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Oklahoma Turnpike Authority

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Organizational Chart

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Seated left to right: Holly Lowe - Deputy Director; Neal A. McCaleb- Secretary of Transportation and Director; Mike Ashcraft - PIKEPASSOperations Manager;

Standing left to right: Lieutenant Ken Reed � Oklahoma HighwayPatrol; Tim Stewart - Director of Maintenance; Lori Scott - Controller;Alan Freeman - Director of Human Resources; James L. Beach - Direc-tor of Patron Services and Public Relations; Don Hawk - Director ofEngineering; Lillie Buckner - Executive Secretary; Gary Brown - Direc-tor of Information and Communication Services; David Machamer -Director of Toll Operations

Oklahoma Turnpike AuthorityMembers

The Oklahoma Turnpike Authority�s (OTA) governing body(the Authority) consists of the Governor (ex-officio) and six mem-bers. The members are appointed by the Governor and approvedby the State Senate. They serve eight-year, uncompensated termsand may be reappointed.

The Authority appoints the Director of the Oklahoma Turn-pike Authority. Neal A. McCaleb is currently serving as Director.Mr. McCaleb also serves as the Secretary of Transportation andas the Director of the Oklahoma Department of Transportation.The Director, with his management staff, supervises the daily op-erations of the organization. Authority Members provide over-sight and policy direction. They appoint various consulting entitieswith national reputations for excellence, including the GeneralCounsel, Bond Counsel, Consulting Engineers, Consulting TrafficEngineers, Financial Advisor, Bond Underwriter(s) and Indepen-dent Auditor(s).

All action taken by Authority Members and staff must be instrict compliance with the provisions of OTA�s Trust Agreement.

In late 1997, Francis Rooney resigned from the Authority, andDewey F. Bartlett, Jr. was named as his replacement as the rep-resentative from District 4.

GovernorFrank Keating

Ex-Officio

Neal A.McCaleb

Secretary ofTransportation

and Director

Fred J. Hall,ChairmanDistrict 1

Robert M. (Bob)Kane

District 2

Albert C.(Kell) Kelly, Jr.Vice-Chairman

District 3Dewey F.

Bartlett, Jr.District 4

Steve LaForgeSecretary &TreasurerDistrict 5

Judy CurtisDistrict 6

Senior Management

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Turner TurnpikeAuthorized by the State Legislature in1947 and opened in 1953. Four-lanelimited access highway extending 86.0miles from Tulsa to Oklahoma City. In-terchanges at Sapulpa, Kellyville,Bristow, Stroud, Chandler and Wellston.Service station and/or restaurant withfree restrooms at Heyburn, Bristow,Stroud, Chandler, and Wellston.

Will Rogers TurnpikeAuthorized by the State Legislature in1953 and opened in 1957. Four-lanelimited access highway extending 88.5miles from Tulsa to the Oklahoma-Mis-souri state line about 1,000 feet southof the southeast corner of Kansas. In-terchanges at Claremore, Adair (S. H.28), Big Cabin, Vinita, Afton and Mi-ami. Service station and/or restaurantwith free restrooms at Vinita and Mi-ami.

H. E. Bailey TurnpikeAuthorized by the State Legislature in1953 and opened in 1964. Four-lanelimited access highway extending 86.4miles in two sections: north section(61.4 miles) from Oklahoma City to U.S. 277 north of Lawton; south section(25.0 miles) from U. S. 277 south ofLawton to U. S. 70, 5.2 miles north ofthe Texas state line. Interchanges atChickasha, Cyril, Elgin and Walters.Service station and/or restaurant withfree restrooms at Chickasha and Walters.

Indian Nation TurnpikeAuthorized by the State Legislature in1955, north section opened in 1966 andsouth section opened in 1970. Four-lane limited access highway extending105.2 miles in two continuous sections;north section (41.1 miles) from U. S.75/I-40 near Henryetta to U. S. 69 nearMcAlester; south section (64.1 miles)from end of north section to U. S. 70near Hugo. Interchanges at Eufaula,Ulan, McAlester, Daisy and Antlers.Service station and/or restaurant withfree restrooms at Eufaula and Antlers.

Muskogee TurnpikeAuthorized by the State legislature in1965 and opened in 1969. Four-lanelimited access highway extending 53.1miles from Tulsa to I-40 near WebberFalls. Interchanges at Coweta,Muskogee and U. S. 64 near WebberFalls. Service station and restaurantwith free restrooms at Muskogee.

Cimarron TurnpikeAuthorized by the State Legislature in1965 and opened in 1975. Four-lanelimited access highway extending 59.2miles on main route from I-35/U. S. 64east of Enid to Tulsa, and 8.5 miles ona spur connecting the main route withStillwater and Oklahoma State Univer-sity. Interchanges at U.S. 77, U.S. 177,Stillwater, Morrison, S.H.18, Hallett andS.H. 48. Service station and restaurantwith free restrooms at Lone Chimney.

John Kilpatrick TurnpikeAuthorized by the State Legislature in1987 and opened in 1991. Four-lanelimited access urban highway extending9.5 miles from the Oklahoma City in-terchange of the Turner Turnpike andI-35 to Portland Avenue/Lake HefnerParkway. Interchanges at Eastern Av-enue, U. S. 77/Broadway Extension,Western Avenue, Pennsylvania Avenue,May Avenue and Portland Avenue/LakeHefner Parkway.

Description OfThe Oklahoma Turnpike System

Cherokee TurnpikeAuthorized by the State Legislature in1987 and opened in 1991. Four-lanelimited access highway extending 32.8miles from U. S. 412 at Locust Groveto U. S. 412 west of West Siloam Springs.Interchanges at Locust Grove, U. S 412and S. H. 10. Restaurant and servicestation with free restrooms at Leach.

Chickasaw TurnpikeAuthorized by the State Legislature in1987 and opened in 1991. Two-lanelimited access highway extending 27.1miles from S. H. 7 west of Sulphur toS. H. 1 near Ada. Only 17.7 miles tolled,with interchanges at S. H. 7, U. S. 177and Roff.

Creek TurnpikeAuthorized by the State Legislature in1987 and opened in 1992. Four-lanelimited access urban highway extending7.6 miles from U. S. 75 across the Ar-kansas River to U. S. 64 near 96thStreet. It links with an extension of theU. S. 69/Mingo Valley Expressway. In-terchanges at U. S. 75, Peoria Avenue,Delaware Avenue, Yale Avenue and U.S. 64/MemorialDrive.

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The objective of the Oklahoma Turnpike Authority is to con-tinually improve the System over the long term by focusing oncustomers while addressing the needs of all stakeholders. The OTAhas continued its commitment to System rehabilitation and mainte-nance, customer service and safety with innovative programs re-sulting in greater safety to our patrons, increased access andsmoother ride surfaces. The concepts of Quality Management havebeen the focal point of the OTA and have enabled us to improveour bottom line, complete major rehabilitation projects and increasecustomer service.

System-wide net toll revenues during 1997 exceeded 1996 nettoll revenues by a strong 5.6%. Net toll revenues for 1997 are animpressive $117,167,783. 1997 has proven to be a highly success-ful year with net toll revenues reported 1% or $1.1 million higherthan budgeted projections. This year marks the first time in OTAhistory when monthly net toll revenues have exceeded the $10million mark. Transactions for 1997 exceeded those for 1996 by6.9%.

The six base turnpikes re-port revenue growth of 5.0%while the four newer turnpikeshad a 10.3% growth in revenuesover the previous year. TheKilpatrick and Creek Turnpikes,in particular, continue to reportexceptional growth with rev-enues for 1997 out-producingrevenues for 1996 by 14% and13.5%, respectively.

Annual operating expensesfor 1997 fell well below the bud-geted amount of $34,640,000and were notably less than 1996operating expenses. This is dueto the combined efforts of all di-visions working together underthe direction and leadership ofOTA�s Director and Deputy Di-rector.

1997HIGHLIGHTS

Annual operatingexpenses for 1997fell well below thebudgeted amountand were notably

less than 1996operating expenses.

Comparison of Budget to ActualOperating Expenses

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

$40,000,000

1993 1994 1995 1996 1997

Actual Budgeted

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Beginning in 1994, the OTA developed a Five Year CapitalPlan which identified the maintenance, rehabilitation and improve-ment needs of its existing System for the next 20 to 30 years andinstituted a five-year program designed to keep existing turnpikesin good condition, thereby maintaining traffic flows and extendingthe useful life of the turnpikes.

A major part of the OTA�sFive Year Capital Plan is the re-surfacing and pavement rehabili-tation of the existing System. In1997, 34.5 miles of pavementwere resurfaced on the Turnerand Will Rogers Turnpikes. Thepurchase and use of aProfilograph has been instru-mental in achieving an excellentride surface on these rehabilita-tion projects. The Profilographutilizes a bump or dip detectorto grade the ride factor andsmoothness of ride within OTArequired specifications. Thisequipment is used to identifyhigh and low spots on the exist-ing System, allowing OTA En-gineering and Maintenance Di-vision personnel to prioritize

A major part of theOTA�s Five Year

Capital Plan is theresurfacing and

pavementrehabilitation of the

existing System.

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pavement rehabilitation projects. The Profilograph is also used toanalyze the ride quality when pavement rehabilitation projects arecompleted. The contractor is required to perform all pavementrehabilitation projects within the required OTA specifications. Whenpavement rehabilitation ride factors are identified outside OTA tol-erances, the contractor is required to grind and smooth the pave-ment section to acceptable specifications or incur monetary pen-alties.

During 1997, median barrier walls were completed along sec-tions of the H.E. Bailey and Muskogee Turnpikes. Twenty-fourmiles of median barrier walls were completed on the H.E. BaileyTurnpike, and thirty-three miles were installed on the MuskogeeTurnpike. These median barrier walls protect the public from po-tentially fatal head-on collisions that might occur when vehiclescross the center median. Studies conducted on the Turner andWill Rogers Turnpikes, where median barrier walls have been in-stalled, have shown the elimination of crossover head on colli-sions. The 1998 portion of the Five Year Capital Plan calls foradditional median barrier installations along further sections of theH.E. Bailey Turnpike.

Replacing old and damaged roadway signs is also a focus ofOTA�s Five Year Capital Plan. The Turner Turnpike re-signingproject was implemented and completed during 1997. OTA engi-neering staff designed and purchased roadway signs to replace allexisting signage on the Turner Turnpike. The new signs havebeen designed to meet all applicable safety standards for distance

During 1997, medianbarrier walls werecompleted along

sections of the H.E.Bailey and Muskogee

Turnpikes.

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from right-of-way, lateral clearance and retro-reflectivity. Thenew signs, which are clearly visible during evening hours, enhancesafety for all patrons and provide valuable information to turnpiketravelers. Future plans include re-signing the Will Rogers, H.E.Bailey, Indian Nation and Muskogee Turnpikes.

The OTA recognizes the importance of System maintenancewhile minimizing any negative impact to the environment. In re-sponse to the increased traffic on Oklahoma turnpikes and theadditional commerce provided at OTA concession areas, OTAengineers redesigned the sewage lagoons at the Dustin, Walters,

Chickasha and Lone Chimney concession areas to provide envi-ronmentally sound sewage lagoons and to ensure Oklahoma�sbeauty for future generations.

The installation of fiber optic cable by IXC Carrier, Inc. (IXC)and MBO Video, Inc. (MBO) along turnpike right-of-way and therelated agreements reached between OTA, MBO, IXC, the Of-fice of State Finance (OSF), the Oklahoma Department of Trans-portation (ODOT) and the Oklahoma State Board of Regents rep-resent innovative programs resulting in increased customer ser-vice and internal operating efficiencies. The OTA has reached anagreement by which they and other state agencies are grantedfree use of existing fiber optic lines. In the future, the OTA plansto operate our wide area network via fiber optics. This will resultin superior data transmission at exceptional savings to the OTAand the state, eliminating phone charges related to maintenance

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and toll facilities along the System. The Information and Commu-nication Services Division successfully completed the first con-nection to the fiber optic network during 1997. The MorrisonMaintenance Facility on the Cimarron Turnpike is now communi-cating with OTA Headquarters at a rate 27 times faster than pre-vious communication methods.

This year, a continued emphasis has been placed on slope in-stability rehabilitation. The reconstruction of the slide areas atmile 187 and mile 210 on the Turner Turnpike were finalized dur-ing 1997. Design work was completed for the reconstruction ofthe slide area at the Muskogee, I-40 interchange on the MuskogeeTurnpike. Slide areas are caused by multiple factors includingexcessive ground water and slope instability of embankment andcut areas. The OTA has utilized the process of value engineeringto develop new ideas and alternative solutions in the rehabilitationof slide areas resulting in significant savings to the OTA.

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Bridge and turnpike under-pass repair and rehabilitationcontinue to remain a priority. Atotal of four bridges and ten turn-pike underpasses were rehabili-tated System-wide during 1997.This rehabilitation work con-sisted of substructure and, ifneeded, superstructure repairs.In addition to these contract re-pair projects, additional substruc-ture rehabilitation was per-formed by OTA MaintenanceDivision personnel.

To further promote cus-tomer service and safety on ourSystem, Engineering and Main-tenance Division personnel havedeveloped and implemented pro-grams providing exceptional ser-vice and safety to turnpike pa-trons. One innovative programencourages contractors to re-duce construction time allowingtraffic lanes and facilities openfor use at the earliest possibletime. All vendors compete witheach other concerning construc-tion timetables and completiondates in addition to price of con-struction when preparing bidproposals for maintenance andrehabilitation projects. OTA re-view committees place greatimportance on the constructiontimetables in awarding bids forrehabilitation and maintenanceprojects. The contractorawarded the contract is thengiven the responsibility of com-pleting the assigned contractwithin the time frame to whichthey committed. Completion ofprojects later than the scheduledcompletion date results in mon-etary penalties. This offers theservice provider incentive to in-vestigate and determine more ef-ficient ways of performing nec-essary tasks required to com-plete assigned projects and meet

Bridge and turnpikeunderpass repair and

rehabilitationcontinue to remain a

priority.

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construction deadlines. Swift completion of maintenance and re-habilitation projects increase System access and safety by open-ing closed lanes and work zones to normal traffic flow in a timelymanner.

The lane rental program, during construction, was implementedwith customer safety as the main focus. The intent of this pro-gram is to minimize traffic disruption and allow construction workto proceed in a safe and efficient manner by penalizing serviceproviders for unnecessary or excessive lane closures. The lanerental program allows service providers to control their own op-erations and provides a cost incentive for service providers to re-strict the amount of time lanes are closed, so as not to severelyimpede traffic flow. During vendor selection of bid proposals re-lated to lane closures, OTA review committees quantify the amountof lane closure time related to each bid received. This quantifiedlane closure time is analyzed with each bid proposal to determinethe best proposal received. All service providers are given mon-etary incentive to perform work in a timely manner and promptlyreopen lanes to avoid the lane rental fees.

During 1997, the OTA partnered with Oklahoma County toprovide access to the Turner Turnpike for Eastern OklahomaCounty. The addition of the Luther gate, with Oklahoma Countyfinancial participation, will provide Eastern Oklahoma County citi-zens ease in access to the Turner Turnpike previously not avail-able. Design work was also completed on the addition of a west-bound off-ramp and eastbound on-ramp at the Wellston Interchangeon the Turner Turnpike. This will allow greater access to theTurner Turnpike for Wellston and the surrounding communities.These efforts to increase access and convenience to the Systemexhibit OTA�s pledge to provide superior customer service to Okla-homa turnpike patrons.

Providing continued exceptional customer service and conve-nience has been defined in 1997 by the OTA-PIKEPASS TagAgency Program. Fifty-eight tag agencies participated in the pro-gram during 1997 issuing 11,187 PIKEPASS tags which represent19% of the total PIKEPASS tags issued to new and existing ac-counts for the year. The Tag Agency Program gained industryrecognition in 1997 when OTA received the International Bridge,Tunnel and Traffic Association (IBTTA) Toll Innovation Awardfor the implementation and success of the program. The Toll In-novation Award is given each year to industry leaders that imple-ment programs and solutions providing safety, quality, innovationand convenience.

Additional efforts to enhance customer service were achievedby the signing of the new automatic coin machine maintenancecontract in 1997. This contract provides a higher degree of main-tenance on the automatic coin machines and increased personnelto respond to all service requests. With a two hour response andtwo hour repair time mandated by the contract, the benefit en-sures minimal downtime, providing an increase in service efficiencyto automatic coin machine customers and the System overall.

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On January 6, 1998, Oklahoma Governor Frank Keating andSecretary of Transportation, Neal A. McCaleb, along with theOklahoma Turnpike Authority announced their intention to submitan application to the Executive and Legislative Bond OversightCommissions asking for both provisional and final approval for theissuance of Tax Exempt Second Senior Lien Revenue Bonds. OnJanuary 9, 1998, the Oklahoma Turnpike Authority convened aspecial meeting passing a resolution authorizing the Director tosubmit this application to the State Bond Oversight Commissionsfor approval of the financing of certain turnpike improvementprojects totaling $602,852,000. On January 29, 1998, the Okla-

homa Turnpike Authority re-ceived final approval by a unani-mous vote of both the Execu-tive and Legislative Bond Over-sight Commissions for issuanceof Revenue Bonds for the fi-nancing of these turnpike im-provement projects. Theseprojects include: completion ofthe Kilpatrick from HefnerParkway to I-40, completion ofthe Creek Turnpike from theMingo Expressway (US-169) tothe Will Rogers Turnpike, exten-sion of the Creek Turnpike fromthe Turner Turnpike to US-75,construction of a turnpike ex-tension of the H.E. Bailey Turn-pike from Mustang Road eastand south to the junction of SH-9 and US-62 south ofNewcastle, and the purchase ofright-of-way to allow for the ex-tension of the Muskogee Turn-pike.

The OTA has received letters and comments from many com-munities that would benefit from the future projects. These com-munities have been very supportive throughout the process realiz-ing that these new infrastructures projects will bring growing eco-nomic development to their areas. The OTA also has the supportof the Association of Central Governments and Indian NationCouncil of Governments. These communities and organizationsbelieve that the Oklahoma Turnpike Authority�s road package, alongwith the Department of Transportation�s $1 billion road programthat was announced during the last Legislative Session, will bol-ster the economy of the entire state and once completed will makeOklahoma a leader in transportation. With community supportand a cooperative spirit between the Department of Transporta-tion and the Oklahoma Turnpike Authority, the future of Okla-homa transportation seems very promising and the possibilities areendless.

LOOKINGTOWARD THEFUTURE

The OTA hasreceived letters and

comments frommany communitiesthat would benefit

from the futureprojects.

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Because of recent national economic growth trends, factorsthat contributed to a �lower-than-expected� inflation rate in 1997will likely continue in 1998 as we enjoy a period of �strong growth,low inflation bliss�, per Merrill Lynch & Co. Research Group.This along with President Clinton�s announcement of the first bal-anced budget in 30 years contributes to the country�s optimism forthe future. Productivity growth is expected to remain solid, espe-cially in many goods-producing industries, and the factors that helddown growth of unit labor-costs in 1997 are expected to do so into1998.

Once again, for 1997, Oklahoma economic growth trends havebeen similar to, and in some cases even better than those of thenation for the year. During 1997, Oklahoma�s economy showed ajob growth rate similar to the national growth rate.

State government continues to promote economic develop-ment within our borders by creating policies that enhance profit-ability through lower business costs. These policies include thosethat reduce business taxes, help provide favorable financial capitaland provide financial capitalwhere none might otherwise beavailable. Oklahoma has alsoimplemented policies designedto create further expansion ofeconomic activities. Hopefully,continuing these policies willreap further benefits in the fu-ture.

As was mentioned earlier,the Oklahoma Turnpike Author-ity is poised to complete the ur-ban toll roads started in the 1989bond issue in the Tulsa and Okla-homa City areas. The two pri-mary projects extend the CreekTurnpike in Tulsa and theKilpatrick Turnpike in OklahomaCity to make them inter-state highway connectors rather than in-terurban connectors. There has been much support by our localmunicipalities as well as organizations such as the Indian NationCouncil of Governments and the Association of Central Govern-ments. These cities are aware, as are we, of the staggering growthpotential that accompanies these infrastructures. The extensionsto these existing turnpikes will be an economic boost for areas inthe form of greater housing markets and additional jobs for thearea�s work force. In addition, these infrastructures will provideeasier access for industries that are contemplating locating in vari-ous parts of our State. The OTA believes that economic develop-ment opportunities are critical for Oklahoma�s future and that thisroad package in conjunction with the Department ofTransportation�s $1 billion road package will make Oklahoma aleader in the transportation industry.

ECONOMICTRENDS AND

OUTLOOK

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Internal Controls

It is necessary to establish and maintain internal controls de-signed to provide reasonable assurance that assets are safeguardedagainst loss, theft or misuse and for ensuring that reliable and ad-equate accounting records are maintained. In fulfilling this re-sponsibility, estimates and judgments are required to assess theexpected benefits and related costs of internal control structurepolicies and procedures. We believe that the organization�s inter-nal controls adequately safeguard assets and provides reasonableassurance of proper recording of financial transactions.

Fiduciary Operations

The OTA�s Trustee, Bank of Oklahoma, works closely withfinancial management and staff to ensure that the OTA is in com-pliance with the terms and covenants of its Trust Agreement andthat all financial and operational decisions are made in the bestinterest of the OTA�s bondholders.

Debt Administration

As of December 31, 1997, our outstanding debt, net of unam-ortized discount and net deferred debit on refundings, was ap-proximately $618,970,000. The current portion of this debt totals$12,630,000. Final maturity on this debt is scheduled for the year2022.

Cash Management

All deposits were either insured by federal depository insur-ance or collateralized. Throughout the year, available cash wasinvested in U.S. Government obligations, repurchase agreementsand guaranteed investment contracts. All investments, other thanthe guaranteed investment contracts, were classified in the cat-egory of highest quality rating of credit risk, as defined by theGovernmental Accounting Standards Board (GASB). The guar-anteed investment contracts were either rated within the two high-est quality ratings of credit risk by Moody�s Investors Service andStandard and Poor�s Corporation or collateralized by U. S. Gov-ernment securities in an amount equal to 105% of the outstandingprincipal. At the direction of the Authority, all investments weremade by the Trustee in strict compliance with the provisions of theTrust Agreement.

FINANCIALINFORMATION

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Risk Management

We maintain an aggressive safety and loss prevention pro-gram which is staffed by a full-time safety officer. Insurancepolicies are purchased for normal business risk at favorable ratesthrough the State of Oklahoma�s Risk Management Division ofthe Department of Central Services. All major areas of opera-tions are covered, including buildings and contents, bridges, work-ers� compensation, and general, personal injury and auto liability.We maintain surety bonds covering Authority Members, and a di-rectors� and officers� insurance policy which provides a broad rangeof coverage against liability to the OTA, its Authority Members,management and staff.

Flow of Funds

Section 507 of the Trust Agreement dated February 1, 1989,establishes the flow of funds with which the OTA must comply.The Oklahoma Turnpike Authority must deposit toll and other rev-enues from its operations into the Revenue Fund on a daily basis.All monies in the Revenue Fund at the end of the month (less areserve for current operating expense not to exceed 20% of theamount of current operating expenses shown in the OTA�s latestbudget) are transferred and deposited as follows: 1) bond serviceaccounts in accordance with their respective lien hierarchy for the

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purpose of paying bond principal and interest; 2) bond reserves inaccordance with their respective lien hierarchy for the purpose ofensuring sufficient monies are available to make bond principaland interest payments in the event that current revenues are in-sufficient; 3) the Reserve Maintenance Fund for the purpose ofpaying special maintenance expenses to keep the Turnpike Sys-tem in good repair; and 4) the balance to the General Fund for thepurpose of pledging such monies to the payment of junior obliga-tion debt or any other lawful purpose.

Under the OTA�s EnablingAct, and amendments thereto,a portion of the motor fuel ex-cise taxes collected on fuelsconsumed on the turnpikes ismade available to the OTA fromthe Oklahoma Tax Commission.Since July 1, 1992, the motor fueltax monies have been appor-tioned to the OTA on the firstday of each calendar month. Allmotor fuel taxes apportioned tothe OTA are available to funddebt service, to the extent mon-ies are not otherwise available.If such motor fuel excise taxesapportioned to the OTA are notnecessary in such month, thefuel tax monies shall be paid overimmediately to the OklahomaDepartment of Transportation(ODOT). During 1997, theOTA received, and immediatelyremitted to ODOT, all of the$30,273,631 of motor fuel excisetaxes apportioned to the OTAduring the year.

Basis of Accounting

The operations of the Authority are accounted for as an en-terprise fund on an accrual basis in order to recognize the flow ofeconomic resources. Under this basis, revenues are recognized inthe period in which they are earned, expenses are recognized inthe period in which they are incurred, depreciation of assets isrecognized, and all assets and liabilities associated with the opera-tion of the Authority are included in the Balance Sheet. The TrustAgreement and supplements thereto (the Trust Agreement) re-lated to the Series 1989 Bonds require that the Authority adoptgenerally accepted accounting principles (GAAP) for government

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entities; but, it also requires that certain funds and accounts beestablished and maintained. The Authority consolidates these fundsand accounts for the purpose of enterprise fund presentation in itsexternal financial statements.

Financial Results From Operations

The 1997 net toll revenuesof $117,167,783 were approxi-mately 5.6% higher than 1996net toll revenues due to a 6.9%increase in toll transactions.Concession revenues remainedsteady between 1997 and 1996with an increase of .9% betweenyears.

Operating expenses re-mained constant between 1997and 1996. The only significantchanges were within the TollOperations and Turnpike Main-tenance Divisions. Toll Opera-tions expenses increased ap-proximately $927,000 betweenyears primarily due to increasedadministrative management staffhired for PIKEPASS operations,increased postage and printingexpense resulting from a highervolume of PIKEPASS accountsin 1997 and certified correspon-dence with Turnpike System vio-lators in relation to the passageof Senate Bill 210, and the in-creased cost of the new, im-proved automatic coin machinemaintenance contract. Turnpikemaintenance expenses de-creased approximately$1,605,000, between years dueto a reduction in maintenancesupply costs to a more normallevel than in 1996 and a reduc-tion in Maintenance Divisionstaffing of 13 annualized full timepositions and 9 annualized tem-porary positions.

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Budgetary Control

The OTA prepares an annual budget of current operating ex-penses and monthly deposits to the Reserve Maintenance Fund incompliance with the Trust Agreement and adopts a capital im-provement plan each year. The budget is adopted on a modifiedaccrual (non-GAAP) basis wherein expenditures are recognizedon a cash basis and depreciation is not budgeted as an expendi-ture. Budgets are controlled at the division level, and the object of

the budgetary controls is to en-sure compliance with the provi-sions of the Trust Agreement.The Director may approvechanges within the budget at anylevel, but an increase in the to-tal budget must be approved bythe Authority. Monthly reportsof actual expenses versus bud-geted expenses are provided tothe Authority and management.Unexpended budget balanceslapse at fiscal year end. Project-length financial plans are main-tained for capital projects.

The 1998 budget wasadopted by the Authority onNovember 20, 1997. This bud-get included a 3.5% increase

over the 1997 Annual Budget for operating and maintenance ofthe Turnpike System which is primarily due to a mandated legisla-tive benefits increase and further improvements to the PIKEPASSCustomer Service Center involving video enforcement. Also in-cluded is a reduction in employees from 545 to 530, a decrease of15 positions. The 1998 budget also includes funding for the con-tinuation of the Five Year Capital Plan that was adopted in 1994.

Impact of the Year 2000 Issue

An issue exists for all companies that rely on computers asthe year 2000 approaches. This is because historically many com-puter programs used only two digits to represent the year in dates.Therefore, without adequate modifications, many programs willnot correctly identify the year 2000. The Oklahoma TurnpikeAuthority Information and Communication Services Division(ICSD) utilizes a database environment for most computer appli-cations, Microsoft SQL Server, which provides for a four-digit year.ICSD will be testing all applications, those purchased and devel-oped in-house, for compliance with the year 2000 issue during thefirst half of 1998. Therefore, no material costs are expected to beincurred by the OTA to deal with the year 2000 issue.

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Independent Audit

The Trust Agreement requires an annual audit of the financialstatements by an independent accounting firm. The required audithas been performed for the year ended December 31, 1997 by ourindependent auditors, KPMG Peat Marwick LLP.

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The Government Finance Officers Association of the UnitedStates and Canada (GFOA) presented an award for DistinguishedBudget Presentation to the Oklahoma Turnpike Authority for itsannual budget for the year beginning January 1, 1997.

In order to receive this award, a governmental unit must pub-lish a budget document that meets program criteria as a policydocument, as an operations guide, as a financial plan and as acommunication device.

The award is valid for a period of one year only. This is thesixth consecutive year that the Oklahoma Turnpike Authority hasearned this award. The OTA is the only state agency in Okla-homa to receive this award.

The GFOA awarded a Certificate of Achievement for Excel-lence in Financial Reporting to the Oklahoma Turnpike Authorityfor its Comprehensive Annual Financial Report (CAFR) for theyear ended December 31, 1996. The Certificate of Achievementis a prestigious national award recognizing conformance with thehighest standards for preparation of state and local governmentfinancial reports.

In order to be awarded a Certificate of Achievement, a gov-ernmental unit must publish an easily readable and efficiently or-ganized CAFR, whose contents conform to program standards.Such CAFR must satisfy both generally accepted accounting prin-ciples and applicable legal requirements.

A Certificate of Achievement is valid for a period of one yearonly. The OTA has received a Certificate of Achievement for thelast seven consecutive years (years ended December 31, 1990-1996). We believe our current report continues to conform to theCertificate of Achievement program requirements, and we aresubmitting it to the GFOA.

The OTA�s award is among 17 awarded throughout the stateand is one of only four received by state agencies in Oklahoma.

The GFOA has presented the Award for Outstanding Achieve-ment in Popular Annual Financial Reporting to the OTA for itsPopular Annual Financial Report (PAFR) for the year ended De-cember 31, 1996. This is the second year the OTA has receivedthe GFOA award for this report.

SPECIALAWARDS

The OTA�s award isamong 17 awardedthroughout the stateand is one of onlyfour received bystate agencies in

Oklahoma.

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ACKNOWLEDGMENTS

Grateful appreciation is extended to the entire managementstaff of the OTA for their professional contributions to this report.Thanks also to the Controller Division and Finance and RevenueDivision staff who prepared the report, to the Oklahoma Depart-ment of Transportion�s Office Services Division who provideddesign, printing and photography services and to our independentauditors for their participation in the review and preparation of thisreport.

Special appreciation is extended to Governor Frank Keating,the Authority Members, Director Neal A. McCaleb and DeputyDirector Holly Lowe. To all of you, your support of our efforts toexcel in the operational and financial management of the OTA issincerely appreciated.

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