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, 1998 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 $7,799,477 as of February 28, 1999.
1,835,171
(Number of shares of common stock outstanding as of February 28, 1999)
Part II incorporates certain information by reference from the
Registrant's Annual Report to Stockholders for fiscal year ended
December 31, 1998. Part III incorporates certain information by
reference from the Registrant's definitive Proxy Statement dated March
31, 1999.
<PAGE>
OTR EXPRESS, INC.
1998 Annual Report on Form 10-K
Table of Contents
Page
Part I
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 11
Part III
Item 10. Directors and Executive Officers of the Registrant 11
Item 11. Executive Compensation 11
Item 12. Security Ownership of Certain Beneficial Owners and
Management 12
Item 13. Certain Relationships and Related Transactions 12
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 12
<PAGE>
PART I
Item 1. Business
Overview
The discussion set forth below as well as other documents incorporated
by reference herein and oral statements made by officers of the Company
relating thereto, may contain forward looking statements. Such comments
are based upon information currently available to management and
management's perception thereof as of the date of this Form 10-K.
Actual results of the Company's operations could materially differ from
those forward looking statements. Such differences could be caused by a
number of factors including, but not limited to, potential adverse
affects of regulation; changes in competition and the effects of such
changes; increased competition; changes in fuel prices; changes in
economic, political or regulatory environments; litigation involving the
Company; changes in the availability of a stable labor force; ability of
the Company to hire drivers meeting Company standards; changes in
management strategies; environmental or tax matters; issues arising from
addressing Year 2000 Issues; 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.
The Company transports a diversified mix of general commodities for a
large base of customers (currently over 1,200) throughout the
continental United States and operates its business as one reportable
segment. OTR is headquartered in Olathe, Kansas, a suburb of Kansas
City, Missouri. The Company also provides third party logistics
services including rail, truckload, and less-than-truckload service to its
customers.
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
<PAGE>
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 new 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
rapid growth during the five year period ending December 31, 1998, with
revenue increasing to $72.3 million in 1998 from $30.6 million in 1993
(a compound annual growth rate of 18.7%), and a corresponding increase
in its fleet to 573 tractors (526 company-owned tractors and 47 owner
operators) from 301 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 internal
OTR sales representatives. Agent Shippers are marketed by the Company's
outside sales agents. The Company's customer database includes
approximately 540 OTR Shippers, 300 Agent Shippers and 400 freight
brokers. In 1998, OTR Shippers accounted for 62% of OTR's revenue
miles, Agent Shippers accounted for 21% and freight brokers accounted
for 17%.
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 five at February 28, 1999 from three at
December 31, 1994. Historically, 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 new structure, the Company added regional
sales managers in Dallas, Boston and the Atlanta area. The focus of
these regional sales managers is to enhance freight opportunities with
current customers and to add new national account customers.
<PAGE>
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
continue to reduce the percentage of revenue miles from freight brokers
in the future.
For the year ended December 31, 1998, the Company's 20, 10 and five
largest customers accounted for 39.7%, 24.3% and 15.7%, respectively, of
the Company's operating revenue. The largest customer accounted for
3.5% 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 new department currently
employs eleven 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 new intermodal logistics
division will operate as a non-asset based transportation service
provider and will not require the purchase of transportation equipment.
Logistics division revenue increased to $4.5 million in 1998 from $3.7
million in 1997. 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 45.9 years and average 13.1 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, 7.5% of the Company's after tax net
income is distributed to the
<PAGE>
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 71% in 1998,
which management believes to be below the industry average.
At December 31, 1998, the Company's ratio of tractors to non-driving
employees was 5.03 to one, which management believes is well above
industry standards. At February 28, 1999, the Company had 680
employees, of whom 536 were drivers and 144 were management and
administrative personnel. At February 28, 1999, the Company also had
contracts with independent contractors (owner-operators) for the
services of 43 tractors that provide both a tractor and a qualified
driver. The Company's employees are not represented by a collective
bargaining unit. Employees 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, 1998 was 2.4 years and
2.0 years, respectively. The Company plans its trade cycle based on
engine warranties and routinely replaces its tractors after forty five
months of use (approximately 450,000 miles).
At December 31, 1998 the Company owned 243 Navistar tractors, 169
Peterbilt tractors and 114 Freightliner tractors. The tractors include
engines which are fully electronic, manufactured by Detroit Diesel,
Caterpillar or Cummins. 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, 1998 included 777 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, 1998.
Acquisition Year Tractors Trailers
1998 84 280
1997 150 292
1996 65 205
1995 199 130
1994 28 120
1993 - 15
Total 526 1042
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. Virtually 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
1998, the Company purchased 21.5% 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 six month call options within
five cents of current market prices, to buy futures contracts for #2
heating oil, in amounts equal to 15% of the Company's anticipated fuel
purchases for such period.
<PAGE>
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 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.
<PAGE>
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 1.5 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
<PAGE>
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. 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, 1998, 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, 1998, under the caption "Financial Highlights."
<PAGE>
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, 1998 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, 1998 under the caption "Financial Statements" and
"Quarterly Financial Data."
Annual Report Page
Report of Independent Public Accountants 17
Balance Sheets 18
Statements of Operations 19
Statements of Stockholders' Equity 20
Statements of Cash Flows 21
Notes to Financial Statements 22
Supplemental Financial Information 30
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 31, 1999 under
the headings "Proposal One: Election of Class A 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 31, 1999 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.
<PAGE>
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 31, 1999 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 1998 10-K
II Valuation and Qualifying Accounts 17
The report of the Registrant's independent public accountants with
respect to the above listed financial statements and financial statement
schedules appears on page 17 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,
1998.
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, Page 18 of sequentially
filed July 13, 1998* numbered pages
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)
<PAGE>
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 Toni J. Report for the year ended
Waggoner and Robert E. Waggoner, as Dec 31, 1994 on Form 10-K
Trustees (SEC as 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' Stock Exhibit 10(ccc) to Annual
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 beteewn Registrant and Report for the period ended
HSBC June 30, 1997 on Form 10-Q
(SEC File No. 1-19773)
10(f) Guaranty Agreement dated February 27, Exhibit 10(p) to Quarterly
1998 between Registrant and HSBC Report for the period ended
Business Loans, Inc. - Gary J. Klusman March 31, 1998 on Form 10Q
(SEC File No. 1-19773)
10(g) Guaranty Agreement dated February 27, Exhibit 10(q) to Quarterly
1998 between Registrant and HSBC Report for the period ended
Business Loans, Inc. - Steven W. Ruben March 31, 1998 on Form 10Q
(SEC File No. 1-19773)
10(h) Stock Purchase Assistance Agreement Exhibit 10(r) to Quarterly
dated February 27, 1998 between the Report for the period ended
Registrant and Gary J. Klusman March 31, 1998 on Form 10Q
(SEC File No. 1-19773)
10(i) 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 10Q
(SEC File No. 1-19773)
10(j) Guaranty Agreement dated June 8, Exhibit 10(t) to Quarterly
1998 between Registrant and HSBC Report for the period ended
Business Loans, Inc.-Jeffrey T. Brown June 30, 1998 on Form 10-Q
(SEC File No. 1-19773)
<PAGE>
10(k) Guaranty Agreement dated June 8, Exhibit 10(u) to Quarterly
1998 between Registrant and HSBC Report for the period ended
Business Loans, Inc.-Eric T. Janzen June 30, 1998 on Form 10-Q
(SEC File No. 1-19773)
10(l) 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(m) Stock Purchase Assistance Agreement Exhibit 10(w) to Quarterly
dated June 8, 1998 between the Report for the period ended
Registrant and Eric T. Janzen June 30, 1998 on Form 10-Q
(SEC File No. 1-19773)
10(n) Form of Carrier/Shipper Transportation Page 19 of sequentially
Contract* numbered pages
10(o) Contract to Purchase Tractors in 1999 Page 21 of sequentially
between Registrant and Kansas City numbered pages
Peterbilt*
10(p) Contract to Purchase Tractors in 1999 Page 22 of sequentially
between Registrant and Kansas City numbered pages
Peterbilt*
10(q) Contract to Purchase Tractors in 1999 Page 23 of sequentially
between Registrant and KCR International numbered pages
Trucks, Inc.*
11 Statement re: Computation of Earnings Page 35 of sequentially
per Share* numbered pages
13(a) Annual Report to Stockholders for the Exhibit 13(b) to Annual
year ended December 31, 1997 Report for the year ended
December 31, 1997 on Form
10-K/A (SEC File No. 1-19773)
13(b) Annual Report to Stockholders for the Page 36 of sequentially
year ended December 31, 1998* numbered pages
23 Consent of Arthur Andersen LLP* Page 72 of sequentially
numbered pages
* Filed herewith.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registration has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
OTR EXPRESS, INC.
Date: March 30, 1999 /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 Chairman of the Board March 30, 1999
William P. Ward
/s/ GARY J. KLUSMAN President, Principal March 30, 1999
Gary J. Klusman Executive Officer and
Director
/s/ JANICE K. WARD Vice President and March 30, 1999
Janice K. Ward Director
/s/ STEVEN W. RUBEN Vice President Finance March 30, 1999
Steven W. Ruben Principal Financial
Officer and Principal
Accounting Officer
/s/ CHRISTINE D. SCHOWENGERDT Treasurer March 30, 1999
Christine D. Schowengerdt
/s/ JAMES P. ANTHONY Director March 30. 1999
James P. Anthony
/s/ DEAN W. GRAVES Director March 30, 1999
Dean W. Graves
/s/ RALPH E. MACNAUGHTON Director March 30, 1999
Ralph E. MacNaughton
/s/ TERRY G. CHRISTENBERRY Director March 30, 1999
Terry G. Christenberry
/s/ CHARLES M. FOUDREE Director March 30, 1999
Charles M. Foudree
/s/ FRANK J. BECKER Director March 30, 1999 _
Frank J. Becker
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULES
To the Board of Directors and Stockholders of OTR Express, Inc.:
We have audited in accordance with generally accepted auditing
standards, the financial statements included in OTR Express, Inc.'s
annual report to stockholders incorporated by reference in this Form 10-
K, and have issued our report thereon dated February 5, 1999. 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.
Arthur Andersen LLP
/s/ Arthur Andersen LLP
Kansas City, Missouri
February 5, 1999
<PAGE>
<TABLE>
Schedule II
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Balance at Additions Balance at
Beginning of Charged to End
Year Expense Deductions of Year
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
1996 56,932 38,070 37,986 57,016
1997 57,016 115,522 71,415 101,123
1998 101,123 47,648 71,368 77,403
</TABLE>
CORPORATE INFORMATION
Corporate Offices Common Stock Listing
OTR Express, Inc. OTR Express, Inc. common stock
804 N. Meadowbrook Drive is traded on the NASDAQ Stock
Olathe, Kansas 66062 Market under the Symbol: OTRX
(913) 829-1616
Mailing address:
PO Box 2819
Olathe, Kansas 66063-0819
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
OTR EXPRESS, INC.
The undersigned, OTR Express, Inc., a Kansas corporation (the
"Corporation"), for the purpose of amending the Articles of
Incorporation of the Corporation, in accordance with the General
Corporation Code of Kansas, does hereby make and execute this
Certificate of Amendment of Articles of Incorporation and does hereby
certify that:
1. The amendments to the Articles of Incorporation proposed by the
directors and adopted by the stockholders of the Corporation are as
follows:
RESOLVED, that the first paragraph of ARTICLE FOURTH of the
Corporation's Articles of Incorporation be deleted in its entirety and
replaced with the following:
The total number of shares of capital stock of all classes which the
Corporation shall have authority to issue is 20,200,000 shares of stock,
of which 200,000 shall be a series of preferred stock, with a par value
of one cent ($.01) per share, and 20,000,000 shall be Common Stock, with
a par value of one cent ($.01) per share.
2. The said amendments have been duly adopted in accordance with the
provisions of Section 17-6602 of the Kansas Statutes Annotated.
IN WITNESS WHEREOF, this Certificate of Amendment has been executed by
the Corporation by its President and attested by its Secretary on this
10th day of July, 1998.
OTR EXPRESS, INC.
By: /s/ Gary J. Klusman
Gary J. Klusman, President
ATTEST:
/s/ Carolyn J. Davidson
Carolyn Davidson, Secretary
<PAGE>
OTR Express, Inc.
804 N. Meadowbrook Dr. P.O. Box 2819
Page 1
Olathe, KS 66063-0819
APPENDIX A 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.
For: Effective Date:
SCHEDULE OF RATES:
ORIGINATION DESTINATION
(REFER TO PAGE 3)
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 mileages may change without notice upon
adoption of subsequent versions.
Driver Loading/Unloading Charges: $85 minimum or all lumper charges. $25
if the 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
$60 for the first, $70 for the second, and $85 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 mi radius of KC,Mo,
LA,Ca & SF,Ca or for shipments that originate in the state of Florida.
Excess Value: Carrier's max 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: $50 if a truck order is canceled less than 6
hours from scheduled loading appointment. If truck is already
dispatched, $2.50 per mile from dispatch point to loading address with a
$150 minimum and $400 maximum.
Detention: In lieu of any pre-agreement, no charge for the first 4 hrs,
$50/hr thereafter.
Fuel Surcharge: Refer to Appendix B
Pallet Exchange: $8 per pallet
Team Service Required: $125
Reconsignment: Carrier is not obligated to divert/reconsign a shipment
after commencing pick-up but will do so on a best efforts basis subject
to a $100 charge. 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.
P.O.D. Requests: $5 per receipt
C.O.D. Shipment: $75. Advance Shipper notification & written Carrier
acceptance required.
Hazardous Material Loads: $.05 per mile for any shipment containing
product deemed by the EPA to be hazardous and requiring haz-mat 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 $60, $70 or $85 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: - $175 for loads finaling in NYC, including
Long Island and the five buroughs.
<PAGE>
VEHICLE PURCHASE
AGREEMENT March 18, 1998
KANSAS CITY PETERBILT OTR Express, Inc.
P O Box 2819
Olathe, Ks. 66062
(913) 829-1616
BASE PRICE OF UNIT
(50) 378 Peterbilt tractors w/63" H/R Sleepers
Ultra Cabs and Cat Engines
Prices Include: = Dual S/S 13" Air Cleaners, Double Bunk in sleeper
T.V. Shelf, and antenna, F.E.T.
Units to be delivered between July and December, 1998
$ 78,630.00 per unit w/metallic paint
$ 78,488.00 per unit w/out metallic paint
Trade Ins: 25 units (Pete, Freightliner, Navistar) to be determined
at time of trade at $37,000.00
Base Price Plus Options
Used Vehicle Trade-in Information of Described Vehicle
Balance Owed to Net Trade-In Allowance
Trade Difference
Address Service Contract
F.E.T.
Used Trade-In Allowance Sub Total
State and Local Taxes or ICC
Balance Owned On Trade-In License, License Transfer
Total Price of Vehicle
Net Allowance On Used trade-In Partial Payment (Deposit)
Unpaid Balance Due On Delivery
This contract is not binding upon the dealer until signed by
unauthorized representative. Buyer many cancel this contract and
receive full refund anytime before receipt of a copy of this contract
signed by an authorized dealer representative by giving written notice
of cancellation to the dealer.
Purchaser agrees that this Order includes all of the terms and
conditions on both the face and reverse side hereof, that this Order
cancels and supersedes any prior agreement and as of the date hereof
comprises the complete and exclusive statement of the terms of the
agreement relating to the subject matters covered hereby. Purchaser
understands that liability insurance coverage which would protect
him/her under the Kansas Automobile Injury Reparations Act is not
included in this purchase of the herein described motor vehicle.
Purchaser has received a copy of this statement. The seller of this
vehicle (has) (has not) performed a title search for the motor vehicle
being sold for purposes of determining the accuracy of the mileage shown
on the odometer or for any other purpose. Purchaser acknowledges the
receipt of this disclosure.
/s/ Marc Hirschmann OTRX V.P. Purchasing 3/18/98 /s/ Leon Geis
Purchaser's Signature Salesperson's Signature
<PAGE>
Kansas City
Peterbilt
May 12, 1998
Marc Hirschmann
O.T.R. Express
P.O. Box 2819
Olathe, Ks. 66062
Dear Marc,
This letter is the formal quote per our conversation on 5/12/98. As we
talked about, the prices on 78 new units and 78 trades are as follows:
NEW UNIT PRICE (includes F.E.T.) TRADE IN PRICE/UNIT
Option 1. - Same as 11/6/97 quote $37,000.00/unit
Option 2. - Same as 11/6/97 quote plus $38,000.00/unit
$810.00 per unit.
Option 3. - Same as 11/6/97 quote plus $39,000.00/unit
$1,810.00 per unit.
These prices reflect the trade package of 28 Navistars (95 models), 30
Freightliners (95 & 96 models), and 20 Peterbilts (95 & 96 models).
*Trade agreement per OTR Express 1998 Trade Terms and Conditions
*Payment for new trucks must be received by Kansas City Peterbilt
within fourteen days after Peterbilt Motors releases each new truck to
the carrier for transport to Kansas City Peterbilt.
*This quote is for 78 new units above the 50 option trucks.
*Scheduling is for December thru April (pending Peterbilt Motors
strike)
Sincerely,
/s/ Chris Geis
Chris Geis
Kansas City Peterbilt
<PAGE>
INTERNATIONAL
October 26, 1998
Prepared For:
OTR EXPRESS, INC. Presented By:
BILL, GARY, STEVE AND MARC KCR Int'l Trucks, Inc.
804 N MEADOWBROOK DR. Randy O'Shea
OLATHE, KS 66063-0819 7700 NE 38th Street
(913) 829-1615 Kansas City, MO 64161
(816) 455-1833
Model Profile
1999 9900 SFA 6X4
DIMENSION: Wheelbase, 242 Cab to Axle, 152 Axle to
Frame, 53
ENGINE DIESEL: {Caterpillar 3406E Electronic} 50 State 375 to
435 HP @ 18000 RPM, 1450 to 1650 lb-ft Torque @
1200 RPM, Multi-Torque, 1800 RPM Governed Speed;
450 Maximum HP
TRANSMISSION, MANUAL: {Fuller FRO-16210B} 10-Speed Manual, With
Overdrive, With Air Shift, With Internal Lube Oil
Pump
CLUTCH: {Eaton Spicer Solo EP1552} Easy-Pedal, Two-Plate,
Cast Angle Spring: Ceramic, 15.5" Diameter, Soft
Clutch 7-Spring Damper, Mechanical Pull-Type
Control, With Adjustment-Free Feature, 1700 lb-ft
Torque Capacity
AXLE, FRONT, I-BEAM TYPE: {Spicer Eaton E1200I} 12,000-lb Capacity
AXLE, REAR, TANDEM: {Spicer Eaton DS-404/RS404} Single
Reduction 40,000-lb Capacity; With 200
WheelEnds and .375" Wall Housing
Gear Ration: 3.70
CAB: Conventional, Aluminum, Hi-Rise PRO SLEEPER;
72" Seat to Inside Back of Cab, with 37" Wide
Bunk, Includes International NAVAIR Cab Rear
Air Suspension
TIRE, REAR: (8) 285/75R24.5 M726 (BRIDGESTONE) 492
rev/mile, load range G 14 ply
SUSPENSION, REAR, AIR,
TANDEM: {International} 52" Axle Spacing; 40,000-lb
Capacity, 9.500" Ride height, With Shock
Absorbers
<PAGE>
Vehicle Specifications
1999 9900 SFA 6X4
October 26, 1998
Description
Base Chassis, Model 9900 SFA 6X4 with 242 Wheelbase, 152 Cab to Axle,
and 53 Axle to Frame.
BUMPER, FRONT Full Width, Gull Wing, Chrome Plated Aluminum
Includes
: FOG LIGHT OPENING (2) and with Rectangular Hole for Stop
FRAME RAILS Heat Treated Alloy Steel (110,000 PSI Yield); 10.125" x
3.580" x 0.312" x 336.2" OAL
Includes
: FRAME RAILS WITH TAPERED REAR
AXLE, FRONT, I-BEAM TYPE {Spicer Eaton E1200I} 12,000-lb Capacity
SUSPENSION, FRONT, SPRING Parabolic, Taper Leaf; 12,000-lb Capacity; Wit
Shock Absorbers
Includes
: SPRING PINS Threaded,
BRAKE SYSTEM, AIR Dual System for Tractor Applications
Includes
: BRAKE CHAMBERS, SPRING (2) REAR
: BRAKE LINES Color Coded Nylon
: GLAD HANDS (2) One for Service and One for Emergency; Trailer
Hoses from Cab
: HOSE TENDER to Secure the Trailer Hoses When Not in Use
: SLACK ADJUSTERS, FRONT Automatic
: SLACK ADJUSTERS, REAR Automatic
: SWITCH, AUXILIARY Interrupter for Cab and Trailer Clearance/Marker
Lights Instrument Panel Mounted (Blinks Lights with Headlight Switch
in "ON" Position)
: TRAILER CONNECTIONS 15' (Coiled Nylon Hose) and 15' Lighting Cable
(Coiled) with 7-Way Connector
: PARKING BRAKE VALVE Combination Valve for Tractor and Trailer
: DRAIN VALVE Cable Operated
: HAND CONTROL VALVE, AIR
: TRACTOR PROTECTION VALVE
: BRAKE PRESSURE INDICATOR Low Air Pressure Warning Light and
Audible Alarm
BRAKES, FRONT, AIR CAM S-Cam; 15.0" x 4.0"; Includes 20 Sq. In. Brake
Chambers
BRAKES, REAR, AIR CAM S-Cam; 16.5" x 7.0"; Includes 30 Sq. In. Anchorlok
Spring Actuated Parking Brake Chambers
HOSE TENDER Slide Bar With Single Spring Bracket; Bar Extended 4.0" From
Cab
AIR BRAKE ABS {Meritor-Wabco AntiLock Brake System} (4-Channel)
<PAGE>
AIR DRYER {Bendix AD-9} With Heater, Standard Location
BRAKE CHAMBER IDENTITY, SPRING {Anchorlok Life Seal 3030 LC}
BRAKE IDENTITY, FRONT {Spicer Eaton ES-150-4L} Air, Cam Type, Extended
Service, Size 15" x 4"
BRAKE IDENTITY, REAR {Spicer Eaton ES-165-7} Rear, Air, S-Cam Type,
Extended Service, Size 16.5" x 7"
AIR COMPRESSOR {Bendix Tu-Flo 550} 13.2 CFM
AXLE, REAR, IDENTIFIER FOR ABS {Spicer Eaton}
BRAKE PACKAGE, FRONT {Spicer Eaton ES-150-4L} Air, Cam Type, Extended
Service, Size 15" x 4", Includes Automatic Slack Adjusters
BRAKE PACKAGE, REAR {Spicer Eaton ES-165-7} Air, Cam Type, Extended
Service, Size 16.5" x 7", Includes Automatic Slack Adjusters
STEERING COLUMN Tilting and Telescoping
STEERING GEAR {Sheppard M-100} Power
STEERING WHEEL {V.I.P.} 2-Spoke, Black; 18" Diam.
MAINSHAFT SYSTEM SPL170 in lieu of 1760 Series and SPL170 Interaxle
Shaft
EXHAUST SYSTEM Single, Horizontal Muffler and Dual Bright Cab Mounted
Turned Back Tail Pipes, With Polished Stainless Steel Tail Pipe Guards,
Tear Drop Design, With PRO SLEEPER
ENGINE COMPRESSION BRAKE {Jacobs 340A} for Caterpillar 3406 Electronic
Engines With Selector Switch
ELECTRICAL SYSTEM 12-Volt, Standard Equipment
Includes
: BATTERIES (3) Maintenance-Free, 12-Volt 1950 CCA Total
: BATTERY BOX and Cover, Aluminum, Mounted Left Side, Back of Cab
: CIRCUIT BREAKERS for Trailer Connections
: FUSES, ELECTRICAL SAE Blade-Type
: HEADLIGHTS (2) Sealed Beam Halogen, 5" X 7" Rectangular, with
Chrome Plated Bezels
: HORN, ELECTRIC Single
: HORN, AIR Single, Chrome
: PARKING LIGHT Integral with Front Turn Signal and Rear Tail Light
: STOP, TURN, TAIL & B/U LIGHTS Dual, Rear, Combination with
Reflector
: STARTER SWITCH Electric Key Operated
: HEADLIGHT DIMMER SWITCH Floor Mounted
<PAGE>
: TURN SIGNAL SWITCH Signal-Stat 900 Manual Cancelling
: TURN SIGNAL FLASHER
: TURN SIGNALS, FRONT Flush Mounted with Reflectors and Auxiliary
Side Turn Signals
: WINDSHIELD WIPERS Single Motor, Electric, Cowl Mounted
: WINDSHIELD WIPER SWITCH 2-Speed Instrument Panel Mounted with
Intermittent Feature,
: WIRING, CHASSIS Color Coded and Continuously Numbered
: CIGAR LIGHTER Instrument Panel Mounted
: DOME LIGHT, CAB (2) Rectangular, Above Door Mounted, One Each Side
Door and Header- Mounted Switch Activated;
: COURTESY LIGHT (2) Door and Header-Mounted Switch Activated; Driver
and Passenger Door Mounted
: READING LIGHT, CAB (2) One Above Each Door with Individual
Switches;
POWER SOURCE, TERMINAL TYPE Two Post Terminal Block
ALTERNATOR {Delco-Remy America 33-SI} 12-Volt 135 Amp, Capacity,
Brushless
BATTERY SYSTEM {Fleetrite} Maintenance-Free (4) 12-Volt 3700CCA Total
CB ANTENNA BASE (2) with Lead-Ins; Mirror Mounted, Less Antennas
Includes
: CB WIRING AND VELCRO STRAP for Mounting CB in Left Side Header
Storage Compartment
SATELLITE COMMUNICATION SYSTEM {Qualcomm MCT System} Installation
Package, Less System; Includes Power Cable, Communication Cable, Message
Light and Shock Tray with Mounting
SPEAKER, AUXILIARY, CB RADIO With Jack for CB; Mounted Left Side Above
Driver's Door
RADIO {Panasonic CQ-2500} AM/FM, Premium Stereo With Electronic Tuning,
Weatherband, Cassette Player, Clock With Alarm, With Multiple Coaxial
Speakers
Includes
: SPEAKERS IN CAB (4) Coaxial
CLEARANCE/MARKER LIGHTS (2) Large Aero Type, Chrome, in Outside
Positions with (3) Standard Light in Center Positions, Roof Mounted
RUNNING LIGHT (2) Daytime
MOBILE COMMUNICATIONS SENSOR Wiring Effects for SensorTRACS or J-TRACS
Via J1587/J1708 Datalink; Provided by Electronic Engine
FRONT END Tilting, Fiberglass
Includes
: GRILLE Stainless Steel Vertical Grille Bars
: GRILLE SURROUND Chrome Plated Zinc Die Cast
<PAGE>
: HEADLIGHT BEZELS Chrome Plated Zinc Die Cast
: HOOD TILE SHOCK ABSORER
: MUD FLAPS, INTERMEDIATE MOUNT (2)
QUARTER FENDERS for Rear Wheels, Mirror-Finished Stainless Steel Frame
Mounted
BUG SCREEN Front End; Mounted Behind Grille
BUG DEFLECTOR Smoked Colored Plastic; Mounted on Hood
PAINT SCHEMATIC Single Color, Design 133 for 72" Hi-Rise Pro Sleeper
Cab/Shassis
Includes
: PAINT SCHEMATIC ID LETTERS "CL"
HUBODOMETER {Stemco} English Reading (Miles) Rear Wheels
PAINT TYPE Base Coat/Clear Coat, 1-2 Tone
PAINT CLASS Premium Color
FIFTH WHEEL, AIR SLIDE {FONTAINE SL6AWB} 24" Slide, Left Hans Roadside
Release
MUD FLAP HOLDER Spring Loaded, Painted Black; With 45-Degree End, With
Red and White Reflective Tape; Less Flaps
CLUTCH {Eaton Spicer Solo EP1552} Easy Pedel, Two-Plate, Cast Angle
Spring; Ceramic, 15.5" Diameter, Soft Clutch 7-Spring Damper, Mechanical
Pull-Type Control, With Adjustment-Free Feature, 1700 lb-ft Torque
Capacity
Includes
: CLUTCH RELEASE BEARING Greasable
ENGINE, DIESEL {Caterpillar 3406E Electronic} 50 State 375 to 435 HP @
1800 RPM, 1450 TO 1650 lb-ft Torque # 1200 RPM, Multi-Torque, 1800 RPM
Governed Speed; 450 Maximum HP
Includes
: STARTING MOTOR 42MT
: GAUGE, AIR CLEANER RESTRICTION Air Cleaner Mounted
: AIR CLEANER with Vacuator, Remote Mounted
: CRUISE CONTROL Electronic
: ENGINE SHUTDOWN Electric, Key-Operated
: GOVERNOR Electronic
: THROTTLE, HAND CONTROL Electronic, Instrument Panel Mounted
: ENGINE OIL DRAIN PLUG Magnitic
: OIL FILTER, ENGINE Spin-On Type
: TIMER Idle Shutdown
<PAGE>
: WATER FILTER Remote Mounted
: FUEL FILTER Engine Mounted
FAN DRIVE {Kysor} with Auto On/Off, Rear Air Supply and Kysor Nylon Fan
RADIATOR Cross Flow, Series System, 1150 SqIn Area and 1030 SqIn Charge
Air Cooler
Includes
: ANTI-FREEZE TEXACO LONG LIFE ENGINE COOLANT -40F (-40C)
: DEAERATION SYSTEM with Tank and Sight Glass
: RADIATOR HOSES Premium, Rubber
HOSE CLAMPS, RADIATOR HOSES {R.G. Ray Mini Flex Seal} Coil/Spring/"T"-
Bolt Type, for Radiator Hoses over 1" I.D.
BLOCK HEATER, ENGINE {Phillips} 120 volt/2000 Watt
Includes
: BLOCK HEATER SOCKET Receptacle Type; Mounted in Left Side of Skirt
Panel
TRANSMISSION, MANUAL {Fuller FRO-16210B} 10-Speed Manual, With
Overdrive, With Air Shift, With Internal Lube Oil Pump
Includes
: CLUTCH BRAKE Torque Limiting
OIL COOLER, MANUAL TRANSMISSION for International, Fuller, Meritor
(Rockwell) or Spicer Transmission (REQUIRES TRANSMISSION LUBE PUMP)
CLUTCH HOUSING Aluminum; Available With 1350 to 2050 lb-ft Capacity
Fuller Transmission
TRANSMISSION OIL {EmGard 50W} Synthetic; 22 thru 33.99 Pints
SUSPENSION, REAR, AIR, TANDEM {International} 52" Axle Spacing; 40,000-
lb Capacity, 9.500" Ride height, With Shock Absorbers
AXLE, REAR, TANDEM {Spicer Eaton DS-404/RS404} Single Reduction 40,000-
lb Capacity; With 200 Wheel Ends and .375" Wall Housing
Gear Radio: 3.70
Includes
: REAR AXLE DRAIN PLUG (2) Magnetic
: POWER DIVIDER LOCK Air Operated, Cab Control with Indicator Light
AXLE, REAR, LUBE {EmGard 75W-90} Synthetic Oil; 50 thru 64.99 Pints
<PAGE>
FUEL TANK (2) Top Draw; Non-Polished Aluminum, 26" Diam., 150 U.S. Gal.,
567L Capacity; Total Capacity 300 U.S. Gal., 1134L, With Dual Supply &
Return Lines and Less Equalizer Line, Mounted Back of Cab (Lt & RT)
Includes Dummy Battery/Tool Box With Step, Mounted Under Cab Right Side,
for Cab Access
WINDOW, POWER, RIGHT SIDE Electric
CAG Conventional, Aluminum, Hi-Rise PRO SLEEPER; 72" Seat to Inside Back
of Cab, with 37" Wide Bunk, Includes International NAVAIR Cab Rear Air
Suspension
Includes
: LIGHT (2) Work Type; Mounted Back of Cab with Switch Mounted in "B"
Pillar
: CLEARANCE/MARKER LIGHTS (5) Roof Mounted
: SPEAKER IN SLEEPER (2) Dual-Cone
: ASH TRAY (2) Passenger Door and Center Console Mounted
: ASH TRAY, SLEEPER Mounted on Left Wall
: BUNK, LOWER 37"
: CURTAIN, SLEEPER Vinyl with Velcro Closure, Pearl Gray
: RESTRAINT BELT, SLEEPER Nylon, Black
: COAT HANGER Located in Cab
: COAT HANGER IN SLEEPER Slot Type with Vinyl Curtain; Right Side
Mounted
: CONSOLE, OVERHEAD Molded Plastic with Dual Storage Pockets; Left
has Velcro Strap for CB Radio Mounting; Right has Netting
: CONSOLE, CENTER Plastic, Driver Convenience with a Cup and Change
Holder, Ash Tray and Lower Storage Area with Net
: CONTROL PANEL, SLEEPER Woodgrain Facia; Headphone Jack and Selector
Sw; Located at Head of Bunk Includes Blower Speed & Temp Controls,
Winter/Summer Selector Switch, Radio Volume & Balance Control,
: GRAB HANDLE, CAB INTERIOR (2) One Each Side
: GRAD HANDLE (2) Exterior
: INTERIOR SHEET METAL Upper Door Painted Charcoal Above Window Ledge
: DOME LIGHT, SLEEPER Fluorescent; Activated by Sleeper Control Panel
or Header Panel in Cab
: LIGHT, LUGGAGE COMPARTMENT (2) Door Activated; One Per Door
: READING LIGHT, SLEEPER Left Side with Switch;
: EXTERIOR LOCKER DOOR (2) FOR Access of Luggage Compartments in
Sleeper; One Each Side
: MATS, LUGGAGE COMPARTMENT (2) Rubber, Black Diamond Charcoal
: MIRROR Cosmetic, Sleeper
: SKIN Riveted
: STORAGE POCKET, SLEEPER (2) Located on Left Wall, Either Side of
Salem Vent
: STORAGE SHELF Carpeted; Located Top of Back and Side Panels
: STORAGE, INTERIOR (2) Vinyl, Storage Bins with Netting; Above Drive
and Passenger Seats
: CABINET, PRO SLEEPER Vinyl Covered, TV/VCR Shelf & Magazine Rack
with (2) 12 Volt Outlets at Foot of Bunk; Outlet Switch in Control
Panel at Head of Bunk
: STORAGE, UNDER BUNK Open Area
: VENTILATOR, SLEEPER Salem Type; Left Side
<PAGE>
: WINDOW, SLEEPER (4) Two Slide-Type with Screens, One Each Side; Two
Fixed Windows Behind Slide-Type, One Each Side. Vinyl Curtains
Provided for All Windows
: GLASS, ALL WINDOWS Tinted, Including Visibility Window in Passenger
Door
COLOR, INTERIOR Black-Diamond Charcoal
MIRRORS (2) {Moto Plus} 22" x 8" Dual Axis, Bright Finish Stainless
Steel Heads and Arms, Heated and Motorized on both Sides; Includes
Integral Heated Convex Mirror in Each Head; Accommodates Trailer up to
102" Wide
GAUGE CLUSTER English with English Electronic Speedometer and with
Tachometer for Air Brake Chassis
Includes
: GAUGE, ENGINE OIL PRESSURE Electronic
: GAUGE, WATER TEMPERATURE Electronic
: VOLTMETER
: GAUGE, AIR PRESSURE Dual
GAUGE, OIL TEMP, MANUAL TRAN for Manual Transmission
GAUGE, OIL TEMP. REAR AXLE
GAUGE, AIR APPLICATION
GAUGE, LOAD INDICATING With Chrome Bezel; for Use With Rear Air
Suspension
SEAT, DRIVER{National Cust-N-Aire II Model 195} Air Suspension, High
Back, Vinyl With Velour Inserts; Two Arm Rests, Isolated, Adjuster, Air
Lumbar Support, Seat Back Adjustment and Swivel; With Eagle Trim Level
Includes
: SEAT BELTS 3-Point, Lap and Shoulder Belt Type
SEAT, PASSENGER {National Cust-N-Aire II Model 197} Air Suspension, High
Back, Vinyl With Velour Inserts; Two Arm Rests, Isolated, Adjuster, Air
Lumbar Support, Seat Back Angle Adjustment and Swivel; With Eagle Trim
Level
Includes
: SEAT BELTS 3-Point, Lap and Shoulder Belt Type
CABINET PACKAGE Left Side of Conventional PRO SLEEPER; Includes Floor
Mounted Cabinet with Pull-Out Desk, Desk Light & Power Source (For
Customer Furnished Refrigerator) and Upper Utility Cabinet
ANTENNA, TELEVISION with Lead-In
CURTAIN, WINDSHIELD For Privacy; Gray Vinyl; 26" High
SUNSHADE, EXTERIOR Stainless Steel; Use With PRO SLEEPER Cab
HEATER HOSE CLAMPS {Breeze} Belleville Washer Type
<PAGE>
AIR CONDITIONER {International Blend-Air} With Integral Heater &
Defroster
Includes
: REFRIGERANT Hydrofluorocarbon HFC-134A
: HEATER HOSES Premijm
MIRROR, CONVEX (2) Stainless Steel, 8" Diameter, Mounted Below Primary
Mirrors.
CAB INTERIOR TRIM Eagle Level; Vinyl With Diamond Pattern; for 72" Hi-
Rise PRO SLEEPER
Includes
: SLEEPER INTERIOR TRIM PANELS Soft Padded Vinyl, Diamond Patern
: MATTRESS Deluxe, Inner Spring
: FLOOR COVERING IN SLEEPER Carpet, Charcoal
: FLOOR COVERING Vinyl by Seats, Carpet Between Seats
: "A" PILLAR COVER Vinyl, Pearl Gray
: HEADLINER, SLEEPER Vinyl, Pearl Gray
: HEADLINER, Vinyl, Pearl Gray
: INSTRUMENT PANEL TRIM Vinyl, Black Diamond Charcoal with Woodgrain
Appearance Panel Face
: CAB INTERIOR DASH INSULATOR Carpeted
: HEATER BOX Carpeted
: SUN VISOR (2) Vinyl with Toll Ticket Strap
: STORAGE POCKET, DOOR Vinyl Manifest Pouch/Pocket Driver Door with
Flap Cover;
: CAB INTERIOR TRIM PANELS Soft Padded Vinyl, Diamond Pattern
: DOOR TRIM PANELS Soft Padded Vinyl Center with Carpeted Lower
Section, Diamond Pattern
: KICK PANEL Carpeted
AERODYNAMIC PACKAGE Includes Roof Air Deflector, With Extension and Cab
Side Extenders; for 72: Hi-Rise PRO SLEEPER
ACCESS, CAB AND FRAME Bright; Use With PRO SLEEPER Cab With Dual Back of
Cab Fuel Tanks; Includes Bright Left Batt./Tool Box Cover & Step, Bright
Right Dummy Batt./Tool Box Cover & Step, Frame Access Steps, One Bright
Deck Plate and Tower Bar Grab Handles
Includes
: FUEL TANK STRAPS AND STEPS Bright Finish
WHEELS, FRONT DISC; 24.5" Polished Aluminum, 10-Stud (285.75MM BC) Hub
Piloted. Flanged Nut, Metric Mount, 8.25 DC Rims; With Aluminum Hubs
Includes
: WHEEL SEALS, FRONT Oil Lubricated, Includes Wheel Bearings
WHEELS, REAR DUAL DISC; 24.5" Painted Steel, 10-Stud (285.75MM BC) Hub
Piloted, Flanged Nut, Metric Mount, 8.25 DC Rims; With Aluminum Hubs
<PAGE>
Includes
: WHEEL SEALS, REAR Oil Lubricated, Includes Wheel Bearings
: PAINT IDENTITY, REAR WHEELS White
BRAKE DRUMS, FRONT {Motor Wheel} Centrifuse Type
BRAKE DRUMS, REAR {Motor Wheel} Centrifuse Type; 16.5" X 7"
WHEEL SEALS, FRONT {Spicer Eaton Outrunner} for Oil Lubricated Wheel
Bearings
WHEEL SEALS, REAR {Spicer Eaton Outrunner} for Oil Lubricated Wheel
Bearings
WHEEL BRAND, FRONT {ALCOA} Aluminum Disc Front Wheels
TIRES, UNI-DIRECTIONAL Mount Tires So That Arrows, on Tire, Point Toward
Forward Direction When Arrow is at Top
(8) TIRE, REAR 285/75R24.5 M726 (BRIDESTONE) 492 rev/mile, load range G,
14 ply
STOP, TURN, TAIL & B/U LIGHTS {Truck-Lite Super 40} with Power Module,
"International" Termination and Less Junction Box
SATELLITE ANTENNA CALBE {Qualcomm} 20' Antenna Cable with 140" Outside
of Cab/Sleeper
TRAILER LIGHTING CABLE {Tramec #4A517} Coiled, 15' Length, With 48"
Straight Section on One End; For Use With ABS
TURN SIGNAL/SIDE MARKER LIGHTS Mounted on Sleeper Side Extenders
FIFTH WHEEL LOCATION On Rear Axle Centerline
FAN OVERRIDE Manual; with Electric Switch on Instrument Panel
FUEL-SHUT-OFF VALVE (4) Mounted in Front Wheel Well, for Tank Isolation
AIR DEFLECTOR MODIFICATIONS With Integrally Molded Shelf to Mount
Qualcomm or Rockwell Antenna. Shelf in Center Section of Air Deflector
MIRROR, CONVEX, SPECIAL Mounted at Passenger Door Lower View Window
MISCELLANEOUS FRONT TIRES 285/7524.5 227 BRIDGESTONE LOADRANGE G 14PLY
INSTALL AERP PKG.
INSTALL BIG DEFLECTOR
<PAGE>
INSTALL TWO LIGHTED BUMPER GUIDE POLES
INSTALL OTR MUDFLAPS
INSTALL FIRE EXT. & TRIANGLE KIT
<PAGE>
Description 22 Vehicles 71 Vehicles 6 Vehicles 9 Vehicles
Total Price Per
Vehicle (with F.E.T) $80,155.48 $80,155.48 $82,590.03 $82,590.03
Deduct: CAT Rebate* -2,240.00 -2,240.00 -2,240.00 -2,240.00
Deduct: Int'l Rebate
( purchase prior to
4/30/99) -1,500.00 -1,500.00
Total Price for
Vehicle Quantity $1,681,140.56 $5,531,999.08 $473,100.18 $723,150.27
Less: Trade-In
Allowance (per
vehicle quantity)** -825,000.00 -2,662,500.00
Total Net Sales
Price for vehicle
quantity $856,140.56 $2,869,499.08 $473,100.18 $723,150.27
*$2,000 Cat Rebate will be determined by OTR Express at time of
invoicing
**Trade-In Allowance based on $37,500.00 per vehicle
Approved by Seller: Accepted by Purchaser:
KCR International Trucks, Inc. OTR Express, Inc.
/s/ Reggie Monroe /s/ Marc Hirschmann
Vice President 10/23/98 VP of Maint. & Purchasing
10/23/98
<PAGE>
Exhibit 11. Statement Re: Computation of Earnings Per Share
Basic earnings per share is calculated by dividing net income by the
average weighted number of shares of common stock outstanding during the
period. Diluted earnings per share is calculated by dividing net income
by the average weighted number of shares of common stock and common
stock equivalents outstanding during the period. Common stock
equivalents include the outstanding stock options.
<PAGE>
(Pictured on cover Premium Service, Value-Added Technology and Motivated
Professionals omitted)
<PAGE>
OTR Express achieved a 73% increase in net income in 1998,
benefiting from the second year of a Five Year Plan
for long-term growth and improved profitability.
As a premium service truckload carrier, OTRX has
expanded its capabilities to include dedicated service for national
accounts, intermodal logistics, service to Mexico and
regional truckload fleets in three key areas.
OTRX technology gives customers valuable supply-chain data, enhances
operating efficiency and equipment management,
and enables us to reward driver/managers
for superior profitability.
The leadership commitment of OTRX in customer service and technology has
generated double-digit growth in revenues,
while improving operating efficiency and profit margins.
Table of Contents
Highlights 1
Letter from the Chairman and President 3
OTRX - Positioned for the Future 7
OTRX Employees - Motivated to Succeed 8
OTRX Technology - A Competitive Advantage 10
Selected Financial Data 11
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
Report of Independent Public Accountants 17
Financial Statements 18
Directors and Officers 29
Quarterly Financial Data 30
Stockholder Information 32
On the cover from left to right: OTR Express, Inc. Driver/Manager
Jerry Sheckler and Equipment Inspector Lee Samuel; Driver/Manager J.D.
Benbow; Operations Supervisor Mike Blankenship and Manager - Corporate
Accounts Amy Wilmes-Brown
<PAGE>
(Graphs-five year historieof various operating statistics omitted)
<PAGE>
<TABLE>
Financial Highlights
<CAPTION>
(In thousands except per share data)
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Income Statement Data
Operating revenue $72,284 $63,797 $55,261 $49,211 $42,760
Operating income 4,766 4,090 2,195 2,029 3,648
Net income (loss) 883 509 (368) (157) 1,278
Outstanding shares 1,836 1,840 1,836 1,830 1,825
Earnings (loss) per
share - basic and
diluted $ 0.48 $ 0.28 $ (0.20) $ (0.09) $ 0.70
Operating ratio (1) 93.4% 93.6% 96.0% 95.9% 91.5%
Balance Sheet Data
Current assets $10,011 $ 9,223 $ 7,681 $ 6,799 $ 6,109
Current liabilities 18,271 18,140 19,152 17,187 10,781
Total assets 59,220 56,034 50,576 48,883 36,720
Current portion of
long-term debt 13,837 14,260 15,751 13,968 7,913
Long-term debt, less
current portion 28,658 26,688 21,019 20,844 14,595
Stockholders' equity 9,891 9,346 8,805 9,156 9,301
(1) Operating expenses as a percentage of operating revenue
Operational Highlights
1998 1997 1996 1995 1994
Total miles (in
thousands) 64,216 58,253 52,330 47,197 40,279
Average number of
tractors 583 525 506 450 345
Revenue per loaded mile $ 1.165 $ 1.121 $ 1.066 $ 1.031 $ 1.041
Revenue per mile $ 1.060 $ 1.036 $ 0.996 $ 0.963 $ 0.983
Miles per week per truck 2,119 2,135 1,984 2,015 2,247
Empty miles percentage 9.0% 7.6% 6.6% 6.6% 5.6%
Miles per load 1,120 1,332 1,464 1,506 1,576
Employees - end of
period 650 642 559 575 464
Licensed tractors -
end of period 526 526 503 503 394
Owner operators -
end of period 47 10 - - -
Total tractors -
end of period 573 536 503 503 394
Licensed trailers -
end of period 1,042 765 608 567 449
Average equipment
age (years)
Tractors - end of
period 2.43 1.97 1.82 1.23 1.50
Trailers - end of
period 1.93 1.53 1.88 3.05 2.92
</TABLE>
<PAGE>
(Picture of Chairman Bill Ward and CEO Gary Klusman omitted)
OTR Express Chairman Bill Ward and
President and CEO Gary Klusman
To Our Stockholders:
We are very proud of the operating trends,
freight statistics and financial results OTR Express achieved in 1998.
Even more important than our strong numbers are the milestones we
reached in implementing the company's marketing strategy during the
second year of our Five Year Plan for OTRX. First, however, here is a
summary of financial performance for the past year.
Improved 1998 Results
Financial results for 1998 showed strong improvement on top of progress
made in 1997. Revenues increased 13% to $72.3 million in 1998.
Operating income increased 17% to $4.8 million.
Net income and earnings per share improved by 73% in 1998.
OTRX earned $883,000 in 1998, compared to
$509,000 in 1997 and a net loss of $368,000 in 1996. From a net loss of
20 cents per share in 1996, we generated net earnings of 28 cents in
1997 and 48 cents in 1998.
This two-year improvement in earnings is very encouraging for future
growth and profitability.
Revenue per unit per week improved to $2,246 in 1998 from $2,212 in 1997
and $1,975 in 1996. Our transition plan has increased revenue per mile
to $1.060, from $1.036 in 1997 and $0.996 in 1996.
Miles obtained directly from shippers increased to 83% of the total in
1998, from 77% in 1997 and 61% in 1996. A goal of the Five Year Plan is
to reduce reliance on freight brokers to below 10% of total miles, which
is within reach in 1999.
Five Year Plan
In late 1996, OTRX initiated a Five Year Plan as a platform for long-
term growth and improved profitability, with three major objectives:
(1) Develop OTRX into a premium service truckload carrier to become a
core carrier for larger, national account customers.
(2) 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.
(3) Expand into non-asset based transportation market segments where we
can capitalize on our core business and computer technology advantages
to compete effectively.
OTRX achieved excellent progress in 1998 as we continued to implement
the Five Year Plan. In the first two years of the plan, operating
income has grown by 117%, from $2.2 million in 1996 to $4.8 million in
1998.
<PAGE>
Expanding Our Service Capabilities
We now offer transportation service capabilities focused on improving
our customers' supply chain management and operational profitability.
Going beyond truckload freight services, we now offer transportation and
logistics solutions.
We expanded our service capabilities in 1998 to include:
Rail, ocean, air freight and less-than-truckload service.
Service to Mexico through a strategic alliance partner.
170% expansion of the drop trailer fleet for more efficient loading.
Initiation of short haul service in Chicago, Dallas and Houston.
Expansion of electronic data interchange (EDI), including automated
load tender from customers.
In addition, we began offering dedicated service to our customers in
1998, a potentially significant growth opportunity for OTRX. We create
value for our customers by dedicating specific drivers, equipment,
support staff and systems 100% to fill a customer's specialized needs.
These contracts offer premium service, with guaranteed equipment, time-
definite service and specialized equipment to provide the optimum
transportation solution.
(Picture of OTR Vice Presidents omitted)
OTR Vice Presidents
Front row:Paul MacNaughton, Kathy Ward, Steve Ruben
Carolyn Davidson, Chris Schowengerdt
Back row: Eric Janzen, Gary
Hinkle, Marc Hirschmann,
Chip Seitz, Jeff Brown
(Not pictured: David Caldwell)
Targeted Customer Base
We continue to make progress in modifying our customer base by adding
national account shippers that meet our target market criteria. We
initiated service to one of the largest beverage companies in the world
in late 1997, providing high levels of equipment availability and a
cost-effective loading program for nine facilities nationwide. As a
result, this company became our largest shipper in 1998.
Michaels(r) Stores, Inc., the arts and crafts retailer, began with OTRX
by testing our ability to provide equipment in difficult areas on short
notice. After only two years as a customer, Michaels(r) became our
third-largest shipper in 1998, with over 1,500 loads.
This type of dedicated response to service customers will become the
catalyst for successfully marketing the company's national account
program into the new millennium. By creating value for these customers,
we will build relationships that will be the foundation for
accomplishing the goals of the Five Year Plan.
Non-Asset Based Revenues
A key to the success of the Five Year Plan is the development of non-
asset based markets
<PAGE>
that offer revenue and operating income opportunities without the need
for additional equipment and debt. These market segments also go a long
way toward improving our return on equity.
The company entered the non-asset based logistics markets with both feet
in October 1998 by introducing the OTR Logistics Rail Division, based in
Salt Lake City.
The new Rail Division is an excellent fit for the company's Five Year
Plan, providing an opportunity to capitalize on our marketing network
and computer system advantages.
We were fortunate to have Chuck McIntyre join OTRX to manage the Rail
Division. Chuck has a proven track record in the rail logistics
industry and a very innovative approach. We have used our MIS
capabilities to develop rail logistics
systems for effective load management.
The new systems are designed to maximize profit margins by providing
efficient access to historical data on lanes, carriers and profit
percentages. In addition, the systems provide high level load status
information for real time reporting to customers - creating value for
customers managing inventory and production schedules.
Currently staffed with eleven professionals and supported by our full
marketing network, this division sees exciting opportunities ahead.
Responsible Governance
Your Board of Directors is committed to the concept of best practices
and will continue to modify the Board structure to improve our ability
to represent stockholders more effectively and professionally. We
implemented many significant changes in 1998.
The Board voted to pursue a minimum of
50% independent Board members with a target date of May 2001. All but
one of our Board members, excluding the chief executive officer, are now
assigned to chair a committee.
In 1998, our Board members began attending the National Association of
Corporate Directors best practice seminars for board members of public
companies on a rotating basis.
Our goal is to provide realistic and meaningful oversight and policy
guidelines to management yet avoid becoming intrusive. We will continue
to work to achieve this goal.
Clear Future Directions
Our commitment and focus is to create value for our stockholders. We
believe our Five Year Plan is the best strategy to make this happen.
The progress we have made during the first two years of the Five Year
Plan is very encouraging, the trends are strong and the necessary
ingredients are in place.
We still have a long way to go to achieve our long-term objectives. We
will strive to continue our progress and devote our energies to
developing a platform for long-term growth and profitability. Thank you
for your continued support and interest in OTR Express.
Please visit us at our new website, www.otrx.com.
Sincerely,
/s/ William P. Ward /s/ Gary J. Klusman
William P. Ward Gary J. Klusman
Chairman President and CEO
<PAGE>
Premium service creates a "win-win" for OTR Express and our national
accounts, including timely, customized loading and high-technology
logistical support.
(Picture of OTR truck omitted)
OTRX - Positioned for the Future
OTR Express has positioned itself in the past three years to take
advantage of growth opportunities we see in the transportation industry.
We have invested in several areas to better serve our customers and to
maintain the most experienced, safety-conscious driver fleet in the
industry.
Exceeding Customer Expectations
When asked to comment about OTR Express, here's what a few of our
customers had to say:
"OTRX does a great job for us. Thank you
for all the service you have given us."
"What I like best about OTR is its reliability and on time service."
"I like OTR's courteous and professional drivers."
"OTR provides up-front communication, with few surprises."
In 1998, OTRX took several steps to further enhance our position as a
premium service provider to larger national accounts.
Regional teams - In 1998, we reorganized our national fleet
dispatch, customer service and sales personnel into teams responsible
for freight movements out of designated regions. To augment that
concept, we added regional sales managers in Dallas, Boston and Atlanta.
We expect to add more regional sales managers around the country in
1999, working with other team members to add new shippers and increase
freight opportunities with current customers in target areas.
Expansion of trailer fleet - We added 277 trailers in 1998 to
enhance drop-and-hook opportunities and minimize downtime for our
drivers. Our goal is to convert 70% of our freight to drop-and-hook
loads by the year 2000.
Additional trailer drop lots - In 1998, we added trailer drop lots
in Chicago, Dallas, Los Angeles and St. Joseph, Missouri, to more
centrally locate our loaded and unloaded trailers so that drivers do not
have to wait as long at shippers in those cities. This enables us to
move freight more efficiently in and out of customer locations.
Expansion of regional service - OTRX expanded our regional short
haul fleet (less than 500 miles per load) in 1998 to take advantage of
the high volume of shorter runs available from customers. Adding
regional service enables us to capture more of each customer's freight,
since many shippers have both long and short haul needs.
Truck brokerage - Our truck brokerage division coordinates movement
of freight for which OTRX trucks are not available. The division works
with a database of more than 900 carriers who can utilize their own
equipment to move the freight. In 1998, OTRX added staff to take
advantage of the additional freight opportunities created by our
marketing staff.
Intermodal logistics - In October 1998, OTRX added a logistics rail
division to move freight using the rail mode of transport. This new
department contracts with rail carriers to move freight for customers.
Based in Salt Lake City, the rail division currently employs eleven
professionals. The logistics rail division will not require the
purchase of additional equipment, so it will operate as a non-asset
based transportation provider.
Owner operators - OTRX began the owner operator program in October
1997 to expand our fleet and meet customer needs without the fixed cost
of adding additional trucks. In 1998, we increased the number of owner
operators from ten to 47, and we expect to continue to expand the owner
operator fleet in 1999.
<PAGE>
OTRX Employees -
Motivated to Succeed
Each of our 650 OTR Express employees - from maintenance personnel who
inspect the trucks, to drivers who deliver products to the customer, to
billing clerks who ensure that the invoice is accurate - plays a key
role in meeting and exceeding customers' expectations.
Equipment Managers -
Key to Safety and Customer Service
At OTR, we have recognized the importance of quality, experienced
driver/managers. In any trucking company, the drivers are the front
line contact point with customers. We have more experienced,
professional drivers than other truckload carriers. Our drivers average
46 years of age and 13 years of driving experience.
To attract and retain drivers, we pay a premium wage, treat drivers as
business partners and provide equipment they are proud to drive. We
believe our 71% driver turnover rate in 1998 is one of the best in the
truckload industry, where many trucking companies have turnover of more
than 100% annually.
Driver/Manager Pay - During 1998, we invested in the quality of our
fleet by increasing driver pay more than 9%. Our customers have come to
expect the high level of service and professionalism that OTRX drivers
offer. By raising the drivers' pay, we can remain at the top of the pay
scale in the truckload industry to attract and retain qualified drivers.
Incentive-based Pay - Mileage pay at OTRX is based on fuel
efficiency achieved by a driver/manager. Above-average fuel economy is
rewarded with premium mileage pay. Our driver/managers have an
incentive to run equipment at efficient speeds, reduce out-of-route
miles, idle less and maintain trucks in peak condition.
Profit Centers - OTRX maintains each truck as a separate profit
center and provides driver/managers with profit center results, which
include actual revenues and expenses of the equipment and fixed expense
components for administration, taxes and depreciation. OTRX pays a
percentage of company profits each quarter to drivers who show a profit
on their trucks.
Safety first - We offer driver/managers bonuses for driving their
trucks accident-free. Each year a driver/manager goes accident-free,
the bonus increases.
Professional Staff -
Teamwork and Dedication
At OTRX, we understand the business benefits of cultivating a talented
professional staff. Our staff members have the opportunity to share in
the success of OTRX through incentive-based performance rewards based on
revenue per truck goals. Our more than 130 professionals work as teams
to identify critical issues and implement creative solutions.
We strive to have a quality work environment where our employees have
opportunities to be challenged and to advance within the organization.
Our employees focus on continuous improvement and innovation. To reward
innovation and creativity, OTRX provides financial incentives to
employees for ideas that are implemented and for excellent customer
service.
<PAGE>
People make the difference for OTR Express.
Experienced driver/managers backed by a
talented professional staff provide superior
service to our customers.
(Picture of Customer Service Representative omitted)
<PAGE>
OTRX Technology -
A Competitive Advantage
Because we utilize proprietary software internally developed exclusively
for OTRX, we can respond more quickly to changing customer needs. Our
management information services (MIS) team spends considerable time with
customers and our sales personnel evaluating the best ways to serve
customer needs in billing, payment and load information.
The MIS department also is continually designing state-of-the-art
software to enable OTRX to maintain a tractor to staff ratio of more
than 4 to 1 (a key measure of operating efficiency) in an industry where
3 to 1 is considered excellent.
Significant Strides in 1998
Our MIS team completed more than 170 projects in 1998. A small sampling
of completed projects:
New website - www.otrx.com opened in mid-1998 and has been an
excellent tool for customers, investors, prospective new employees and
owner operators to learn about OTRX and communicate with us via the
World Wide Web.
Electronic mail - Since implementing e-mail in 1998, we have
developed focused distribution lists to speed up communication of
critical business issues. Via e-mail, we communicate with employees,
customers and vendors in multiple locations.
Logistics rail division - Our programmers developed a proprietary
load order system specifically for logistics rail service. This new
system is integrated with our current freight optimization system and
has substantially improved the division's efficiency.
Customer freight summary - MIS worked with the dispatch and sales
departments to identify five critical freight characteristics and weight
them to evaluate the relative profitability of customers out of each of
129 geographic marketing areas.
Maintenance downtime report - We utilize this report to move trucks
through our maintenance facility more quickly for routine maintenance
and inspections.
Equipment management system - We have detailed information on each
tractor and trailer in the fleet, enabling our dispatchers to rapidly
identify types of equipment to effectively serve customers.
MIS - Looking Ahead to 1999
Some significant projects our MIS team has planned for 1999 include:
Conversion to new database server - We are in the process of
converting to an Oracle SQL database server to speed up processing
times for virtually all non-accounting applications. In addition to
providing a more robust database engine, the new system is scalable and
will enable us to expand the system more easily to accommodate future
growth.
Load order status on website - Starting in 1999, we plan to enable
customers to obtain load status information through our website. Using
secure identification, they will be able to obtain real time load
location reports from Qualcomm onboard communications systems installed
on each of our trucks.
EDI (electronic data interchange) - Our MIS department is working
toward conversion of more customers to EDI to provide customers with
load status information and their invoices more quickly via
telecommunication lines.
<PAGE>
<TABLE>
Selected Financial Data
<CAPTION>
(In thousands except per share data)
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
Operating revenue $72,284 $63,797 $55,261 $49,211 $42,760
Operating expenses
Salaries, wages and
benefits 28,129 25,549 22,395 19,837 15,912
Purchased
transportation 7,891 3,757 2,930 2,402 2,094
Fuel 5,691 7,632 7,011 5,511 4,546
Maintenance 4,725 3,654 3,310 3,005 2,648
Depreciation 7,437 7,401 6,723 6,517 5,243
Insurance and claims 1,908 1,882 1,639 1,594 1,738
Taxes and licenses 6,899 6,124 6,048 5,541 4,684
Supplies and other 4,839 3,708 3,010 2,775 2,247
Total operating
expenses 67,519 59,707 53,066 47,182 39,112
Operating income 4,765 4,090 2,195 2,029 3,648
Interest expense 3,351 3,269 2,789 2,283 1,449
Income (loss) before
income taxes 1,414 821 (594) (254) 2,199
Income tax expense (benefit) 531 312 (226) (97) 921
Net income (loss) $ 883 $ 509 $ (368) $ (157) $ 1,278
Outstanding shares
Basic 1,836 1,840 1,836 1,830 1,825
Diluted 1,846 1,842 1,836 1,830 1,825
EPS - basic and diluted $ 0.48 $ 0.28 $ (0.20) $ (0.09) $ 0.70
PERCENT OF REVENUE
Operating revenue 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses
Salaries, wages and
benefits 38.9 40.0 40.5 40.3 37.2
Purchased
transportation 10.9 5.9 5.3 4.9 4.9
Fuel 7.9 12.0 12.7 11.2 10.6
Maintenance 6.5 5.8 6.0 6.1 6.2
Depreciation 10.3 11.6 12.2 13.2 12.3
Insurance and claims 2.6 2.9 3.0 3.3 4.1
Taxes and licenses 9.6 9.6 10.9 11.3 11.0
Supplies and other 6.7 5.8 5.4 5.6 5.2
Total operating
expenses 93.4 93.6 96.0 95.9 91.5
Operating income 6.6 6.4 4.0 4.1 8.5
Interest expense 4.6 5.1 5.1 4.6 3.4
Income (loss) before
income taxes 2.0 1.3 (1.1) (0.5) 5.1
Income tax expense (benefit) 0.8 0.5 (0.4) (0.2) 2.1
Net income (loss) 1.2 0.8 (0.7) (0.3) 3.0
</TABLE>
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results
of Operations
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.
<PAGE>
1997 Compared to 1996
Operating Revenue. Operating revenue increased by 15.4% to $63.8
million in 1997 from $55.3 million in 1996 primarily as a result of an
increase in revenue rate per mile and utilization. Revenue per mile
increased by 4.0% to $1.036 from $0.996. Miles per week per unit
increased 7.6% to 2,135 from 1,984. Revenue per truck per week
increased 12% to $2,212 in 1997 from $1,975 in 1996. The average number
of tractors in service increased by 4.0% from 506 to 525 for the year.
Revenue from brokerage of freight to other carriers increased 12.8% in
1997 to $3.7 million from $3.3 million in 1996.
Operating Expenses. Operating income improved to 6.4% of revenue
from 4.0% in 1996.
Salaries, wages and benefits decreased to 40.0% of revenue in 1997
compared to 40.5% in 1996 as a result of the increased revenue rates per
mile. There were no increases in wage rates for drivers in 1996 or
1997.
Purchased transportation, which represents payments to other
transportation companies for hauling loads contracted through the
company's logistics division and the cost of owner operators, was 5.9%
of revenue in 1997 compared to 5.3% in 1996. The increase is a result
of adding owner operators to the fleet beginning in October 1997 and a
12.8% increase in brokerage volume.
Fuel decreased to 12.0% of revenue from 12.7% in 1996. The decrease
is due to an increase in revenue rate per mile and lower fuel costs in
1997 versus 1996. The company's average fuel cost per gallon was $1.12
in 1997 compared to $1.17 in 1996. During the second half of 1997 fuel
costs declined as a result of higher fuel inventories and increased oil
production. The cost in 1996 is net of $220,000 of gain on fuel hedging
contracts which were in the money as a result of higher fuel prices.
Depreciation as a percent of revenue decreased to 11.6% in 1997 from
12.2% in 1996 as a result of higher revenue per truck in 1997.
Insurance and claims decreased to 2.9% of revenue in 1997 from 3.0%
in 1996. Effective January 1, 1997, the company's liability insurance
carrier reduced its premium rate, lowering premiums by $37,000 in 1997.
Taxes and licenses decreased to 9.6% of revenue in 1997 from 10.9% in
1996 as a result of higher revenue rates per mile in 1997.
Supplies and other expenses increased to 5.8% of revenue from 5.4% in
1996. The company installed on-board communications on its entire fleet
in August 1996. In 1997, the company incurred a full year of on-board
communications costs versus five months of costs in 1996. Also,
advertising costs for new drivers increased in 1997.
Interest Expense. Interest expense was 5.1% of revenue in both 1996
and 1997. In both 1996 and 1997, 81% of the company's capital was
interest bearing.
Net Income (Loss). Net income for 1997 was $509,000 or $0.28 per
share compared to a net loss of $368,000 or $0.20 per share in 1996.
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.
<PAGE>
Inflation
The effect of inflation on the company has not been significant
during the last three years. An extended period of inflation could be
expected to have an impact on the company's earnings by causing interest
rates, fuel and other operating costs to increase. Unless freight rates
could be increased on a timely basis, operating results could be
adversely affected.
Liquidity and Capital Resources
The growth of the company's business has required significant
investments in new revenue equipment acquired primarily through secured
borrowings. Net capital expenditures, principally for revenue
equipment, were $7.6 million, $11.3 million and $10.0 million for the
years ended December 31, 1996, 1997 and 1998, respectively. Included in
the 1996 figure is $1.6 million for on-board satellite communications
equipment. The company plans to expand its company-owned fleet by 50
tractors in 1999 (30 expansion units and 20 units to replace tractors
traded in 1998). At February 28, 1999, the company had arrangements for
216 tractors (30 new units and 186 replacement units) at a cost of
$17.3 million. The company's capital expenditures will be financed
through internally generated funds and 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, 1998 was $8.3 million. Primarily due to the company's
equity position and the potential for refinancing of both unencumbered
and encumbered assets, working capital deficits historically have not
been a barrier to the company's ability to borrow funds for operations
and expansion.
The company has a credit line of $8.0 million with its primary
lending bank that bears interest at the prime lending rate.
Borrowings under this line were $3.3 million at December 31, 1998, $1.6
million of the available 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 current line expires June 9, 2000 and is secured by accounts
receivable. The company has received commitments for up to $17.3
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.
<PAGE>
Year 2000 Issue
The company has completed a comprehensive inventory and assessment of
its Year 2000 issues and its internal systems (both information
technology "IT" and non-IT). The company's application software
programs which have been developed internally will be Year 2000
compliant with minor modifications that the company's IT department
will complete. Computer hardware consists almost exclusively of Apple
Macintosh computers which are Year 2000 compliant according to Apple
Computer, Inc. Non-Macintosh computer hardware has been replaced.
Certain of the company's application and equipment software programs are
purchased from and/or maintained by vendors. The company is working
with these software vendors to verify that these applications become
Year 2000 compliant.
The company believes that with modifications to existing software,
the cost of which is not expected to be material, the Year 2000 issue
will not pose significant operational problems for the company. The
company expensed less than $10,000 in costs relating to the Year 2000
issue in the year ended December 31, 1998.
As part of the company's comprehensive review, it is continuing to
verify the Year 2000 readiness of third parties (vendors and customers)
with whom the company has material relationships. The company has
material vendor relationships with financial institutions and
telecommunications companies. These vendors indicate that they expect
to achieve compliance and do not anticipate business interruptions as
the century changes. The company is developing contingency plans to
address Year 2000 issues that may arise with these key vendors. At
present the company is not able to determine with certainty the effect
on the company's results of operations, liquidity, and financial
condition in the event the company's material vendors and customers are
not Year 2000 compliant. The company will continue to monitor the
progress of its material vendors and customers.
Market Risk
The company is exposed to various market risks, including the effects
of interest rates and fuel prices. The company utilizes primarily fixed
rate financial instruments with varying maturities. The company's long-
term financing is all at fixed rates. The company's working capital
line of credit is at a variable rate. The detail of the company's debt
structure is more fully described in Note 3 to the financial statements.
The company uses call options as hedges on heating oil in order to
manage a portion of its exposure to variable diesel prices. These
agreements provide some protection from rising fuel prices. The
company's exposure to loss on the call options is limited to the premium
cost of the contract. Based on historical information, the company
believes the correlation between the market prices of diesel fuel and
heating oil is highly effective. The company's fuel hedging program is
discussed in more detail in Note 1 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, 1998 and represented no significant market exposure.
The table below provides information about the company's fixed rate
financial instruments at December 31, 1998. The table below also
presents principal cash flows (in millions) and related weighted average
interest rates by contractual maturity dates.
<TABLE>
Expected Fixed Average
Maturity Rate Interest
Date Debt Rate
<S> <C> <C>
1999 $ 16.3 7.60%
2000 14.7 7.53%
2001 7.8 7.26%
2002 4.2 7.14%
2003 0.9 6.95%
Thereafter 0.2 7.00%
Total $ 44.1
Fair value $ 39.9
</TABLE>
<PAGE>
Other
Effective January 1, 1999, the company adopted Statement of Position
98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use ("the SOP"). The statement requires
capitalization of certain costs associated with developing or obtaining
internal-use software, once the capitalization criteria of the SOP have
been met. Capitalizable costs include external direct costs of
materials and services consumed in developing or obtaining the software,
payroll and payroll-related costs for employees directly associated with
the project, and interest. Prior to adoption of the standard, the
company had capitalized only the external direct costs associated with
internal-use software. The company has not yet determined the impact of
adoption of the SOP.
The Financial Accounting Standards Board (FASB) issued statement No.
133, Accounting For Derivative Instruments and Hedging Activities that
will be effective for the company's fiscal year ended December 31, 2000.
This statement establishes accounting and reporting standards requiring
all derivative instruments to be recorded in the balance sheet at their
fair value. The statement requires changes in a derivative's fair value
to be recognized currently in earnings, except for special qualifying
hedges for which gains and losses may offset the hedged item in the
income statement. The company has not yet determined the timing or
impact of adoption of statement No. 133.
This annual report contains forward-looking statements that are based on
current expectations and are subject to risks and uncertainties. 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; litigation involving the company; changes in
the availability of a stable labor force; ability of the company to hire
drivers meeting company standards; changes in management strategies;
environmental or tax matters; Year 2000 matters as discussed herein and
risks described from time to time in reports filed by the company with
the Securities and Exchange Commission. Readers should take these
factors into account in evaluating any such forward-looking statements.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of OTR Express, Inc.:
We have audited the accompanying balance sheets of OTR Express, Inc.
(a Kansas corporation) as of December 31, 1998 and 1997, and the related
statements of operations, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Kansas City, Missouri
February 5, 1999
<PAGE>
<TABLE>
Balance Sheets OTR Express, Inc.
<CAPTION>
At December 31 1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 521,484 $ 318,760
Accounts receivable, less
allowance of $77,403 and $101,123 8,409,332 7,736,360
Fuel inventory 118,146 155,762
Prepaid expenses and other 962,211 1,012,517
TOTAL CURRENT ASSETS 10,011,173 9,223,399
PROPERTY AND EQUIPMENT, at cost,
less accumulated depreciation 49,209,269 46,810,777
TOTAL ASSETS $59,220,442 $56,034,176
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, trade $ 2,060,251 $ 1,603,654
Accrued payroll and taxes 1,007,735 861,857
Insurance and claims and other 1,365,739 1,414,721
Current portion of long-term debt 13,837,296 14,259,700
TOTAL CURRENT LIABILITIES 18,271,021 18,139,932
LONG-TERM DEBT 28,658,211 26,688,357
DEFERRED INCOME TAXES 2,400,000 1,859,803
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY
Common stock, $.01 par value,
20,000,000 shares authorized,
1,852,709 and 1,849,209 issued 18,527 18,492
Additional paid-in capital 6,598,679 6,581,214
Retained earnings 3,675,738 2,792,762
Debt guarantee (297,877) -
Treasury stock, 16,753
and 8,693 shares (103,857) (46,384)
TOTAL STOCKHOLDERS' EQUITY 9,891,210 9,346,084
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $59,220,442 $56,034,176
The notes to financial statements are an integral part of these
statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Operations OTR Express, Inc.
<CAPTION>
For the Years Ended December 31 1998 1997 1996
<S> <C> <C> <C>
Operating revenue
Freight revenue $67,798,883 $60,127,246 $52,008,754
Logistics revenue 4,485,389 3,669,346 3,251,842
Total operating revenue 72,284,272 63,796,592 55,260,596
Operating expenses
Salaries, wages and benefits 28,128,618 25,548,804 22,394,911
Purchased transportation 7,891,384 3,756,648 2,930,271
Fuel 5,691,461 7,631,908 7,011,074
Maintenance 4,725,008 3,654,294 3,310,101
Depreciation 7,437,151 7,400,583 6,722,717
Insurance and claims 1,908,459 1,881,278 1,639,039
Taxes and licenses 6,899,020 6,124,075 6,047,748
Supplies and other 4,836,841 3,708,124 3,010,050
Total operating expenses 67,517,942 59,705,714 53,065,911
Operating income 4,766,330 4,090,878 2,194,685
Interest expense 3,351,438 3,269,138 2,788,749
Income (loss) before income taxes 1,414,892 821,740 (594,064)
Income tax expense (benefit) 531,916 312,262 (225,744)
Net income (loss) $ 882,976 $ 509,478 $ (368,320)
Weighted average number of shares
Basic 1,836,342 1,840,091 1,835,650
Diluted 1,846,156 1,841,805 1,835,650
Earnings (loss) per share
Basic $ 0.48 $ 0.28 $ (0.20)
Diluted $ 0.48 $ 0.28 $ (0.20)
The notes to financial statements are an integral part of these
statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Stockholders' Equity OTR Express, Inc.
<CAPTION>
Common Additional Retained Debt Treasury Total
Stock Paid-In Earnings Guarantee Stock Stock-
Capital holders'
Equity
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1995 $18,352 $6,515,694 $2,651,604 $ - $(29,736) $9,155,914
Allocation of
common stock
held by ESOP 70 24,430 - - - 24,500
Repurchase of
common stock - - - - (6,999) (6,999)
Net loss - - (368,320) - - (368,320)
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
The notes to financial statements are an integral part of these
statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Cash Flows OTR Express, Inc.
<CAPTION>
For the Years Ended December 31 1998 1997 1996
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 882,976 $ 509,478 $ (368,320)
Adjustments to reconcile
net income (loss) to net
cash provided by operating
activities
Depreciation 7,437,151 7,400,583 6,722,717
Deferred income taxes 540,197 312,262 (225,744)
Other 140,009 41,160 24,500
Changes in certain working
capital items
Accounts receivable (672,972) (1,299,440) (428,528)
Other assets 87,922 (18,718) (223,078)
Accounts payable and accrued
expenses 553,493 478,761 182,600
Net cash provided by operating
activities 8,968,776 7,424,086 5,684,147
INVESTING ACTIVITIES
Acquisition of property
and equipment (13,414,633) (17,631,434) (11,335,083)
Disposition of property
and equipment 3,456,481 6,314,599 3,707,187
Net cash used in investing
activities (9,958,152) (11,316,835) (7,627,896)
FINANCING ACTIVITIES
Proceeds from issuance of
long-term debt 21,501,500 21,250,515 20,370,872
Repayments of long-term debt (20,044,277) (19,164,775) (17,279,563)
Net increase (decrease) in bank
notes payable (207,650) 2,092,312 (1,133,555)
Other (57,473) (9,650) (6,999)
Net cash provided by
financing activities 1,192,100 4,168,402 1,950,755
Net increase in cash 202,724 275,653 7,006
Cash, beginning of year 318,760 43,107 36,101
Cash, end of year $ 521,484 $ 318,760 $ 43,107
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 3,346,500 $ 3,265,120 $ 2,794,254
Cash paid (refunded) for
income taxes, net (8,281) 41,474 (128,986)
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
Debt guarantee $ 297,877 $ - $ -
The notes to financial statements are an integral part of these
statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
OTR Express, Inc. ("the company") operates primarily as a dry van,
truckload carrier headquartered in Olathe, Kansas. The company
transports general commodities through the continental United States and
operates its business as one reportable segment. The company also
provides non asset-based logistics transportation services to its
customers.
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. Management believes the difference between the company's
method of revenue recognition, which is acceptable for generally
accepted accounting principles, and the proportional recognition method,
which is preferred, is not material to financial position or the results
of operations.
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 United States. 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, 1998, option fair
values totaled $2,000, deferred losses totaled $12,000 and notional
amounts totaled $672,000. At December 31, 1997, option fair values
totaled $10,000, deferred losses totaled $35,000 and notional amounts
totaled $1,797,000.
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 3.4 years
Trailers 10 years
Computer equipment, software
and other property 5 - 12 years
Buildings and improvements 31.5 - 40 years
The company depreciates tractors to estimated salvage values, currently
47% to 51% of original cost. The company depreciates trailers to
estimated salvage values, currently 17% to 24% of original cost.
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 1998, 1997 and 1996, 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 and deposits of approximately $1.3 million in connection with
its liability and workers' compensation insurance arrangements.
<PAGE>
2. PROPERTY AND EQUIPMENT
<TABLE>
1998 1997
Cost
<CAPTION>
<S> <C> <C>
Tractors $41,313,634 $41,277,834
Trailers 19,559,008 13,906,069
Land 838,962 838,962
Buildings and improvements 2,931,435 2,879,459
Computers and onboard
communications equipment 2,842,964 2,358,357
Other 1,422,879 1,235,196
Total cost 68,908,882 62,495,877
Less accumulated depreciation 19,699,613 15,685,100
Net property and equipment $49,209,269 $46,810,777
</TABLE>
3. LONG-TERM DEBT
<TABLE>
1998 1997
<S> <C> <C>
Line of credit , interest
payable monthly at the prime
rate (7.75% at December 31,
1998) due June 9, 2000,
collateralized by accounts
receivable (1) $ 3,571,539 $ 3,481,312
Installment notes, 5.36% to
9.15% payable in monthly
installments of principal and
interest through November 2003,
collateralized by tractors,
trailers and computer
equipment 37,480,238 35,961,915
Installment notes, 7.00% to
8.75%, payable in monthly
installments through January
2005, collateralized by real
property 1,443,730 1,504,830
42,495,507 40,948,057
Less current portion 13,837,296 14,259,700
Long-term debt $28,658,211 $26,688,357
Maturities of long-term debt are as follows:
1999 $13,837,296
2000 16,460,444
2001 7,112,040
2002 4,034,443
2003 907,449
Thereafter 143,835
$42,495,507
</TABLE>
<PAGE>
3. LONG-TERM DEBT (continued)
(1) The line of credit agreement provides for maximum borrowings of
$8,000,000 based on an 85% advance rate on eligible accounts receivable,
as defined, through December 31, 1998. The line bears interest at a
variable rate, based upon the prime rate, or LIBOR, at the company's
election. The agreement contains certain covenants relating to tangible
net worth, leverage ratios, debt service coverage and other factors.
The company was in compliance with all required covenants at December
31, 1998. Borrowings on the line totaled $3,274,000 at December 31,
1998. The company had $4,221,000 of additional borrowing availability
as of December 31, 1998. A total of $1,296,000 of the credit line was
committed for letters of credit and $298,000 to guarantee officers loans
for stock purchases (see Note 8). The weighted average interest rate on
the line of credit for the year ended December 31, 1998 was 8.5%. The
annual average balance borrowed on the line of credit for the year ended
December 31, 1998 was $2,817,000.
4. STOCK OPTION PLAN
The company has reserved 197,000 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%
shareholder). Options outstanding at December 31, 1998 had a weighted
average contractual life of seven years, ten months and exercise prices
ranged from $3.75 to $7.00 per share.
The company applies Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, in accounting for its plan,
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:
1998 1997 1996
Net income (loss):
As reported $ 882,976 $ 509,478 $(368,320)
Pro Forma $ 731,577 $ 480,071 $(388,216)
Earnings (loss) per share:
As reported $ 0.48 $ 0.28 $ (0.20)
Pro Forma $ 0.40 $ 0.26 $ (0.21)
<PAGE>
4. STOCK OPTION PLAN (continued)
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 1998, 1997 and 1996 grants:
1998 1997 1996
Dividend yield None None None
Expected volatility 38.6% to 49.3% 40.5% 32.6% to 36.3%
Risk-free interest rate 4.6% to 5.6% 5.7% to 6.4% 5.9% to 6.2%
Expected option life 3 years 3 years 3 years
A summary of the company's stock option plans as of December 31, 1998
and changes during 1998, 1997 and 1996 is presented below:
1998 1997 1996
Per Share Per Share Per Share
Shares (a) Shares (a) Shares (a)
Outstanding at
beginning of year 110,000 $5.30 80,000 $5.18 50,000 $5.30
Granted 94,256 $6.83 30,000 $5.63 30,000 $4.99
Exercised - - - - - -
Forfeited (7,256) $5.36 - - - -
Outstanding at
end of year 197,000 $6.03 110,000 $5.30 80,000 $5.18
Exercisable at end
of year 158,980 52,545 26,333
Weighted average
fair value of
options granted
during the year $244,000 $47,000 $32,000
(a) Weighted average exercise price per share.
5. EMPLOYEE STOCK OWNERSHIP PLAN
The company has a non-qualified 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, 1998 the company allocated to
participants 3,500 shares resulting in ESOP expense of $17,500. In each
of the years 1997 and 1996, 7,000 shares of stock held by the ESOP were
allocated to participants, resulting in ESOP expense of $41,160 and
$24,500 for the years ended December 31, 1997 and 1996, respectively.
<PAGE>
6. INCOME TAXES
Deferred income taxes reflect the impact of temporary differences
between assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations.
Deferred tax assets and liabilities are comprised of the following at
December 31:
1998 1997
Deferred tax assets
Claims and other reserves $ 467,624 $ 472,507
Net operating loss carryforward 1,924,655 1,069,926
Other 273,218 273,208
2,665,497 1,815,641
Deferred tax liabilities
Property and equipment 4,863,827 3,416,036
Revenue 201,670 259,408
5,065,497 3,675,444
Net deferred tax liability $2,400,000 $1,859,803
A reconciliation between the provision for income taxes and the expected
taxes using the federal statutory rate of 34% follows:
1998 1997 1996
Tax expense (benefit) at federal
statutory rate $ 475,320 $ 279,392 $(201,982)
State income tax expense (benefit) 56,596 32,870 (23,762)
Deferred income tax expense
(benefit) $ 531,916 $ 312,262 $(225,744)
The company has available net operating loss carryforwards of
approximately $5,065,000 for regular income tax purposes expiring
through 2013.
<PAGE>
7. 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. There was no effect of this accounting change on previously
reported earnings per share.
Basic earnings (loss) per share and diluted earnings (loss) per share were
$0.48, $0.28 and ($0.20) for the years ending December 31, 1998, 1997,
and 1996, respectively.
8. 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
("Agreement") 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 (7.75% at December 31, 1998). 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. The company has recorded compensation
expense of $37,000 in 1998 in connection with the Agreement.
<PAGE>
Board of Directors Executive and Other Officers
William P. Ward (1), (3), (4), (5), (6), (7) Gary J. Klusman
Chairman of the Board President and
OTR Express, Inc. Chief Executive Officer
Gary J. Klusman (4) Janice Kathryn Ward
President and Vice President
Chief Executive Officer
OTR Express, Inc. Steven W. Ruben
Vice President Finance and
Janice Kathryn Ward (5) Chief Financial Officer
Vice President
OTR Express, Inc. Christine D. Schowengerdt
Treasurer and Assistant Secretary
Dr. James P. Anthony (1), (2)
Radiologist Carolyn J. Davidson
Carondelet Radiology Group Vice President Administration
and Secretary
Frank J. Becker (1), (6)
President Gary L. Hinkle
Becker Investments, Inc. Vice President Fleet Management
Terry G. Christenberry (2), (4), (6) Marc E. Hirschmann
President Vice President Maintenance and
Christenberry, Collet & Co., Inc. Purchasing
Paul A. MacNaughton
Charles M. Foudree (1), (3), (7) Vice President Information
Executive Vice President - Finance Systems
Harmon Industries, Inc.
Chip Seitz
Dean W. Graves (4), (7) Vice President OTR Logistics
Owner, Dean Graves, FAIA
Architectural Firm Eric T. Janzen
Vice President Marketing
Dr. Ralph E. MacNaughton (2), (3), (5)
Physician, Retired Jeffrey T. Brown
Carondelet Radiology Group Vice President Operations
David J. Caldwell
Vice President Fleet Operations
Member of:
(1) Governance Committee
(2) Audit Committee
(3) Compensation Committee
(4) Strategy Committee
(5) Risk Management Committee
(6) Mergers and Acquisitions Committee
(7) Investor and Public Relations Committee
Photography by:
L. Andrew & Co. Photography (Cover and
page 9) , Attig Photography Studio (pages 3 Michaels(r) is a registered
and 4) and OTR Express, Inc. driver/manager trademark of Michaels Stores,
(page 6) Inc.
<PAGE>
<TABLE>
QUARTERLY FINANCIAL DATA (Unaudited)
<CAPTION>
1998
(In thousands except per share data)
Mar 31 Jun 30 Sep 30 Dec 31 Year
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
Operating revenue $16,747 $17,750 $18,557 $19,230 $72,284
Operating expenses
Salaries, wages
and benefits 6,498 6,660 7,282 7,689 28,129
Purchased
transportation 1,390 1,850 2,047 2,604 7,891
Fuel 1,589 1,480 1,359 1,263 5,691
Maintenance 1,074 1,165 1,252 1,234 4,725
Depreciation 1,876 1,954 1,914 1,693 7,437
Insurance and
claims 546 553 331 478 1,908
Taxes and licenses 1,609 1,678 1,771 1,841 6,899
Supplies and other 1,124 1,101 1,331 1,282 4,838
Total operating
expenses 15,706 16,441 17,287 18,084 67,518
Operating income 1,041 1,309 1,270 1,146 4,766
Interest expense 838 835 843 835 3,351
Income before income
taxes 203 474 427 311 1,415
Income tax expense 77 180 154 121 532
Net income $ 126 $ 294 $ 273 $ 190 $ 883
Weighted average
number of shares
Basic 1,836 1,831 1,836 1,836 1,836
Diluted 1,851 1,851 1,841 1,841 1,846
Earnings per share
Basic $ 0.07 $ 0.16 $ 0.15 $ 0.10 $ 0.48
Diluted $ 0.07 $ 0.16 $ 0.15 $ 0.10 $ 0.48
PERCENT OF REVENUE
Operating revenue 100.0% 100.0 % 100.0% 100.0% 100.0%
Operating expenses
Salaries, wages
and benefits 38.8 37.5 39.2 40.0 38.9
Purchased
transportation 8.3 10.4 11.0 13.5 10.9
Fuel 9.5 8.3 7.3 6.6 7.9
Maintenance 6.4 6.6 6.7 6.4 6.5
Depreciation 11.2 11.0 10.3 8.8 10.3
Insurance and
claims 3.3 3.1 1.9 2.5 2.6
Taxes and licenses 9.6 9.5 9.5 9.6 9.6
Supplies and other 6.7 6.2 7.3 6.6 6.7
Total operating
expenses 93.8 92.6 93.2 94.0 93.4
Operating income 6.2 7.4 6.8 6.0 6.6
Interest expense 5.0 4.7 4.5 4.4 4.6
Income before income
taxes 1.2 2.7 2.3 1.6 2.0
Income tax expense 0.5 1.0 0.8 0.6 0.8
Net income 0.7 1.7 1.5 1.0 1.2
</TABLE>
<PAGE>
<TABLE>
QUARTERLY FINANCIAL DATA (Unaudited)
<CAPTION>
1997
(In thousands except per share data)
Mar 31 Jun 30 Sep 30 Dec 31 Year
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
Operating revenue $13,831 $15,663 $17,054 $17,249 $63,797
Operating expenses
Salaries, wages
and benefits 5,524 6,217 6,796 7,012 25,549
Purchased
transportation 940 847 934 1,036 3,757
Fuel 1,824 1,876 1,908 2,024 7,632
Maintenance 856 932 965 901 3,654
Depreciation 1,716 1,811 1,936 1,938 7,401
Insurance and
claims 317 535 543 487 1,882
Taxes and licenses 1,455 1,513 1,598 1,558 6,124
Supplies and other 807 894 947 1,060 3,708
Total operating
expenses 13,439 14,625 15,627 16,016 59,707
Operating income 392 1,038 1,427 1,233 4,090
Interest expense 720 800 901 848 3,269
Income (loss) before
income taxes (328) 238 526 385 821
Income tax expense
(benefit) (125) 91 200 146 312
Net income (loss) $ (203) $ 147 $ 326 $ 239 $ 509
Weighted average
number of shares
Basic 1,841 1,841 1,841 1,841 1,840
Diluted 1,841 1,841 1,841 1,842 1,842
Earnings (loss) per
share
Basic $ (0.11) $ 0.08 $ 0.18 $ 0.13 $ 0.28
Diluted $ (0.11) $ 0.08 $ 0.18 $ 0.13 $ 0.28
PERCENT OF REVENUE
Operating revenue 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses
Salaries, wages
and benefits 39.9 39.7 39.8 40.7 40.0
Purchased
transportation 6.8 5.4 5.5 6.0 5.9
Fuel 13.2 12.0 11.2 11.7 12.0
Maintenance 6.3 5.9 5.8 5.3 5.8
Depreciation 12.4 11.6 11.4 11.2 11.6
Insurance and
claims 2.3 3.4 3.2 2.8 2.9
Taxes and licenses 10.5 9.7 9.2 9.0 9.6
Supplies and other 5.8 5.7 5.5 6.2 5.8
Total operating
expenses 97.2 93.4 91.6 92.9 93.6
Operating income 2.8 6.6 8.4 7.1 6.4
Interest expense 5.2 5.1 5.3 4.9 5.1
Income (loss) before
income taxes (2.4) 1.5 3.1 2.2 1.3
Income tax expense
(benefit) (0.9) 0.6 1.2 0.8 0.5
Net income (loss) (1.5) 0.9 1.9 1.4 0.8
</TABLE>
<PAGE>
Stockholder Information
At March 11, 1999, there were 164 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
The company's common stock is traded on The Nasdaq Stock Market(r)
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 Nasdaq Stock Market.
1997
Period Stock Price (Low-High)
Jan 1 to Mar 31, 1997 $2.625 - $4.000
Apr 1 to Jun 30, 1997 $2.625 - $5.125
Jul 1 to Sep 30, 1997 $4.625 - $5.750
Oct 1 to Dec 31, 1997 $5.250 - $6.250
1998-1999
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
Jan 1 to Feb 28, 1999 $3.750 - $5.250
To date, the company has not declared or paid any dividends on its
Common Stock and presently does not anticipate paying any such dividends
in the foreseeable future. It is management's present intention to
retain future earnings, if any, for use in the company's business
operations.
<PAGE>
Stockholder Information
Corporate Offices Transfer Agent
OTR Express, Inc. UMB Bank of Kansas City, N.A.
804 N. Meadowbrook Drive Securities Transfer Division
Olathe, Kansas 66062 P.O. Box 410064
Kansas City, Missouri 64141-0064
(913) 829-1616
Independent Auditors
Mailing address: Arthur Andersen LLP
P.O. Box 2819 911 Main
Olathe, KS 66063-0819 Suite 1500
Kansas City, Missouri 64105
Annual Meeting General Counsel
The annual meeting of the stockholder Bryan Cave LLP
will be at 3:00 p.m., Thursday, 3500 One Kansas City Place
May 6, 1999, at the Overland Park Marriott 1200 Main Street
Hotel, 10800 Metcalf Avenue, Overland Kansas City, MO 64105
Park, Kansas
Form 10-K Common Stock Listing
Stockholders may receive a copy of OTR Express, Inc. common stock
the company's 1998 Annual Report to trades on The NASDAQ Stock
the Securities and Exchange Commission Market(r) under the symbol: OTRX
on Form 10-K free of charge by writing
to:
Investor Relations
OTR Express, Inc.
P.O. Box 2819
Olathe, Kansas 66063-0819
<PAGE>
OTR EXPRESS, INC.
804 N. MEADOWBROOK DRIVE P.O. BOX 2819
(913)829-1616 FAX (913)829-0622
WWW.OTRX.COM
Exhibit 23. Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the
incorporation by reference of our report dated February 5, 1999 included
in the Annual Report on Form 10-K filed by OTR Express, Inc. (the
"Company") for its fiscal year ended December 31, 1998 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 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 521,484
<SECURITIES> 0
<RECEIVABLES> 8,486,735
<ALLOWANCES> 77,403
<INVENTORY> 534,623
<CURRENT-ASSETS> 10,011,173
<PP&E> 68,908,882
<DEPRECIATION> 19,699,613
<TOTAL-ASSETS> 59,220,442
<CURRENT-LIABILITIES> 18,271,021
<BONDS> 0
<COMMON> 18,527
0
0
<OTHER-SE> 9,872,683
<TOTAL-LIABILITY-AND-EQUITY> 59,220,442
<SALES> 72,284,272
<TOTAL-REVENUES> 72,284,272
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 67,470,294
<LOSS-PROVISION> 47,648
<INTEREST-EXPENSE> 3,351,438
<INCOME-PRETAX> 1,414,892
<INCOME-TAX> 531,916
<INCOME-CONTINUING> 882,976
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 882,976
<EPS-PRIMARY> .48
<EPS-DILUTED> .48
</TABLE>
