SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 0-14060
INTRENET, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1597565
(State or other jurisdiction of (IRS Employer Identification No)
incorporation or organization)
400 TechneCenter Drive, Suite 200, Milford, Ohio 45150
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (513) 576-6666
Not Applicable
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Common Stock, without par value, 13,197,728 shares issued and
outstanding at June 30, 1995
INTRENET, INC.
FORM 10-Q
JUNE 30, 1995
INDEX
PAGE
Part I - Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets
June 30, 1995 and December 31, 1994 .................... 10
Consolidated Statements of Operations
Three and Six Months Ended June 30, 1995 and 1994 ....... 11
Consolidated Statement of Shareholders' Equity
Six Months Ended June 30, 1995 ........................ 12
Consolidated Statements of Cash Flows
Three and Six Months Ended June 30, 1995 and 1994 ....... 13
Notes to Consolidated Financial Statements ................ 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................... 5
Part II - Other Information:
Item 1. Legal Proceedings .................... 8
Item 2. Changes in Securities .................... 8
Item 3. Defaults Upon Senior Securities .................... 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Other Information .................... 8
Item 6. Exhibits and Reports on Form 8-K .................... 8
2
INTRENET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1995
(Unaudited)
(1) Unaudited Consolidated Financial Statements
The accompanying unaudited consolidated financial statements
include the accounts of Intrenet, Inc. and all of its
subsidiaries (collectively, the Company). Operating
subsidiaries at June 30, 1995 were Roadrunner Trucking, Inc.
(RRT), Eck Miller Transportation Corporation (EMT), Advanced
Distribution System, Inc. (ADS), Roadrunner Distribution
Services, Inc. (RDS), and C.I. Whitten Transfer Company, (CIW).
All significant intercompany transactions are eliminated in
consolidation. Through its subsidiaries, the Company provides
general and specialized truckload carrier services on a regional
basis throughout the forty-eight continental states and Canada.
The consolidated financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC). In management's opinion, these
financial statements include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation
of the results of operations for the interim periods presented.
Pursuant to SEC rules and regulations, certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted from these statements
unless significant changes have taken place since the end of the
most recent fiscal year. For this reason, the accompanying
consolidated financial statements and notes thereto should be
read in conjunction with the financial statements and notes for
the year ended December 31, 1994 included in the Company's 1994
Annual Report on Form 10-K.
The results for the three month and six month periods ended
June 30, 1995 are not necessarily indicative of the results to
be expected for the entire year.
(2) Earnings Per Common and Common Equivalent Share
Earnings per common and common equivalent share have been
computed on the basis of the weighted average common shares
outstanding during the periods. No effect has been included for
options or warrants outstanding, if the effect would be
antidilutive. Fully diluted earnings per share have been
computed under the assumption that the convertible debentures
had been converted into common stock on the date of their
issuance, using the if-converted method. As the debentures were
converted on March 31, 1995 (See Note 3), no dilutive securities
exist at the date of this report. Had the debentures been
converted on January 1, 1995, primary earnings per share would
have been $ 0.07.
(3) Conversion of 7% Convertible Subordinated Debentures
In March, 1995, the Company issued a redemption notice for its
7% Convertible Subordinated Debentures. As the trading price of
the common stock was in excess of the $ 1.65 conversion price,
all debenture holders elected to convert their debentures into
common stock. On March 31, 1995, the Company issued 3,636,352
shares of common stock in exchange for all of the debentures.
The conversion had the effect of reducing long term debt, and
increasing shareholders' equity by $ 6.0 million, and reducing
annual interest costs by $ 420,000.
(4) Revenue Recognition
Operating revenues are recognized upon the receipt of the
freight. Related transportation expenses including driver wages,
purchased transportation, fuel and fuel taxes, agent
commissions, and insurance premiums are accrued when the revenue
is recognized.
3
In 1991, the Emerging Issues Task Force (EITF) released Issue
91-9, "Revenue and Expense Recognition for Freight Services in
Process". The EITF reached the conclusion that the preferable
method for recognizing revenue and expense was either (1)
recognition of both revenue and direct cost when the shipment is
completed, or (2) allocation of revenue between reporting
periods based on relative transit time in each reporting period
and recognize expenses as incurred. The difference between the
Company's method of revenue recognition, and the preferable
methods described above, is not material to the results of
operation or financial condition of the Company.
(5) Reorganization Value in Excess of Amounts Allocated to
Identifiable Assets
Reorganization Value in Excess of Amounts Allocated to
Identifiable Assets results from the Chapter 11 reorganization
of the Company in 1990.
(6) Accrued Claim Liabilities
The Company maintains insurance coverage for liability, cargo
and workers compensation risks, among others, which have
deductible obligations ranging from $ 0 to $ 250,000 per
occurrence. Provision is made in the Company's financial
statements for these deductible obligations at the time the
incidents occur, and for claims incurred but not reported. Claim
deductible obligations which remain unpaid at the balance sheet
date are reflected in the financial statement caption "Accrued
Claim Liabilities" in the accompanying consolidated financial
statements. Current Accrued Claim Liabilities are claims
estimated to be paid in the twelve month period subsequent to
the balance sheet date, while Long Term Accrued Claim
Liabilities are claims estimated to be paid thereafter.
(7) Reclassification of Certain 1994 Amounts
Certain 1994 amounts have been reclassified in the accompanying
consolidated financial statements to make them consistent with
the 1995 presentation. Specifically, driver subsistence payments
for 1995 and 1994 are now reflected in Salaries, Wages and
Benefits, rather than in Fuel and Other Operating Expenses as
was done in previous reports.
4
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations
Results of Operations
Introduction
The Company reported net earnings of $669,000 ($ 0.05 per
share) on revenues of $ 54.9 million in the three month, and $
931,000 ($ 0.08 per share) on revenues of $ 109.7 million in the
six month period ended June 30, 1995. This compares with
earnings of $ 1.9 million ($ 0.19 per share) and $ 3.0 million
($0.30 per share) on revenues of $ 55.1 million and $ 104.6
million in the comparable periods of 1994. As further discussed
below, the 1995 earnings were negatively impacted by pre-tax
losses at the Company's munitions specialty carrier, CIW. In
addition, the slower growth of the U.S. economy in the second
quarter of 1995 made it more difficult to efficiently operate
the fleet, led to a higher proportion of empty miles to paid
miles, and increased competitive pressure reduced average
freight rates. Further, continued competition for qualified
drivers has led the Company to increase driver wages and driver
recruiting expenditures at a time of decreasing volumes and
rates. All of the above factors combined to reduce the Company's
profitability in the second quarter and first half of 1995 when
compared with the same periods in 1994. Management is cautiously
optimistic that if the economy recovers in the second half of
1995, freight volumes and rates will increase.
Despite the lackluster economy and intense competition, the
Company's three flatbed carriers, RRT, EMT, and ADS, continued
to grow in the first six months of 1995. Revenue at these three
companies was up $ 2.8 million or 6 % in the second quarter and
$ 9.4 million or 11 percent in the first half of 1995 over the
comparable 1994 periods. Revenues at RDS, however, decreased by
$ 1.3 million or 10 % in the six month 1995 period versus the
comparable 1994 period.
The 1995 pre-tax losses at CIW ($ 1.2 million in the first
quarter, and $ 0.6 million in the second quarter) are primarily
attributable to sharply lower revenues (down 36 % in the six
month period) resulting largely from a reduction in hauling
capacity. In addition, freight rates on military traffic were
down from 1994 levels due to competitive pressures. The
previously reported increase in CIW turnover of owner operators
providing tractors continued into the second quarter of 1995. On
August 4, 1995, the Company announced that it was negotiating
the sale of substantially all of the operating assets of CIW to
Trism, Inc.. The sale is expected to close in the third quarter.
The Company anticipates continued operating losses at CIW until
the sale is consummated.
The Company continues to accept delivery of additional growth
tractors at its three flatbed carriers, but it has canceled
certain second half 1995 deliveries. The Company is
experiencing difficulties in attracting sufficient qualified
drivers to fill the growth units, leading to an increase in the
number of idle tractors in June, July and August of 1995. The
Company has stepped up its efforts to recruit more drivers, and
believes the idle tractors will ultimately be fully manned.
However, management expects the incremental carrying costs of
these idle units will unfavorably affect the Company's operating
results in the third quarter of 1995.
A discussion of the impact of the above and other factors on
the results of operations in the second quarter and first half
of 1995 as compared to the comparable periods of 1994 follows.
1995 Compared to 1994
Three Months Six Months
Key Operating Statistics 1995 1994 % Change 1995 1994 % Change
Operating Revenues ($ millions) $ 54.9 $ 55.1 (0.2 %) $ 109.7 $ 104.7 4.8 %
Net Earnings ($ 000's) $ 669 $1,935 (65.4 %) $ 931 $ 2,967 (68.6 %)
Average Tractor Count 1,985 1,830 8.5 % 1,979 1,798 10.1 %
Total Loads (000's) 62.6 59.5 5.2 % 124.9 113.6 10.0 %
Revenue Miles (millions) 39.6 39.9 (0.8 %) 78.8 76.4 3.2 %
Average Revenue per
Revenue Mile $ 1.31 $ 1.32 (0.8 %) $ 1.31 $ 1.31 - %
5
Operating Revenues
Operating revenues for the three months ended June 30, 1995
totaled $ 54.9 million as compared to $ 55.1 million for the
same period in 1994, reflecting an overall soft market in the
second quarter of 1995, and lower revenues at CIW. Operating
revenues were $ 109.7 million for the six month period ended
June 30, 1995, as compared to $ 104.7 million for the same
period of 1994, resulting primarily from a strong first quarter
1995 performance at the Company's flatbed carriers, and
increased brokerage revenues.
The approximately 3.2 % increase in revenue miles (volume) in
1995 is attributable to a 10.1 % increase in the average number
of tractors employed in 1995 versus 1994, offset by lower
equipment utilization as a result of overall soft shipper
demand, particularly in the second quarter of 1995. The
increased number of tractors is the result of the Company's
internal growth plans implemented in 1994 and 1993 when the
Company added additional Company-operated tractors. There was a
nominal decline in the average revenue per revenue mile (price)
in the 1995 period as compared to the 1994 period, which offsets
slightly the favorable volume trends.
The Company's core flatbed carriers (RRT, EMT, and ADS)
experienced higher volumes, up 6 % in the second quarter and 11
% in the first half of 1995 over the comparable 1994 periods.
Average tractor counts at these subsidiaries were up nearly 13 %
in 1995 over 1994. These revenue increases were offset partially
by a 36 % decrease in revenue at CIW, and a 10 % decrease in
revenues at RDS.
Operating Expenses
The following table sets forth the percentage relationship of
operating expenses to operating revenues for the three months
and six months ended June 30:
Three Months Six Months
Ended June 30 Ended June 30
1995 1994 1995 1994
Operating revenues 100 % 100 % 100 % 100 %
Operating expenses:
Purchased transportation and
equipment rents 37.2 37.4 36.7 37.4
Salaries, wages and benefits 27.9 24.6 27.1 24.8
Fuel and other operating expenses 19.7 19.6 21.1 19.8
Insurance and claims 3.2 3.7 3.6 3.8
Operating taxes and licenses 4.8 4.5 4.6 4.6
Depreciation 2.3 2.2 2.1 2.4
Other operating expenses 1.6 2.2 2.0 2.0
Total operating expenses 96.7 % 94.2 % 97.2% 94.8 %
Throughout 1995, the mix of company-operated versus
owner-operator equipment continued to shift towards
company-operated equipment as a result of the Company's internal
growth plans, increased competition for qualified
owner-operators, and the Company's ability to secure financing
and customer business for increased company-operated equipment.
Approximately 61 % of the Company's revenue in the three month
and six month periods ended June 30, 1995 was generated by
company-operated equipment, as compared to approximately 59 %
in the 1994 periods.
6
The relatively higher use of company-operated equipment
resulted in an increase in salaries, wages and benefits, and in
fixed costs related to ownership or lease of the equipment, and
decreases in purchased transportation as a percentage of
revenue. Salaries and wages have also increased as a result of
(1) driver wage increases implemented in late 1994 and early
1995 in response to competitive conditions, (2) treating all
driver wages as taxable in 1995, as compared to a portion being
considered as non-taxable subsistence payments in 1994, and (3)
increased payroll taxes on the increased driver wages as a
result of (1) and (2) above. Fuel and other operating expenses,
and Operating taxes and licenses, increased as a percentage of
revenue in the 1995 periods, as compared to 1994 due to the
increase in the number of company-operated tractors in 1995.
Fuel cost per mile declined slightly in 1995 versus 1994.
Insurance and claims expense continued to decline in 1995 over
1994 as a result of favorable trends in insurance premiums and
accident claims as a percentage of revenue.
Depreciation expense decreased in 1995 as compared to 1994 as
the Company continues to replace owned or capital leased
tractors with tractors financed under operating leases.
Operating lease expense is reflected in Purchased transportation
and equipment rents.
Other operating expenses decreased in the second quarter of
1995 over the comparable 1994 period due to lower communication
costs as a result of a new long distance telecommunications
contract.
Interest Expense
Interest expense declined in 1995 over 1994, as the favorable
effect of lower average outstanding bank borrowings was offset
partially by the unfavorable effect of higher interest rates. In
addition, interest expense in the second quarter and first half
of 1995 was reduced by $ 105,000 as a result of the conversion
of the 7% Convertible Subordinated Debentures on March 31, 1995
(See Note 3 to the Consolidated Financial Statements).
Liquidity and Capital Resources
The Company used $ 0.7 million of cash in the first six months
of 1995. As reflected in the accompanying Consolidated Statement
of Cash Flows, the Company generated $ 3.8 million of cash from
operating activities. This was offset by $ 0.8 million of cash
used in financing activities, and $ 3.7 million used in
investing activities, primarily to finance the construction of a
new headquarters facility for RRT.
The Company's day-to-day financing is provided by borrowings
under the Company's bank credit facility. The Company has a $22
million long-term credit facility with a bank, consisting of a
$7 million term loan with a final maturity of December 31, 1997,
and a $15 million revolving line of credit which expires January
15, 1996. Quarterly principal payments of $500,000 on the term
loan commenced April 1, 1995. The line of credit includes
provisions for the issuance of up to $15 million in stand-by
letters of credit which, as issued, reduce available borrowings
under the line of credit. Borrowings under the credit facility
totaled $ 8.7 million at June 30, 1995, and outstanding stand-by
letters of credit totaled $ 6.7 million at that date. The
combination of these two bank credits totaled $15.4 million,
leaving $ 6.1 million of borrowing capacity available at June
30, 1995. The Company expects to enter into a replacement bank
credit facility with its lender. The Company has requested an
increase in the total credit from $ 22 million to $ 33 million.
This would provide the Company adequate financing to support its
growth plans and to finance its on-going working capital needs.
The Company believes that cash generated from operations,
including cash from the continued sale of certain trade
accounts receivable, and cash available to it under the bank
credit facility will be sufficient to meet the Company's needs
for the foreseeable future.
7
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which the
Company or any of its subsidiaries is a party or of which any of
their property is the subject, other than routine litigation
incidental to its business, primarily involving claims for
personal injury and property damage incurred in the transporting
of freight. The Company maintains insurance which covers
liability resulting from such transportation related claims up
to $25 million per occurrence, subject to deductibles for the
first $25,000 to $250,000 of exposure for each incident. The
Company is not aware of any claims or threatened claims that
might materially affect the Company's operating or financial
results.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on June 2, 1995.
The following individuals were elected as directors for the
ensuing year or until their successors are duly elected and
qualified with the following votes cast for or against. There
were no abstentions or broker non-votes.
For Against
Joseph A. Ades 11,705,880 6,472
Jackson A. Baker 11,706,124 6,228
Eric C. Jackson 11,707,124 5,228
Fernando Montero 11,707,124 5,228
Edwin H. Morgens 11,707,124 5,228
Thomas J. Noonan, Jr. 11,705,880 6,472
A. Torrey Reade 11,707,024 5,328
James L. Shelnutt 11,705,882 6,470
Jeffrey B. Stone 11,707,122 5,230
The shareholders of the Company also ratified the selection of
Arthur Andersen LLP as auditors for 1995, with 11,653,738 votes
in favor, 7,700 against, and 40,593 abstentions. There were no
broker non-votes.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 11 - Computation of Per Share Earnings
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
INTRENET, INC.
(Registrant)
August 11, 1995 /s/ Jonathan G. Usher
Jonathan G. Usher, Vice President - Finance,
Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
9
INTRENET, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1995 and December 31, 1994
(In Thousands of Dollars)
Assets 1995 1994
(Unaudited)
Current assets:
Cash and cash equivalents $ 2,087 $ 2,734
Receivables, principally freight revenue less
allowance for doubtful accounts of $1,484 in 1995
and $1,363 in 1994 21,115 20,177
Prepaid expenses and other 7,132 6,409
Total current assets 30,334 29,320
Property and equipment, at cost less accumulated
depreciation 30,696 27,976
Reorganization value in excess of amounts allocated
to identifiable assets, net of accumulated amortization 7,989 8,451
Deferred income taxes 2,525 2,525
Other assets 964 786
Total assets $ 72,508 $69,058
Liabilities and Shareholders' Equity
Current liabilities:
Current notes payable to banks $ 4,209 $ 2,000
Current equipment borrowings and capital lease obligations 5,645 5,425
Accounts payable and cash overdrafts 8,766 8,553
Current accrued claim liabilities 6,974 6,846
Other accrued expenses 6,878 5,505
Total current liabilities 32,472 28,329
Long-term notes payable to banks 4,500 5,000
7% convertible subordinated debentures 0 5,988
Long-term equipment borrowings and capital lease obligations 9,680 11,303
Long-term accrued claim liabilities 2,000 2,000
Total liabilities 48,652 52,620
Shareholders' equity:
Common Stock, without par value; 20,000,000
shares authorized; 13,197,728 and 9,087,164 shares
issued and outstanding at June 30 and
December 31, respectively 15,940 9,453
Retained earnings
since January 1, 1991 7,916 6,985
Total shareholders' equity 23,856 16,438
Total liabilities and shareholders' equity $ 72,508 $69,058
The accompanying notes are an integral part of these consolidated financial statements.
10
INTRENET, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months and Six months ended June 30, 1995 and 1994
(Unaudited)
(In Thousands of Dollars, Except Per Share Data)
Three Months Six Months
Ended June 30, Ended June 30,
1995 1994 1995 1994
Operating revenues $ 54,949 $ 55,071 $ 109,699 $ 104,627
Operating expenses:
Purchased transportation
and equipment rents 20,450 20,604 40,235 39,094
Salaries, wages, and benefits 15,350 13,529 29,772 25,926
Fuel and other operating expenses 10,802 10,794 23,150 20,707
Insurance and claims 1,781 2,057 3,903 3,968
Operating taxes and licenses 2,614 2,474 4,999 4,823
Depreciation 1,240 1,201 2,326 2,511
Other operating expenses 908 1,212 2,232 2,118
53,145 51,871 106,617 99,147
Operating income 1,804 3,200 3,082 5,480
Interest expense (733) (921) (1,521) (1,817)
Other expense, net (116) (81) (231) (173)
Earnings before income taxes 955 2,198 1,330 3,490
Provision for income taxes (286) (263) (399) (523)
Net earnings $ 669 $ 1,935 $ 931 $ 2,967
Earnings per common and common
equivalent share:
Primary $ 0.05 $ 0.19 $ 0.08 $ 0.30
Fully diluted $ N/A $ 0.15 $ N/A $ 0.23
The accompanying notes are an integral part of these consolidated financial statments.
11
INTRENET, INC. AND SUBSIDIARIES
Consolidated Statement of Shareholder's Equity
For the Six months ended June 30, 1995
(In Thousands of Dollars)
Retained Shareholder's
Shares Dollars Earnings Equity
Balance, December 31, 1994 9,087,164 $ 9,453 $ 6,985 $ 16,438
Exercise of Stock Options 474,212 497 - 497
Conversion of 7% Convertible
Subordinated Debentures 3,636,352 5,990 - 5,990
Net Earnings for 1995 - - 931 931
Balance, June 30, 1995 13,197,728 $ 15,940 $ 7,916 $ 23,856
The accompanying notes are an integral part of these consolidated financial
statements.
12
INTRENET, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three months and six months ended June 30, 1995 and 1994
(Unaudited)
(In Thousands of Dollars)
Three Months Six Months
ended June 30, ended June 30,
1995 1994 1995 1994
Cash flows from operating activities:
Net Earnings $ 669 $ 1,935 $ 931 $ 2,967
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,345 1,309 2,536 2,724
Provision for doubtful accounts 88 164 300 282
Changes in assets and liabilities, net
Receivables 27 (583) (1,238) (2,943)
Prepaid expenses 442 1,044 (1,260) (955)
Accounts payable and accrued expenses (348) (1,192) 2,347 1,891
Other 164 174 221 339
Net cash provided by operating activities 2,387 2,851 3,837 4,305
Cash flows from financing activities:
Net borrowings (repayments) on line of credit 333 143 1,709 1
Principal payments on capital leases and other (1,418) (2,406) (2,800) (4,670)
debits
Proceeds from exercise of stock options 53 30 304 30
Net cash (used in) financing activities (1,031) (2,233) (787) (4,639)
Cash flows from investing activities:
Purchases of property and equipment (2,147) (1,256) (4,228) (1,459)
Disposals of property and equipment 386 562 531 1,650
Net cash provided by (used in) investing (1,761) (694) (3,697) 191
activities
Net (decrease) in cash and cash equivalents (406) (76) (647) (143)
Cash and cash equivalents:
Beginning of period 2,494 2,289 2,734 2,356
End of period $ 2,088 $ 2,213 $ 2,087 $ 2,213
The accompanying notes are an integral part of these consolidated financial statements.
13