor executes and delivers this Amendment to Secured Party.
NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual
covenants of the parties, the parties agree as follows:
1. Debtor acknowledges and agrees that the security interests and liens
granted by Debtor to Secured Party under the Loan Agreement and the other
Transaction Documents remain first and valid security interests in and liens
on the Collateral. Debtor represents and warrants that as of the date of
this Amendment, there are no claims, setoffs or defenses to Secured Party's
exercise of any rights or remedies available to Secured Party under the
Transaction Documents.
2. The Loan Agreement and the other Transaction Documents are hereby
amended in the following respects:
a. Item 30(a) of the Schedule to the Loan Agreement is hereby
deleted and the following is inserted in place thereof:
"(a) Minimum Tangible Net Worth: Debtor shall maintain a
minimum Tangible Net Worth in the amounts set forth
below for the time periods set forth below:
Amount Time Period
$8,900,000.00 12/31/99
$8,200,000.00 3/31/00
$8,000,000.00 6/30/00
$8,000,000.00 9/30/00
$8,100,000.00 12/31/00 and thereafter
<PAGE>
"Tangible Net Worth" means the sum of stockholders' equity plus the
principal balance of any debt that is subordinated to the
Indebtedness in a manner satisfactory to Secured Party, minus
the book value of Intangible Assets (as defined below), all
determined in accordance with generally accepted accounting
principles consistently applied.
"Intangible Assets" means (1) all loans or advances to, and other
Receivables owing from, any employee or Affiliate, other than
advances of expenses to drivers in the ordinary course of
business not to exceed $400,000.00 in the aggregate
outstanding at any one time, (2) all investments, whether in a
subsidiary or otherwise, (3) goodwill, (4) any other assets
deemed intangible under generally accepted accounting
principles, and (5) any other assets determined to be
intangible by Secured Party in its reasonable credit judgment.
The foregoing Tangible Net Worth covenant shall be tested for
compliance at the end of each calendar quarter."
b. Item 30(b) of the Schedule to the Loan Agreement is hereby deleted
and the following is inserted in place thereof:
"(b) Leverage Ratio: Debtor shall maintain a Leverage
Ratio (as defined below) of not greater than the following
ratios for the applicable time periods, determined in
accordance with generally accepted accounting principles
consistently applied:
Ratio Time Period
6.1 to 1 12/31/99
7 to 1 3/31/00
6.75 to 1 6/30/00
6.25 to 1 9/30/00
6 to 1 12/31/00 and thereafter
"Leverage Ratio" means the ratio of Debtor's total liabilities
(excluding indebtedness of Debtor for borrowed money that is
subordinated in writing to the Indebtedness in form acceptable
to Secured Party) to Tangible Net Worth (as defined above).
The foregoing Leverage Ratio shall be tested for compliance with
this covenant at the end of each calendar quarter."
<PAGE>
c. Item 30(c) of the Schedule to the Loan Agreement
is hereby deleted and the following is inserted in place
thereof:
"(c) Debt Service Coverage Ratio: Debtor shall maintain a
Debt Service Coverage Ratio (as defined below) of not less
than the following ratios for the applicable time periods,
determined in accordance with generally accepted
accounting principles consistently applied:
Ratio Time Period
.9 to 1 1/1/00 through 12/31/00
1 to 1 1/1/01 and thereafter
"Debt Service Coverage Ratio means the ratio of (a) net income,
plus depreciation, plus deferred income taxes, plus increases in
operating liabilities, plus interest expense, plus proceeds from
equipment disposal, plus proceeds of other financings, less pay-
downs from equipment trades, less unfinanced capital
expenditures, less increases in operating assets, to (b)
principal and interest payments on indebtedness for borrowed
money and capitalized leases.
The foregoing Debt Service Coverage Ratio will be tested
annually at the end of each calendar year."
3. Contemporaneously with the execution of this Amendment by Debtor,
Debtor shall pay to Secured Party a loan modification fee of $7,500.00.
4. Debtor represents and warrants to Secured Party that as of the date
of this Amendment:
a. Except as disclosed in writing to Secured Party on the date
hereof, Debtor is not in default under the terms and provisions of the
Loan Agreement or any other Transaction Document. No Event of
Default, nor any condition, event, act or omission which with notice
or lapse of time, or both, would become an Event of Default, exists
under the terms and provisions of the Loan Agreement or the other
Transaction Documents.
b. Debtor is duly organized, validly existing and in good standing
under the laws of the State of Kansas.
c. The execution, delivery and performance by Debtor of this
Amendment have been duly authorized by all necessary corporate action
and have received the requisite corporate approvals.
<PAGE>
d. This Amendment constitutes the valid and legally binding
obligation of Debtor and is enforceable against Debtor in accordance
with its terms.
e. The execution and delivery of this Amendment shall not constitute
a violation of, or default under, or conflict with any term or
provision of any contract, lease or other agreement to which Debtor is
a party or by which Debtor is bound. Debtor is not in default under
any material contract or agreement to which it is a party or by which
it is bound, or to which any of this property is subject, nor has any
event occurred which after the giving of notice or the passage of
time, or both, would constitute a default under any such contract or
agreement other than those which have been waived by the non-
defaulting party or satisfied by Debtor.
5. Except as specifically amended or modified herein, all of the terms,
conditions and covenants contained in the Loan Agreement and the other
Transaction Documents shall remain in full force and effect and are hereby
fully ratified and confirmed. If and to the extent that any of the terms
and provisions of the Loan Agreement and the other Transaction Documents, as
originally executed and previously amended, are in conflict with or
inconsistent with any of the terms and provisions of this Amendment, this
Amendment shall govern. All Transaction Documents shall be deemed amended
to be consistent with the terms of this Amendment.
6. Debtor agrees that it has no defenses, setoffs or counterclaims to
Secured Party's enforcement of its rights and remedies under the Loan
Agreement and the other Transaction Documents.
7. Capitalized terms used in this Amendment shall have the same
meanings as specified in the Loan Agreement, except as otherwise expressly
provided herein.
8. The terms and conditions of this Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors
and assigns.
9. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR
RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT DEBTOR AND SECURED PARTY
FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS REACHED COVERING
SUCH MATTERS ARE CONTAINED IN THE TRANSACTION DOCUMENTS, WHICH ARE THE
COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES,
EXCEPT AS THEY MAY LATER AGREE IN WRITING TO MODIFY IT.
<PAGE>
IN WITNESS WHEREOF, this Amendment No. 3 to Loan and Security Agreement
and Other Transaction Documents (the "Amendment") has been executed by the
parties as of the 24th day of February, 2000.
DEBTOR:
OTR EXPRESS, INC.
By:/s/ William P. Ward
William P. Ward
President and Chief Executive Officer
By:/s/ Steven W. Ruben
Steven W. Ruben
Vice President and Chief Financial
Officer
SECURED PARTY:
HSBC BUSINESS LOANS, INC.
By:/s/ M. Catherine Draper
M. Catherine Draper
Vice President
<PAGE>
Exhibit 11. Statement Re: Computation of Earnings Per Share
Basic earnings per share is calculated by dividing net income by the
average weighted number of shares of common stock outstanding during the
period. Diluted earnings per share is calculated by dividing net income
by the average weighted number of shares of common stock and common stock
equivalents outstanding during the period. Common stock equivalents
include the outstanding stock options.
<PAGE>
(On cover OTRX logo omitted)
OTR Express is a nationwide truckload carrier
and logistics company serving customers
throughout the 48 states
Table of Contents
Highlights 1
Letter from the President 2
Selected Financial Data 5
Management's Discussion and
Analysis of Financial Condition
and Results of Operations 6
Report of Independent Public
Accountants 11
Financial Statements 12
Directors and Officers 23
Quarterly Financial Data 24
Stockholder Information 26
<PAGE>
<TABLE>
Financial Highlights OTR Express, Inc.
<CAPTION>
(In thousands except per share data)
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Income Statement Data
Operating revenue $80,480 $72,284 $63,797 $55,261 $49,211
Operating income 2,249 4,766 4,090 2,195 2,029
Net income (loss) (892) 883 509 (368) (157)
Outstanding shares 1,803 1,836 1,840 1,836 1,830
Earnings (loss) per share -
basic and diluted $ (0.49) $ 0.48 $ 0.28 $ (0.20) $ (0.09)
Operating ratio (1) 97.2% 93.4% 93.6% 96.0% 95.9%
Balance Sheet Data
Current assets $11,179 $10,011 $ 9,223 $ 7,681 $ 6,799
Current liabilities 18,874 18,271 18,140 19,152 17,187
Total assets 63,576 59,220 56,034 50,576 48,883
Current portion of long-term
debt 13,843 13,837 14,260 15,751 13,968
Long-term debt, less
current portion 33,890 28,658 26,688 21,019 20,844
Stockholders' equity 8,981 9,891 9,346 8,805 9,156
(1) Operating expenses as a percentage of operating revenue
Operational Highlights
1999 1998 1997 1996 1995
Total miles (in thousands) 66,020 64,216 58,253 52,330 47,197
Average number of tractors 586 583 525 506 450
Revenue per loaded mile $ 1.178 $ 1.165 $ 1.121 $ 1.066 $ 1.031
Revenue per mile $ 1.077 $ 1.060 $ 1.036 $ 0.996 $ 0.963
Miles per week per truck 2,165 2,119 2,135 1,984 2,015
Empty miles percentage 8.6% 9.0% 7.6% 6.6% 6.6%
Miles per load 993 1,120 1,332 1,464 1,506
Employees - end of period 626 650 642 559 575
Licensed tractors - end of
period 505 526 526 503 503
Owner operators - end of
period 83 47 10 - -
Total tractors - end of
period 588 573 536 503 503
Licensed trailers - end of
period 1,062 1,042 765 608 567
Average equipment age (years)
Tractors - end of period 1.42 2.43 1.97 1.82 1.23
Trailers - end of period 2.94 1.93 1.53 1.88 3.05
</TABLE>
<PAGE>
(Picture of William P. Ward Chairman and CEO ommitted)
Dear Fellow Shareholder:
Our results for 1999, particularly the second half of the year, were very
disappointing. Several factors impacted OTR Express, including some external
causes and some internal issues.
We have responded aggressively to turn around the outlook for OTR Express. We
are taking decisive actions to improve operating results and strengthen our
financial position.
OTR Express has a lot going for it. As a nationwide truckload carrier with
about 600 trucks, we give customers one of the best on-time service records
around. Our drivers are experienced, and our equipment is top-notch. Through
advanced technology, we offer superior ability to track loads and provide
timely information. Our logistics business is growing rapidly.
However, we are well aware of our problems in 1999 and the need for change.
When I resumed the post of president in October, we immediately set in motion a
plan to increase revenues and return to profitability, while reducing debt and
focusing on non-asset based business. We also moved quickly to reduce driver
turnover and restore OTR's longstanding reputation as a driver-oriented company
- - which benefits customers and our financial performance.
Taking Action to Meet Challenges
The external factors hurting our financial performance this past year included
higher fuel prices, unseated trucks due to a driver shortage, increasing wages
and higher interest rates. Much of the industry felt these same pressures. We
have taken several actions to mitigate the effect of these external challenges
while strengthening our own business.
We also faced issues within our organization in 1999. A key part of our Five
Year Plan was to transition our customer base from price-driven brokers and
shippers to customers who need premium service truckload carriers to add value
to their supply chain management. Although we made progress in changing our
customer base, we fell short of where we wanted to be in 1999.
To turn this around, we brought in a new vice president of sales and marketing,
Glen Rittgers. Since August, we have completely replaced our outside regional
sales force. Three new regional sales managers have more than 50 years of
combined truckload sales experience. Glen and the new sales team have made a
good start, and we are very pleased to have them aboard.
The sales shortfall also impacted operations in 1999. Our average miles per
load declined, and we did not have the freight to reload drivers as quickly as
we would like. Our driver turnover began to spike upward in mid-1999, and our
unseated truck count grew as high as 80 in a company-owned fleet of
approximately 520. As a result, we saw a significant shortfall in freight
revenue in the third and fourth quarters.
By implementing a number of driver-friendly programs, we were able to lower the
unseated truck count to 22 by year-end. There were some added costs, as we
increased driver pay approximately 3% and committed a considerable amount to
classified advertising.
<PAGE>
Key Operating Statistics
As a result of issues I have mentioned, operating performance was mixed. You
will read more about our income statement in the financial section, so I will
comment here on operations.
Revenue per unit per week improved nearly 4% to $2,332 in 1999 from $2,246 in
1998. Our revenue per mile increased modestly to $1.077, from $1.060 in 1998
and $1.036 in 1997. The 1999 figure includes a fuel surcharge, which we began
implementing in September.
Miles obtained directly from shippers decreased slightly to 81% of the total in
1999, from 83% in 1998 - although we are still up from 77% in 1997. A goal of
our Five Year Plan is to reduce reliance on freight brokers to below 10% of
total miles, which we believe is within reach in 2000.
Our empty miles percentage actually declined to 8.58% in 1999 from 9.03% in
1998 - a testimony to the success of our operations department, since average
miles per load dropped from 1,120 in 1998 to 993 in 1999. Total miles
increased only 2.8% in 1999, but the number of loads we carried increased 16%.
Our operations and support personnel did a good job with the workload from this
rising number of transactions.
We are proud to say OTR Express remains one of the more efficient truckload
carriers. Our tractor to staff ratio, a key indicator of operating efficiency,
was 4.78:1 at the end of 1999, which we believe to be excellent when compared
to other truckload carriers.
New Directions
In late 1999, we began making significant changes to return to profitability,
to improve leverage ratios and to reduce reliance on asset-based revenues:
We launched a training program of five seminars to increase the productivity
of drivers and owner operators.
We implemented a non-driver workforce reduction and achieved a 10% decrease
compared to January 1, 1999. Our associates have continued to produce the
same high-quality work.
We began a non-driver hiring freeze in December 1999. As employees leave in
the future, we will assess the need to fill those positions.
We upgraded our sales force in the fourth quarter, hiring regional sales
managers based in Chicago, Baltimore, Atlanta and Dallas. We anticipate
adding sales managers in other key areas.
We intensified our recruiting of owner operators, to increase trucking
revenues without adding company assets or debt. Since September 1999, we
have increased the number of owner operators from 64 to more than 100.
We introduced a driver purchase program to empower more OTR Express drivers
to become owner operators, which also helps de-leverage the company, yet
keeps the revenue in the company.
We overhauled the marketing approach in our truck logistics division and
gave the team a new, more entrepreneurial focus on growth and profitability.
We intensified marketing efforts in our rail logistics division to pursue
aggressive growth targets for 2000.
Non-Asset Based Revenues
We are now focusing heavily on non-asset based business activities. To achieve
our growth and profitability goals, we must be successful in the logistics
business - and we are making changes to continue to enhance our growth and
profitability in logistics.
In 1999, revenues for our logistics division overall grew 116 percent to $9.7
million, from $4.5 million in 1998.
<PAGE>
Most of our logistics growth has come in the rail division, established in 1998
in Salt Lake City, Utah. Coordinating the movement of customers' freight using
railroads, this division does not require any of our equipment. Rail logistics
revenues grew from $600,000 in 1998 to $5.8 million in 1999.
Truck logistics revenue, on the other hand, has been relatively flat. To
ignite this division's growth, we have established a new agent-oriented
marketing program and moved the group to another part of our home office to
create a stand-alone, entrepreneurial atmosphere. Again, we are seeking to
increase profitability and growth without additional capital investment.
Near-Term Outlook
We expect to begin 2000 with a loss in the first quarter, then show gradually
improving results as the year progresses and our recent actions begin to
benefit financial performance.
Through the steps we have taken, we anticipate increasing our revenue per truck
and revenue per non-driver employee in 2000. We are working to leverage our
technology advantages into more miles and higher rates, a critical goal for
this year.
Technology is one way we differentiate OTR Express and provide premium service.
We have now tied our onboard communications technology into the www.otrx.com
website to provide customers more information on their shipments. In a secure
online system, customers can view the position of each of their loads, monitor
service performance and check outstanding invoices.
Our ability to write and implement OTR-specific computer programs has been at
the heart of the growth of our logistics business.
I am hopeful we will see more moderate fuel prices in 2000 - a major external
issue. So far, OPEC has stood firm as U.S. fuel inventories have waned. Since
year-end, our blended average fuel cost has increased 15 cents per gallon, on
top of a 35-cent increase in 1999. Our move to owner operators and non-asset
based revenue should help mitigate the impact.
The shifting balance of supply and demand in trucking also may help. Overall,
Class 8 truck production is slowing, in part due to a lack of qualified over-
the-road drivers. Assuming freight demand remains relatively strong, capacity
restraints could allow truckload carriers like us to improve revenue rates to
help offset higher costs.
We will continue to maintain high standards for hiring OTR Express drivers. We
believe we have the best fleet of drivers in the nation, and our on-time
service percentage bears that out. As competition for drivers remains intense,
pay rates could continue to increase. We are optimistic that customers will
recognize the value of experienced drivers with excellent equipment.
What the Future Holds
Our mission is to create shareholder value, and to achieve this within
specified risk criteria. We believe the change initiatives in progress are the
best way to make this happen. Our management team is constantly evaluating
every aspect of our business - and we are making changes.
I want to thank OTR Express employees and drivers. Every one of them is
working to help OTR Express achieve its goals. We have made good progress, and
the future looks brighter as a result of the operational improvements and other
changes already underway.
Our primary focus now is on strengthening the company's financial condition and
returning to profitability. Thank you for your support and interest in OTR
Express.
Sincerely,
/s/ William P. Ward
William P. Ward
Chairman, President and CEO
<PAGE>
<TABLE>
Selected Financial Data
<CAPTION>
(In thousands except per share data)
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
Operating revenue $80,480 $72,284 $63,797 $55,261 $49,211
Operating expenses
Salaries, wages and
benefits 29,903 28,129 25,549 22,395 19,837
Purchased transportation 15,263 7,891 3,757 2,930 2,402
Fuel 6,264 5,691 7,632 7,011 5,511
Maintenance 4,867 4,725 3,654 3,310 3,005
Depreciation 7,547 7,437 7,401 6,723 6,517
Insurance and claims 2,146 1,908 1,882 1,639 1,594
Taxes and licenses 7,363 6,899 6,124 6,048 5,541
Supplies and other 4,878 4,839 3,708 3,010 2,775
Total operating expenses 78,231 67,519 59,707 53,066 47,182
Operating income 2,249 4,765 4,090 2,195 2,029
Interest expense 3,687 3,351 3,269 2,789 2,283
Income (loss) before income
taxes (1,438) 1,414 821 (594) (254)
Income tax expense (benefit) (546) 531 312 (226) (97)
Net income (loss) $ (892) $ 883 $ 509 $ (368) $ (157)
Outstanding shares
Basic 1,803 1,836 1,840 1,836 1,830
Diluted 1,803 1,846 1,842 1,836 1,830
EPS - basic and diluted $ (0.49) $ 0.48 $ 0.28 $ (0.20) $ (0.09)
PERCENT OF REVENUE
Operating revenue 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses
Salaries, wages and
benefits 37.2 38.9 40.0 40.5 40.3
Purchased transportation 19.0 10.9 5.9 5.3 4.9
Fuel 7.8 7.9 12.0 12.7 11.2
Maintenance 6.0 6.5 5.8 6.0 6.1
Depreciation 9.4 10.3 11.6 12.2 13.2
Insurance and claims 2.7 2.6 2.9 3.0 3.3
Taxes and licenses 9.1 9.6 9.6 10.9 11.3
Supplies and other 6.0 6.7 5.8 5.4 5.6
Total operating expenses 97.2 93.4 93.6 96.0 95.9
Operating income 2.8 6.6 6.4 4.0 4.1
Interest expense 4.6 4.6 5.1 5.1 4.6
Income (loss) before income
taxes (1.8) 2.0 1.3 (1.1) (0.5)
Income tax expense (benefit) (0.7) 0.8 0.5 (0.4) (0.2)
Net income (loss) (1.1) 1.2 0.8 (0.7) (0.3)
</TABLE>
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
1999 Compared to 1998
Operating Revenue. Operating revenue increased by 11.3% to $80.5
million in 1999 from $72.3 million in 1998 as a result of an increase in
logistics revenue and revenue rate per mile. Revenue per mile increased
by 1.6% to $1.077 from $1.060. Revenue from truck and intermodal
logistics services increased 116.3% in 1999 to $9.7 million from $4.5
million in 1998 primarily as a result of the addition of a logistics rail
division in October 1998.
Operating Expenses. Operating income was 2.8% of revenue compared to
6.6% in 1998.
Salaries, wages and benefits decreased to 37.2% of revenue in 1999
compared to 38.9% in 1998 as a result of the increase in logistics
revenue. 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, fuel taxes, insurance and interest costs. The cost of owner
operators is classified in purchased transportation.
Purchased transportation, which represents payments to other
transportation service providers for hauling loads contracted through the
company's logistics division, and the cost of owner operators, was 19.0%
of revenue in 1999 compared to 10.9% in 1998. The increase is a result of
the addition of owner operators to the fleet and the increase in logistics
revenue.
Fuel decreased to 7.8% of revenue from 7.9% in 1998. The decrease
is due to the increase in logistics revenue and the increase in owner
operators in 1999. This was partially offset by a substantial increase in
fuel prices during the second half of 1999. The company began
implementing a fuel surcharge program to customers in September 1999 to
partially offset the increased cost of diesel fuel. The company's hedging
program offset a small percentage of the increased fuel costs.
Maintenance decreased from 6.5% of revenue in 1998 to 6.0% in 1999 as a
result of increased revenue rate per mile.
Depreciation as a percent of revenue decreased to 9.4% in 1999 from
10.3% in 1998 as a result of a increase of owner operator drivers,
increase of logistics revenue and the longer holding period for tractors.
Insurance and claims increased slightly to 2.7% of revenue in 1999 from
2.6% in 1998.
Supplies and other expenses decreased to 6.1% of revenue from 6.7% in
1998 as a result of decrease in advertising cost for new drivers, a
decrease in commissions paid to independent sales agents, the costs of a
planned stock offering in 1998 that was canceled due to unfavorable market
conditions, the increase in logistics revenue and the increase in owner
operators.
The average age of company tractors declined from 2.43 years in 1998
to 1.42 years in 1999. This decrease is primarily a result of the
company's purchase of more than 250 tractors in 1999, which replaced
tractors traded in 1999 that were between three and four years old.
Interest Expense. Interest expense was 4.6% of revenue in 1998 and
1999. In 1999, 84% of the company's capital was interest bearing compared
to 81% in 1998.
Net Income (Loss). Net loss for 1999 was $892,000 or $0.49 per share
compared to net income of $883,000 or $0.48 per share in 1998.
<PAGE>
1998 Compared to 1997
Operating Revenue. Operating revenue increased by 13.3% to $72.3
million in 1998 from $63.8 million in 1997 as a result of an increase in
revenue rate per mile and average number of tractors in service. Revenue
per mile increased by 2.3% to $1.060 from $1.036. The average number of
tractors in service increased by 11.0% from 525 to 583 for the year.
Revenue from truck and intermodal logistics services increased 22.2% in
1998 to $4.5 million from $3.7 million in 1997 primarily as a result of
the addition of a logistics rail division in October 1998.
Operating Expenses. Operating income improved to 6.6% of revenue
from 6.4% in 1997.
Salaries, wages and benefits decreased to 38.9% of revenue in 1998
compared to 40.0% in 1997 as a result of the increased revenue rates per
mile. 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, fuel taxes, tolls, insurance, licenses and interest costs.
The cost of owner operators is classified in purchased transportation.
There were three increases in wage rates for drivers in 1998 to retain
and attract experienced drivers and no such increases in 1997.
Purchased transportation, which represents payments to other
transportation service providers for hauling loads contracted through the
company's logistics division, and the cost of owner operators, was 10.9%
of revenue in 1998 compared to 5.9% in 1997. The increase is a result of
the addition of owner operators to the fleet beginning in October 1997 and
a 22% increase in logistics revenue.
Fuel decreased to 7.9% of revenue from 12.0% in 1997. The decrease
is due to an increase in revenue rate per mile, lower fuel costs
nationwide in 1998 versus 1997, and the increase in owner operators in
1998.
Maintenance increased from 5.8% of revenue in 1997 to 6.5% in 1998 as a
result of a longer holding period on company-owned trucks.
Depreciation as a percent of revenue decreased to 10.3% in 1998 from
11.6% in 1997 as a result of higher revenue per truck in 1998 and the
increase in owner operators in 1998.
Insurance and claims decreased to 2.6% of revenue in 1998 from 2.9% in
1997. This is a result of lower premiums on insurance policies, more
favorable loss experience and an increase in the revenue rate per mile.
Supplies and other expenses increased to 6.7% of revenue from 5.8% in
1997. Advertising costs for new drivers and a write-off of costs
associated with a stock offering that was suspended due to unfavorable
market conditions resulted in the increase in 1998.
Interest Expense. Interest expense decreased to 4.6% of revenue in
1998 from 5.1% in 1997 primarily as a result of lower interest rates and
an increase in owner operators. In both 1997 and 1998, 81% of the
company's capital was interest bearing.
Net Income. Net income for 1998 was $883,000 or $0.48 per share
compared to net income of $509,000 or $0.28 per share in 1997.
Seasonality
Seasonality causes variations in the operations of the company as well
as industry-wide operations. Demand for the company's service is
generally the highest during the summer and fall months. Historically,
expenses are greater during the winter months when fuel costs are higher
and fuel efficiency is lower.
Cash flow is typically negative in the first quarter primarily as a
result of the costs of licensing tractors, which is paid in that quarter.
<PAGE>
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 acquired primarily through secured
borrowings. Net capital expenditures, principally for revenue equipment,
were $11.3 million, $10.0 million and $10.8 million for the years ended
December 31, 1997, 1998 and 1999, respectively. At February 29, 2000, the
company had arrangements for 30 replacement tractors at a cost of $2.4
million. The company's capital expenditures are expected to be generated
through secured borrowings.
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.
The company intends to continue to obtain loans with shorter
maturities than the useful lives of its revenue equipment. This method of
financing can be expected to continue to produce working capital deficits
in the future. The company's working capital deficit at December 31, 1999
was $7.7 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.
The company has a credit line, as amended, of $10.0 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. Borrowings under this
amended line were $1,479,000 at December 31, 1999, and $976,000 of the
available amended credit line was committed for letters of credit issued
by the bank and the guarantee of the unsecured portion of certain loans
made to certain company officers for purchases of company stock. The
amended line expires August 1, 2001 and is secured by accounts receivable.
The company has received commitments for up to $2.4 million of new
revenue equipment financing that will be at fixed interest rates. In the
opinion of management, 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
of assets owned by the company and the company's ability to obtain secured
equipment financing.
Diesel fuel prices are approaching ten year highs 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
in the third quarter of 1999. Additionally, the company's fuel hedging
program offset 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. During 1999,
the company had as many as eighty unseated trucks. In October 1999, the
company increased driver pay by approximately 3% to attract and retain
high quality, experienced drivers. Competition for qualified over the
road drivers is strong and the company may
<PAGE>
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 twenty-two unseated trucks, or 4.4% of its company-owned fleet, at
December 31, 1999.
Year 2000 Issue
The company completed substantially all of its Year 2000 modifications
during the third quarter of 1999. The total estimated cost of Year 2000
compliance was less than $20,000, substantially all of which was recorded
in 1999.
There were no significant projects deferred as a result of the Year
2000 remediation effort.
As a result of the company's efforts, the transition from 1999 to 2000
proved to be uneventful. The company has not identified any unusual
business trends relative to the transition to Year 2000.
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 detail of the company's debt
structure is more fully described in Note 5 to the financial statements.
The company uses call options of heating oil in order to manage a
portion of its exposure to variable diesel fuel 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 fuel hedging program is discussed in more
detail in Note 3 to the financial statements. 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 December 31, 1999 and
represented no significant market exposure.
The table below provides information about the company's fixed rate
financial instruments at December 31, 1999. The table below also presents
principal cash flows (in millions) and related weighted average interest
rates by contractual maturity dates.
<TABLE>
Expected Fixed Average
Maturity Rate Interest
Date Debt Rate
<S> <C> <C>
2000 $ 16.6 7.22%
2001 13.3 7.19%
2002 11.8 7.06%
2003 7.5 7.73%
2004 1.9 7.00%
Thereafter 0.1 7.00%
</TABLE>
Total $ 51.2
Fair value $ 44.9
Other
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (FAS) No 133, Accounting for
Derivative Instruments and Hedging Activities. In June 1999, the FASB
issued Statement No. 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133. FAS 133 establishes accounting and reporting standards requiring
that every derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as either an
asset or liability measured at its fair value. FAS 133 requires that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a
company must formally document, designate, and assess the
<PAGE>
effectiveness of transactions that receive hedge accounting.
FAS 133, as amended, is effective for fiscal years beginning after June
15, 2000. A company may also implement FAS 133 as of the beginning of any
fiscal quarter after issuance (that is, fiscal quarters beginning June 16,
1998, and thereafter). FAS 133 must be applied to (a) derivative
instruments and (b) certain derivative instruments embedded in hybrid
contracts. With respect to hybrid instrument, a company may elect to
apply FAS 133, as amended, to (1) all hybrid contracts, (2) only those
hybrid instruments that were issued, acquired, or substantively modified
after December 31, 1997, or (3) only those hybrid instruments that were
issued, acquired, or substantively modified after December 31, 1998. The
Company has not yet determined the timing or impact of adoption of
statement No. 133. However, FAS 133 could increase volatility in earnings
and other comprehensive income or involve certain changes in our business
practices.
Forward Looking Statements
This annual report contains statements contained in, and preceding
management's discussion and analysis, that are not purely historical and
are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, 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 regarding the future. Such comments are
based upon information available to management and management's perception
thereof as of the date of this annual report. Actual results could differ
materially 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; 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; changes in management strategies;
environmental or tax matters; Year 2000 matters as discussed herein 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.
<PAGE>
Report of Independent Public Accountants
To the Board of Directors and Stockholders of
OTR Express, Inc.:
We have audited the accompanying balance sheets of OTR Express, Inc. (a
Kansas corporation), as of December 31, 1999 and 1998, and the related
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of OTR Express, Inc., as of
December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Kansas City, Missouri,
February 24, 2000
<PAGE>
<TABLE>
Balance Sheets OTR Express, Inc.
<CAPTION>
At December 31 1999 1998
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 113,284 $ 521,484
Accounts receivable, less
allowance of $186,220 and $77,403 10,051,486 8,409,332
Inventory 449,735 534,623
Prepaid expenses and other 564,009 545,734
TOTAL CURRENT ASSETS 11,178,514 10,011,173
PROPERTY AND EQUIPMENT, at cost,
less accumulated depreciation 52,397,851 49,209,269
TOTAL ASSETS $63,576,365 $59,220,442
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,274,541 $ 2,060,251
Accrued payroll and payroll taxes 1,284,506 1,007,735
Insurance and claims and other 1,472,432 1,365,739
Current portion of long-term debt 13,842,822 13,837,296
TOTAL CURRENT LIABILITIES 18,874,301 18,271,021
LONG-TERM DEBT, less current portion above 33,889,580 28,658,211
DEFERRED INCOME TAXES 1,831,900 2,400,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value,
20,000,000 shares authorized, 1,853,709
and 1,852,709 issued 18,537 18,527
Additional paid-in capital 6,602,169 6,598,679
Retained earnings 2,783,653 3,675,738
Debt guarantee (130,000) (297,877)
Treasury stock, 71,038 and 16,753 shares (293,775) (103,857)
TOTAL STOCKHOLDERS' EQUITY 8,980,584 9,891,210
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $63,576,365 $59,220,442
The notes to financial statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Operations OTR Express, Inc.
<CAPTION>
For the Years Ended December 31 1999 1998 1997
<S> <C> <C> <C>
Operating revenue
Freight revenue $70,776,151 $67,798,883 $60,127,246
Logistics revenue 9,703,615 4,485,389 3,669,346
Total operating revenue 80,479,766 72,284,272 63,796,592
Operating expenses
Salaries, wages and benefits 29,903,013 28,128,618 25,548,804
Purchased transportation 15,263,182 7,891,384 3,756,648
Fuel 6,264,472 5,691,461 7,631,908
Maintenance 4,867,123 4,725,008 3,654,294
Depreciation 7,546,771 7,437,151 7,400,583
Insurance and claims 2,145,985 1,908,459 1,881,278
Taxes and licenses 7,362,510 6,899,020 6,124,075
Supplies and other 4,878,228 4,836,841 3,708,124
Total operating expenses 78,231,284 67,517,942 59,705,714
Operating income 2,248,482 4,766,330 4,090,878
Interest expense 3,686,567 3,351,438 3,269,138
Income (loss) before income taxes (1,438,085) 1,414,892 821,740
Income tax expense (benefit) (546,000) 531,916 312,262
Net income (loss) $ (892,085) $ 882,976 $ 509,478
Weighted average number of shares
Basic 1,802,887 1,836,342 1,840,091
Diluted 1,803,227 1,846,156 1,841,805
Earnings (loss) per share
Basic $ (0.49) $ 0.48 $ 0.28
Diluted $ (0.49) $ 0.48 $ 0.28
The notes to financial statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Stockholders' Equity OTR Express, Inc.
<CAPTION>
Common Additional Retained Debt Treasury Total
Stock Paid-In Earnings Guarantee Stock Stockholder's
Capital Equity
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1996 18,422 6,540,124 2,283,284 - (36,735) 8,805,095
Allocation of
common stock
held by ESOP 70 41,090 - - - 41,160
Repurchase of
common stock - - - - (9,649) (9,649)
Net income - - 509,478 - - 509,478
Balance,
December 31,
1997 18,492 6,581,214 2,792,762 - (46,384) 9,346,084
Debt guarantee - - - (297,877) - (297,877)
Allocation of
common stock
held by ESOP 35 17,465 - - - 17,500
Repurchase of
common stock - - - - (57,473) (57,473)
Net income - - 882,976 - - 882,976
Balance,
December 31,
1998 18,527 6,598,679 3,675,738 (297,877) (103,857) 9,891,210
Reduction in
debt
guarantee - - - 167,877 - 167,877
Exercise of
stock options 10 3,490 - - - 3,500
Repurchase of
common stock - - - - (189,918) (189,918)
Net loss - - (892,085) - - (892,085)
Balance,
December 31,
1999 $18,537 $6,602,169 $2,783,653 $(130,000)$(293,775) $8,980,584
The notes to financial statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Cash Flows OTR Express, Inc.
<CAPTION>
For the Years Ended December 31 1999 1998 1997
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (892,085) $ 882,976 $ 509,478
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities
Depreciation 7,546,771 7,437,151 7,400,583
Deferred income taxes (568,100) 540,197 312,262
Other 28,000 140,009 41,160
Changes in certain working capital
items
Accounts receivable (1,642,154) (672,972) (1,299,440)
Other assets 66,613 87,922 (18,718)
Accounts payable 214,290 456,597 206,894
Accrued expenses 383,464 96,896 271,867
Net cash provided by operating
activities 5,136,799 8,968,776 7,424,086
INVESTING ACTIVITIES
Acquisition of property and
equipment (21,646,957) (13,414,633) (17,631,434)
Disposition of property and
equipment 10,883,604 3,456,481 6,314,599
Net cash used in investing
activities (10,763,353) (9,958,152) (11,316,835)
FINANCING ACTIVITIES
Proceeds from issuance of
long-term debt 30,277,168 21,501,500 21,250,515
Repayments of long-term debt (23,077,069) (20,044,277) (19,164,775)
Net increase (decrease) in line
of credit (1,795,327) (207,650) 2,092,312
Other (186,418) (57,473) (9,650)
Net cash provided by financing
activities 5,218,354 1,192,100 4,168,402
Net increase (decrease) in cash (408,200) 202,724 275,653
Cash, beginning of year 521,484 318,760 43,107
Cash, end of year $ 113,284 $ 521,484 $ 318,760
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 3,679,303 $ 3,346,500 $ 3,265,120
Cash paid (refunded) for
income taxes, net 22,100 (8,281) 41,474
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Net increase (decrease) in
debt guarantee $ (167,877) $ 297,877 $ -
The notes to financial statements are an integral part of these statements.
</TABLE>
<PAGE>
OTR Express, Inc.
Notes To Financial Statements
December 31, 1999
1. NATURE OF OPERATIONS:
OTR Express, Inc. (the Company), operates primarily as a dry van, truckload
carrier and logistics company headquartered in Olathe, Kansas. The Company
transports general commodities through the continental U.S. The Company also
provides non-asset-based logistics transportation services to its customers.
2. LIQUIDITY:
Higher fuel prices, unseated tractors and increased driver payroll costs
contributed to losses of $327,746 and $926,744 being incurred in the third
and fourth quarters of 1999, respectively. Additional losses are expected
through at least the first half of 2000. Management believes adequate
liquidity to maintain operations is available through the Company's line of
credit and its ability to refinance revenue equipment.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
Operating revenue is recognized upon receipt of freight. Related
transportation expenses, including driver wages, purchased transportation,
fuel and fuel taxes, are accrued when the revenue is recognized.
Cash Flows
For the statements of cash flows, cash consists of cash on hand and demand
deposits with financial institutions.
Concentration of Credit
The Company's primary market includes medium- and large-sized full truckload
shippers in the U.S. Loads encompass all types of products for dry vans,
excluding perishables. The Company maintains a diversified freight base with
no one customer or industry making up a significant percentage of the
Company's receivables or revenues.
<PAGE>
Fuel Hedging
The Company purchases six-month call options on No. 2 heating oil to manage
exposure to fluctuations in diesel fuel prices. The Company's exposure to
loss is limited to the premium cost of the contract. The options are carried
at cost. Gains and losses are deferred and recognized as adjustments to fuel
expense when the underlying hedged transactions (fuel purchases) occur. At
December 31, 1999, option fair values totaled $22,453, deferred losses
totaled $261 and notional amounts totaled $697,200. At December 31, 1998,
option fair values totaled $2,000, deferred losses totaled $12,000 and
notional amounts totaled $672,000.
Property, Equipment and Depreciation
Property and equipment are stated at cost. When equipment is sold, the gain
or loss indicated is recognized. When equipment is traded, the basis of the
new equipment is adjusted when necessary for any gain or loss indicated. The
cost of tires and tubes are capitalized as part of the tractors and trailers
at the time of acquisition and depreciated as a component of the tractors and
trailers. Replacement tires and tubes are charged to maintenance expense
when installed.
Depreciation of property and equipment is computed using straight-line
methods and the following estimated useful lives:
Assets Estimated Useful Lives
Tractors 4 to 7 years
Trailers 10 years
Computer equipment, software
and other property 5 to 12 years
Buildings and improvements 31.5 to 40 years
The Company depreciates trailers to estimated salvage values, currently 17
percent to 24 percent of original cost. The Company discontinued utilizing
salvage values on tractors as a result of varying holding periods. The
Company typically holds tractors forty to forty-five months.
Fair Value of Financial Instruments
Cash, accounts receivable, payables and accruals approximate fair value.
The fair value of long-term debt, including current portion, approximates
carrying value based on duration of notes and their interest rates.
Insurance and Claims
Accident and workers' compensation claims include the estimated settlements,
settlement expenses and an allowance for claims incurred but not yet reported
for property damage, personal injury and public liability losses from vehicle
accidents and cargo losses as well as workers' compensation claims for
amounts not covered by insurance. Accrued claims are determined based on
estimates of the ultimate cost of settling reported and unreported claims,
including expected settlement expenses. Such estimates are 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. Since the reported liability is an estimate, the
ultimate liability may be more or less than reported. If adjustments to
previously established accruals are required, such amounts are included in
operating expenses. In 1999, 1998 and 1997, such adjustments were not
significant.
<PAGE>
The Company acts as a self-insurer for liability up to $50,000 for any single
occurrence involving cargo, personal injury or property damage. Liability in
excess of this amount is assumed by an insurance underwriter. The Company
acts as a self-insurer for workers' compensation liability up to a maximum
liability of $250,000 per claim and $900,000 aggregate per year. Liability
in excess of this amount up to $5 million per occurrence is assumed by an
insurance underwriter. In addition, the Company has provided its insurance
carriers with letters of credit of approximately $846,000 in connection with
its liability and workers' compensation insurance arrangements.
Reclassification
Certain amounts in the 1998 financial statements have been reclassified to
conform with the presentation in the 1999 financial statements.
4. PROPERTY AND EQUIPMENT:
<TABLE>
1999 1998
<S> <C> <C>
Cost-
Tractors $39,903,953 $41,313,634
Trailers 20,000,808 19,559,008
Land 838,962 838,962
Buildings and improvements 2,993,784 2,931,435
Computers and onboard
communications equipment 3,075,669 2,842,964
Other 1,381,518 1,422,879
Total cost 68,194,694 68,908,882
Less- Accumulated depreciation 15,796,843 19,699,613
Net property and equipment $52,397,851 $49,209,269
</TABLE>
5. LONG-TERM DEBT:
<TABLE>
1999 1998
<S> <C> <C>
Amended line of credit , interest
payable monthly at the prime rate
(8.50% at December 31, 1999),
due August 1, 2001, collateralized
by accounts receivable $ 1,608,335 $ 3,571,539
Installment notes, 5.36% to 8.76%,
payable in monthly installments of
principal and interest through June
2004, collateralized by tractors,
trailers and computer equipment 44,675,276 37,480,238
Installment notes, 7.75% to 13.80%,
payable in monthly installments of
principal and interest through
November 2004, collateralized by
vehicles 59,874 -
Installment notes, 7.00% to 8.75%,
payable in installments through
January 2005, collateralized by
real property 1,388,917 1,443,730
47,732,402 42,495,507
Less- Current portion 13,842,822 13,837,296
Long-term debt $33,889,580 $28,658,211
</TABLE>
<PAGE>
Maturities of long-term debt are as follows:
2000 $13,842,822
2001 14,203,530
2002 10,697,479
2003 7,015,733
2004 1,837,908
Thereafter 134,930
$47,732,402
The amended line-of-credit agreement provides for maximum borrowings of $10
million based on an 85 percent advance rate on eligible accounts receivable,
as defined, through December 31, 1999. The amended line bears interest at a
variable rate, based upon the prime rate, or LIBOR plus 2.75 percent, at the
Company's election. The amended 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
December 31, 1999. Borrowings on the amended line totaled approximately
$1,479,000 at December 31, 1999. The Company had approximately $6,040,000 of
additional borrowing availability as of December 31, 1999. A total of
$846,000 of the credit line was committed for letters of credit and $130,000
to guarantee officers loans for stock purchases (Note 10). The weighted-
average interest rate on the amended line of credit for the year ended
December 31, 1999 was 8.5 percent. The annual average balance borrowed on
the amended line of credit for the year ended December 31, 1999, was
$3,069,000.
6. STOCK OPTION PLAN:
The Company has reserved 210,000 shares of its common stock for issuance to
key management personnel and directors of the Company under three stock
option plans that permit grants of nonqualified stock options. The option
price cannot be lower than the fair market value of the stock at the date of
grant. The options are exercisable over a period not to exceed 10 years from
the date of grant (5 years for a more than 10 percent shareholder). Options
outstanding at December 31, 1999, had a weighted-average contractual life of
six years, eight months and exercise prices ranged from $3.25 to $7.00 per
share.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," in accounting for its plans, and accordingly
has not recognized compensation costs in its financial statements for such
plans. Had compensation costs been recognized in accordance with Financial
Accounting Standards Board Statement No. 123, "Accounting for Stock-Based
Compensation," the Company's operating results would have been reported at
the unaudited pro forma amounts indicated below:
1999 1998 1997
Net income (loss)-
As reported $(892,085) $882,976 $509,478
Pro forma (905,663) 731,577 480,071
Earnings (loss) per
share-
As reported (0.49) 0.48 0.28
Pro forma (0.50) 0.40 0.26
<PAGE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for the 1999, 1998 and 1997 grants:
1999 1998 1997
Dividend yield None None None
Expected volatility 52.9% to 53.1% 38.6% to 49.3% 40.5%
Risk-free interest
rate 5.3% to 5.8% 4.6% to 5.6% 5.7% to 6.4%
Expected option life 3 years 3 years 3 years
A summary of the Company's stock option plans as of December 31, 1999, and
changes during 1999, 1998 and 1997 is presented below:
1999 1998 1997
Shares Per Share Shares Per Share Shares Per Share
(a) (a) (a)
Outstanding
at
beginning of
year 197,000 $6.03 110,000 $5.30 80,000 $5.18
Granted 16,000 3.34 94,256 6.83 30,000 5.63
Exercised (1,000) 3.50 - - - -
Forfeited (22,021) 6.20 (7,256) 5.36 - -
Outstanding
at end of
year 189,979 $5.79 197,000 $6.03 110,000 $5.30
Exercisable
at end of
year $3.25 to $3.75 to $3.75 to
183,746 $7.00 158,980 $7.00 52,545 $6.00
Weighted-
average
fair value
of options
granted
during the
year $1.37 $2.29 $1.58
(a) Weighted-average exercise price per share.
7. EMPLOYEE STOCK OWNERSHIP PLAN:
The Company has an Employee Stock Ownership Plan (ESOP) available to all
employees, except executive management, which enables them to receive shares
of the Company's common stock. The cost of the ESOP is borne by the Company.
For the year ended December 31, 1999, the Company did not allocate shares to
the plan. For the year ended December 31, 1998, 3,500 shares of stock held
by the ESOP were allocated to participants resulting in ESOP expense of
$17,500. For the year ended December 31, 1997, 7,000 shares of stock held by
the ESOP were allocated to participants resulting in ESOP expense of $41,160.
<PAGE>
8. INCOME TAXES:
Deferred income taxes reflect the impact of temporary differences between
assets and liabilities for financial reporting purposes and such amounts as
measured under tax laws and regulations.
Deferred tax assets and liabilities are comprised of the following at
December 31:
1999 1998
Deferred tax assets-
Claims and other reserves $ 514,305 $ 467,624
Net operating loss
carryforward 1,297,494 1,924,655
Other 349,096 273,218
2,160,895 2,665,497
Deferred tax liabilities-
Property and equipment 3,826,948 4,863,827
Revenue 165,847 201,670
3,992,795 5,065,497
Net deferred tax liability $1,831,900 $2,400,000
A reconciliation between the provision for income taxes and the expected
taxes using the federal statutory rate of 34 percent follows:
1999 1998 1997
Tax expense (benefit) at federal
statutory rate $(466,637) $475,320 $279,392
State income tax expense (benefit) (79,363) 56,596 32,870
Deferred income tax expense
(benefit) $(546,000) $531,916 $312,262
The Company has available federal income tax net operating loss carryforwards
of approximately $3,414,000 for regular income tax purposes expiring through
2014.
9. EARNINGS PER SHARE:
Basic earnings per share is based upon the weighted-average common shares
outstanding during the year. Dilutive 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.
10. COMMITMENTS AND CONTINGENCIES:
Legal
Various legal actions, claims and assessments are pending against the
Company. It is the opinion of management that these actions will have no
significant impact on the Company's financial condition or its results of
operations.
<PAGE>
Stock Loans
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 (8.50
percent at December 31, 1999). 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. The Company does not guarantee the accrued interest
portion of the loans. The Company has recorded the guarantee as a reduction
of stockholders' equity and an increase in long-term debt.
During 1999, the Company terminated two executive officers and paid off the
principal balances of their loans totaling $250,000 as specified in the
Agreements. The balance of the guarantee was reduced as a result of the
payoff of these loans. The Company recorded compensation expense of $323,000
and $37,000 in 1999 and 1998, respectively, in connection with the
Agreements.
11. INDUSTRY SEGMENTS:
The Company follows Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information," which
changes the way the Company reports information about its operating segments.
In 1998 and 1997, there was only one reportable segment. The information for
1998 and 1997 has been restated from the prior years' presentation in order
to conform with the 1999 presentation.
The Company's two reportable segments are trucking operations and logistics.
These segments are classified primarily by the type of services they provide.
Performance of the segments is generally evaluated by its operating income.
The trucking operations provide freight transport services to customers. The
logistics operations arrange freight transportation for customers using
various solutions. Customers of both the trucking operations and logistics
operations primarily include manufacturing, retail, wholesale and other
service companies.
1999 1998 1997
Operating revenues-
Trucking revenues $70,776,151 $67,798,883 $60,127,246
Logistics 9,703,615 4,485,389 3,669,346
Total operating revenues $80,479,766 $72,284,272 $63,796,592
Operating income-
Trucking $1,845,183 $4,599,060 $3,913,782
Logistics 403,299 167,270 177,096
Total operating income $2,248,482 $4,766,330 $4,090,878
Due to the minimal amount of long-lived assets required by the logistics
operations, the Company does not separately report such assets and related
depreciation and amortization expense in its financial records used for
allocating company resources and evaluating operating performance. Direct
costs are the only costs allocated to the logistics division.
<PAGE>
Board of Directors Executive and Other Officers
William P. Ward (1), (4), (5), (6) William P. Ward
Chairman of the Board President and
OTR Express, Inc. Chief Executive Officer
Janice Kathryn Ward (5) Janice Kathryn Ward
Vice President Vice President
OTR Express, Inc.
Steven W. Ruben
Dr. James P. Anthony (1), (2) Vice President Finance
Radiologist Chief Financial Officer
Carondelet Radiology Group
Jeffrey T. Brown
Terry G. Christenberry (2), (4) Vice President Operations
President
Christenberry, Collet & Co., Inc. Glen P. Rittgers
Vice President Sales and Marketing
Charles M. Foudree (1), (3), (4), (6)
Retired Executive Vice President-Finance Christine D. Schowengerdt
Harmon Industries, Inc. Treasurer and Secretary
Dean W. Graves (1), (6) David McKnight
Owner, Dean Graves, FAIA Vice President Fleet Services
Architectural Firm
Marc C. Hirschmann
Dr. Ralph E. MacNaughton (2), (3), (5) Vice President Maintenance
Physician, Retired and Purchasing
Carondelet Radiology Group
Paul A. MacNaughton
Vice President Management
Information Systems
Chip Seitz
Vice President OTR Logistics
Gary L. Hinkle
Vice President Fleet Management
Member of:
(1) Governance Committee
(2) Audit Committee
(3) Compensation Committee
(4) Strategy Committee
(5) Risk Management Committee
(6) Investor and Public Relations Committee
Photography by:
Debbie Sauer
<PAGE>
<TABLE>
QUARTERLY FINANCIAL DATA (Unaudited)
<CAPTION>
1999
(In thousands except
per share data) Mar 31 Jun 30 Sep 30 Dec 31 Year
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
Operating revenue $18,681 $20,571 $20,502 $20,726 $80,480
Operating expenses
Salaries, wages
and benefits 7,191 7,666 7,289 7,757 29,903
Purchased
transportation 2,934 3,529 4,421 4,379 15,263
Fuel 1,072 1,485 1,753 1,954 6,264
Maintenance 1,197 1,246 1,281 1,143 4,867
Depreciation 1,629 1,838 2,027 2,053 7,547
Insurance and claims 603 470 396 677 2,146
Taxes and licenses 1,845 1,960 1,775 1,783 7,363
Supplies and other 1,143 1,139 1,164 1,432 4,878
Total operating
expenses 17,614 19,333 20,106 21,178 78,231
Operating income (loss) 1,067 1,238 396 (452) 2,249
Interest expense 835 886 923 1,043 3,687
Income (loss) before income
taxes 232 352 (527) (1,495) (1,438)
Income tax expense (benefit) 88 134 (200) (568) (546)
Net income (loss) $ 144 $ 218 $ (327) $ (927) $ (892)
Weighted average number of
shares
Basic 1,832 1,815 1,782 1,782 1,803
Diluted 1,832 1,815 1,782 1,782 1,803
Earnings (loss) per share
Basic $ 0.08 $ 0.12 $ (0.18) $ (0.52) $ (0.49)
Diluted $ 0.08 $ 0.12 $ (0.18) $ (0.52) $ (0.49)
PERCENT OF REVENUE
Operating revenue 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses
Salaries, wages
and benefits 38.5 37.3 35.6 37.4 37.2
Purchased
transportation 15.7 17.2 21.6 21.1 19.0
Fuel 5.8 7.2 8.6 9.4 7.8
Maintenance 6.4 6.1 6.2 5.5 6.0
Depreciation 8.7 8.9 9.9 9.9 9.4
Insurance and claims 3.2 2.3 1.8 3.3 2.7
Taxes and licenses 9.9 9.5 8.7 8.6 9.1
Supplies and other 6.1 5.5 5.7 7.0 6.0
Total operating
expenses 94.3 94.0 98.1 102.2 97.2
Operating income (loss) 5.7 6.0 1.9 (2.2) 2.8
Interest expense 4.4 4.3 4.5 5.0 4.6
Income (loss) before income
taxes 1.3 1.7 (2.6) (7.2) (1.8)
Income tax expense (benefit) 0.5 0.6 (1.0) (2.7) (0.7)
Net income (loss) 0.8 1.1 (1.6) (4.5) (1.1)
</TABLE>
<PAGE>
<TABLE>
QUARTERLY FINANCIAL DATA (Unaudited)
<CAPTION>
1998
(In thousands except
per share data) Mar 31 Jun 30 Sep 30 Dec 31 Year
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
Operating revenue $16,747 $17,750 $18,557 $19,230 $72,284
Operating expenses
Salaries, wages
and benefits 6,498 6,660 7,282 7,689 28,129
Purchased
transportation 1,390 1,850 2,047 2,604 7,891
Fuel 1,589 1,480 1,359 1,263 5,691
Maintenance 1,074 1,165 1,252 1,234 4,725
Depreciation 1,876 1,954 1,914 1,693 7,437
Insurance and claims 546 553 331 478 1,908
Taxes and licenses 1,609 1,678 1,771 1,841 6,899
Supplies and other 1,124 1,101 1,331 1,282 4,838
Total operating
expenses 15,706 16,441 17,287 18,084 67,518
Operating income 1,041 1,309 1,270 1,146 4,766
Interest expense 838 835 843 835 3,351
Income before income taxes 203 474 427 311 1,415
Income tax expense 77 180 154 121 532
Net income $ 126 $ 294 $ 273 $ 190 $ 883
Weighted average number of
shares
Basic 1,836 1,831 1,836 1,836 1,836
Diluted 1,851 1,851 1,841 1,841 1,846
Earnings per share
Basic $ 0.07 $ 0.16 $ 0.15 $ 0.10 $ 0.48
Diluted $ 0.07 $ 0.16 $ 0.15 $ 0.10 $ 0.48
PERCENT OF REVENUE
Operating revenue 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses
Salaries, wages
and benefits 38.8 37.5 39.2 40.0 38.9
Purchased
transportation 8.3 10.4 11.0 13.5 10.9
Fuel 9.5 8.3 7.3 6.6 7.9
Maintenance 6.4 6.6 6.7 6.4 6.5
Depreciation 11.2 11.0 10.3 8.8 10.3
Insurance and claims 3.3 3.1 1.9 2.5 2.6
Taxes and licenses 9.6 9.5 9.5 9.6 9.6
Supplies and other 6.7 6.2 7.3 6.6 6.7
Total operating
expenses 93.8 92.6 93.2 94.0 93.4
Operating income 6.2 7.4 6.8 6.0 6.6
Interest expense 5.0 4.7 4.5 4.4 4.6
Income before income taxes 1.2 2.7 2.3 1.6 2.0
Income tax expense 0.5 1.0 0.8 0.6 0.8
Net income 0.7 1.7 1.5 1.0 1.2
</TABLE>
<PAGE>
Stockholder Information
At March 15, 2000, there were 157 stockholders of record. Since many
stockholders hold their certificates in "street name," management estimates
the number of individual stockholders is approximately 1,000.
Price Range of Stock
OTR Express, Inc.'s common stock trades on The American Stock Exchange
under the symbol OTR. Prior to August 13, 1999, the company's common stock
traded on The Nasdaq Stock Market under the symbol OTRX. The following
table sets forth for the periods indicated the high and low sale prices of
the common stock, as reported by The American Stock Exchange and The Nasdaq
Stock Market.
1998
Period Stock Price (Low-High)
Jan 1 to Mar 31, 1998 $5.625 - $7.625
Apr 1 to Jun 30, 1998 $4.500 - $8.000
Jul 1 to Sep 30, 1998 $4.500 - $6.000
Oct 1 to Dec 31, 1998 $2.750 - $5.500
1999-2000
Period Stock Price (Low-High)
Jan 1 to Mar 31, 1999 $3.000 - $5.250
Apr 1 to Jun 30, 1999 $2.750 - $4.313
Jul 1 to Sep 30, 1999 $3.250 - $4.125
Oct 1 to Dec 31, 1999 $1.500 - $3.688
Jan 1 to Feb 29, 2000 $1.625 - $3.250
To date, the company has not declared or paid any dividends on its Common
Stock and presently does not anticipate paying any such dividends in the
foreseeable future. It is management's present intention to retain future
earnings, if any, for use in the company's business operations.
<PAGE>
Stockholder Information
Corporate Offices Transfer Agent
OTR Express, Inc. UMB Bank of Kansas City, N.A.
804 N. Meadowbrook Drive Securities Transfer Division
Olathe, Kansas 66062 P.O. Box 410064
(913) 829-1616 Kansas City, Missouri 64141-0064
Mailing address: Independant Auditors
P.O. Box 410064 Arthur Andersen LLP
Kansas City, Missouri 64141-0064 Suite 400
Olathe, Kansas 66063 2301 McGee Street
Kansas City, Missouri 64108-2604
Annual Meeting General Counsel
The annual meeting of the stockholders Bryan Cave LLP
will be at 3:00 p.m., Thursday, 3500 One Kansas City Place
May 4, 2000, at the Overland Park Marriott 1200 Main Street
Hotel, 10800 Metcalf Avenue, Overland Kansas City, Missouri 64105
Park, Kansas
Form 10-K Common Stock Listing
Stockholders may receive a copy of OTR Express, Inc.'s common stock
the company's 1999 Annual Report to trades on The American Stock
the Securities and Exchange Commission Exchange under the symbol OTR.
on Form 10-K free of charge by writing
to:
Investor Relations
OTR Express, Inc.
P.O. Box 2819
Olathe, Kansas 66063-0819
<PAGE>
Visit our website at www.OTRX.com for more information
on transportation and logistics solutions from OTR Express, Inc.
(OTRX logo omitted)
Customer satisfaction. Every day. Every load.
<PAGE>
OTR Express, Inc.
804 N. Meadowbrook Drive P.O. Box 2819
Olathe, Kansas 66063-0819
(913)829-1616 Fax (913)829-0622
www.otrx.com
Exhibit 23. Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated February 24, 2000 included in the Annual Report
on Form 10-K filed by OTR Express, Inc. (the "Company") for its fiscal year
ended December 31, 1999 and to all references to our Firm included therein,
into the Company's previously filed Registration Statements on Form S-8, Nos.
333-13503, 333-13507 and 333-13515.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Kansas City, Missouri
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 113,284
<SECURITIES> 0
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<PP&E> 68,194,694
<DEPRECIATION> 15,796,843
<TOTAL-ASSETS> 63,576,365
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0
0
<OTHER-SE> 8,962,047
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<SALES> 80,479,766
<TOTAL-REVENUES> 80,479,766
<CGS> 0
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<INCOME-PRETAX> (1,438,085)
<INCOME-TAX> (546,000)
<INCOME-CONTINUING> (892,085)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (892,085)
<EPS-BASIC> (.49)
<EPS-DILUTED> (.49)
</TABLE>
