(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