-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UfdSgtJN3Y+aIn4h/PftW/Q3zcUh9xjdu2nww3z1l+HM10gq6dKbmbNtJh3Ezdzx KNrwK6tcGzs8sgy57PkvMw== 0000881895-99-000002.txt : 19990402 0000881895-99-000002.hdr.sgml : 19990402 ACCESSION NUMBER: 0000881895-99-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OTR EXPRESS INC/KS CENTRAL INDEX KEY: 0000881895 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 480993128 STATE OF INCORPORATION: KS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19773 FILM NUMBER: 99582079 BUSINESS ADDRESS: STREET 1: 804 N MEADOWBROOK DR STREET 2: PO BOX 2819 CITY: OLATHE STATE: KS ZIP: 66062-0819 BUSINESS PHONE: 9138291616 MAIL ADDRESS: STREET 1: P O BOX 2819 CITY: OLATHE STATE: KS ZIP: 66063 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K Annual Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 For the year ended December 31, 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. 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 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 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. 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 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. 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. 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 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." 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. 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) 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) 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. 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 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 Schedule II SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Balance at Additions Balance at Beginning of Charged to End Year Expense Deductions of Year 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
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 EX-3 2 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 EX-10 3 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. EX-10 4 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 EX-10 5 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 EX-10 6 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 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) 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 : 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 : 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 : 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 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 : 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 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 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 INSTALL TWO LIGHTED BUMPER GUIDE POLES INSTALL OTR MUDFLAPS INSTALL FIRE EXT. & TRIANGLE KIT 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 EX-11 7 Exhibit 11. Statement Re: Computation of Earnings Per Share Basic earnings per share is calculated by dividing net income by the average weighted number of shares of common stock outstanding during the period. Diluted earnings per share is calculated by dividing net income by the average weighted number of shares of common stock and common stock equivalents outstanding during the period. Common stock equivalents include the outstanding stock options. EX-13 8 (Pictured on cover Premium Service, Value-Added Technology and Motivated Professionals omitted) 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 (Graphs-five year historieof various operating statistics omitted) Financial Highlights
(In thousands except per share data) 1998 1997 1996 1995 1994 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
(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. 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 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 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. 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. 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) 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. Selected Financial Data
(In thousands except per share data) 1998 1997 1996 1995 1994 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
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. 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. 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. 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. Expected Fixed Average Maturity Rate Interest Date Debt Rate 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
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. 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 Balance Sheets OTR Express, Inc.
At December 31 1998 1997 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.
Statements of Operations OTR Express, Inc.
For the Years Ended December 31 1998 1997 1996 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.
Statements of Stockholders' Equity OTR Express, Inc.
Common Additional Retained Debt Treasury Total Stock Paid-In Earnings Guarantee Stock Stock- Capital holders' Equity 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.
Statements of Cash Flows OTR Express, Inc.
For the Years Ended December 31 1998 1997 1996 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.
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. 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. 2. PROPERTY AND EQUIPMENT 1998 1997 Cost
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
3. LONG-TERM DEBT 1998 1997 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
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) 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. 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. 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. 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. QUARTERLY FINANCIAL DATA (Unaudited)
1998 (In thousands except per share data) Mar 31 Jun 30 Sep 30 Dec 31 Year INCOME STATEMENT Operating revenue $16,747 $17,750 $18,557 $19,230 $72,284 Operating expenses Salaries, wages and benefits 6,498 6,660 7,282 7,689 28,129 Purchased transportation 1,390 1,850 2,047 2,604 7,891 Fuel 1,589 1,480 1,359 1,263 5,691 Maintenance 1,074 1,165 1,252 1,234 4,725 Depreciation 1,876 1,954 1,914 1,693 7,437 Insurance and claims 546 553 331 478 1,908 Taxes and licenses 1,609 1,678 1,771 1,841 6,899 Supplies and other 1,124 1,101 1,331 1,282 4,838 Total operating expenses 15,706 16,441 17,287 18,084 67,518 Operating income 1,041 1,309 1,270 1,146 4,766 Interest expense 838 835 843 835 3,351 Income before income taxes 203 474 427 311 1,415 Income tax expense 77 180 154 121 532 Net income $ 126 $ 294 $ 273 $ 190 $ 883 Weighted average number of shares Basic 1,836 1,831 1,836 1,836 1,836 Diluted 1,851 1,851 1,841 1,841 1,846 Earnings per share Basic $ 0.07 $ 0.16 $ 0.15 $ 0.10 $ 0.48 Diluted $ 0.07 $ 0.16 $ 0.15 $ 0.10 $ 0.48 PERCENT OF REVENUE Operating revenue 100.0% 100.0 % 100.0% 100.0% 100.0% Operating expenses Salaries, wages and benefits 38.8 37.5 39.2 40.0 38.9 Purchased transportation 8.3 10.4 11.0 13.5 10.9 Fuel 9.5 8.3 7.3 6.6 7.9 Maintenance 6.4 6.6 6.7 6.4 6.5 Depreciation 11.2 11.0 10.3 8.8 10.3 Insurance and claims 3.3 3.1 1.9 2.5 2.6 Taxes and licenses 9.6 9.5 9.5 9.6 9.6 Supplies and other 6.7 6.2 7.3 6.6 6.7 Total operating expenses 93.8 92.6 93.2 94.0 93.4 Operating income 6.2 7.4 6.8 6.0 6.6 Interest expense 5.0 4.7 4.5 4.4 4.6 Income before income taxes 1.2 2.7 2.3 1.6 2.0 Income tax expense 0.5 1.0 0.8 0.6 0.8 Net income 0.7 1.7 1.5 1.0 1.2
QUARTERLY FINANCIAL DATA (Unaudited)
1997 (In thousands except per share data) Mar 31 Jun 30 Sep 30 Dec 31 Year 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
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. 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 OTR EXPRESS, INC. 804 N. MEADOWBROOK DRIVE P.O. BOX 2819 (913)829-1616 FAX (913)829-0622 WWW.OTRX.COM EX-23 9 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 EX-27 10 ARTICLE 5. FIN. DATA SCHEDULE FOR FISCAL YEAR 1998 10-K
5 1 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 521,484 0 8,486,735 77,403 534,623 10,011,173 68,908,882 19,699,613 59,220,442 18,271,021 0 18,527 0 0 9,872,683 59,220,442 72,284,272 72,284,272 0 0 67,470,294 47,648 3,351,438 1,414,892 531,916 882,976 0 0 0 882,976 .48 .48
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