-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GermICtcxlVhBAH3kxCCbFsjF9ka2mbXOMan3zYYdNG+VIe/hi1WjOWZPHhImu2E NUriFcsCxZYoDqQU9sY9CA== 0000881895-00-000002.txt : 20000329 0000881895-00-000002.hdr.sgml : 20000329 ACCESSION NUMBER: 0000881895-00-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OTR EXPRESS INC/KS CENTRAL INDEX KEY: 0000881895 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 480993128 STATE OF INCORPORATION: KS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-15237 FILM NUMBER: 580156 BUSINESS ADDRESS: STREET 1: 804 N MEADOWBROOK DR STREET 2: PO BOX 2819 CITY: OLATHE STATE: KS ZIP: 66062-0819 BUSINESS PHONE: 9138291616 MAIL ADDRESS: STREET 1: P O BOX 2819 CITY: OLATHE STATE: KS ZIP: 66063 10-K 1 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 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 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 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. 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. 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 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, 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 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. 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. 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. 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) 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. 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 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 Schedule II SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Balance at Additions Balance Beginning Charged to at End of Year Expense Deductions of Year 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
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 EX-10 2 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. 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 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. 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. EX-10 3 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 "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." 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. 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. 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 EX-11 4 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. EX-13 5 (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 Financial Highlights OTR Express, Inc.
(In thousands except per share data) 1999 1998 1997 1996 1995 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
(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. 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. 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 Selected Financial Data
(In thousands except per share data) 1999 1998 1997 1996 1995 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)
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. 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. 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 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. Expected Fixed Average Maturity Rate Interest Date Debt Rate 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%
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 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. 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 Balance Sheets OTR Express, Inc.
At December 31 1999 1998 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.
Statements of Operations OTR Express, Inc.
For the Years Ended December 31 1999 1998 1997 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.
Statements of Stockholders' Equity OTR Express, Inc.
Common Additional Retained Debt Treasury Total Stock Paid-In Earnings Guarantee Stock Stockholder's Capital Equity 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.
Statements of Cash Flows OTR Express, Inc.
For the Years Ended December 31 1999 1998 1997 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.
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. 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. 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: 1999 1998 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
5. LONG-TERM DEBT: 1999 1998 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
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 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. 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. 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. 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 QUARTERLY FINANCIAL DATA (Unaudited)
1999 (In thousands except per share data) Mar 31 Jun 30 Sep 30 Dec 31 Year 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)
QUARTERLY FINANCIAL DATA (Unaudited)
1998 (In thousands except per share data) Mar 31 Jun 30 Sep 30 Dec 31 Year 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
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. 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 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. 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 EX-23 6 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 EX-27 7 ARTICLE 5. FIN. DATA SCHEDULE FOR FISCAL YEAR 1999 10-K
5 1 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 113,284 0 10,237,706 186,220 449,735 11,178,514 68,194,694 15,796,843 63,576,365 18,874,301 0 18,537 0 0 8,962,047 63,576,365 80,479,766 80,479,766 0 0 78,089,799 141,485 3,686,567 (1,438,085) (546,000) (892,085) 0 0 0 (892,085) (.49) (.49)
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