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, 1996
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, 13,227,338 shares issued and
outstanding at August 1, 1996
INTRENET, INC.
FORM 10-Q
JUNE 30, 1996
INDEX
PAGE
Part I - Financial Information:
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
June 30, 1996 and December 31, 1995 .................... 3
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended .................... 4
June 30, 1996 and 1995
Condensed Consolidated Statement of Shareholders' Equity
Six Months Ended June 30, 1996 ................... 5
Condensed Consolidated Statements of Cash Flows
Three Months and Six Months Ended .................... 6
June 30, 1996 and 1995
Notes to Condensed Consolidated Financial Statements...... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................... 8
Part II - Other Information:
Item 1. Legal Proceedings ................... 11
Item 2. Changes in Securities .................. 11
Item 3. Defaults Upon Senior Securities ................... 11
Item 4. Submission of Matters to a Vote of Security Holders. 11
Item 5. Other Information ................... 11
Item 6. Exhibits and Reports on Form 8-K.................. 11
INTRENET, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30, 1996 and December 31, 1995
(In Thousands of Dollars)
Assets 1996 1995
Current assets:
Cash and cash equivalents $ 222 $ 171
Receivables, principally freight revenue less
allowance for doubtful accounts of $613 in 1996
and $572 in 1995 27,437 20,972
Prepaid expenses and other 6,047 5,573
Total current assets 33,706 26,716
Property and equipment, at cost, less accumulated
depreciation 28,728 29,577
Reorganization value in excess of amounts allocated
to identifiable assets, net of accumulated amortization 7,821 8,031
Deferred income taxes, net 2,723 2,723
Other assets 747 591
Total assets $ 73,725 $ 67,638
Liabilities and Shareholders' Equity
Current liabilities:
Current debt and capital lease obligations $ 6,670 $ 6,134
Accounts payable and cash overdrafts 9,357 7,744
Current accrued claim liabilities 7,504 7,031
Other accrued expenses 6,883 6,430
Total current liabilities 30,414 27,339
Long-term debt and capital lease obligations 19,263 14,981
Long-term accrued claim liabilities 2,300 2,300
Total liabilities 51,977 44,620
Shareholders' equity:
Common stock, without par value; 20,000,000
shares authorized; 13,227,338 and 13,197,728 shares
issued and outstanding, respectively 16,294 16,245
Retained earnings since January 1, 1991 5,454 6,773
Total shareholders' equity 21,748 23,018
Total liabilities and shareholders' equity $ 73,725 $ 67,638
The accompanying notes are an integral part of these consolidated financial statements.
INTRENET, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 1996 and 1995
(In Thousands of Dollars, Except Per Share Data)
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
Operating revenues $ 57,615 $ 54,949 $ 110,315 $ 109,699
Operating expenses:
Purchased transportation
and equipment rents 22,187 20,450 42,602 40,235
Salaries, wages, and benefits 15,232 15,350 29,665 29,772
Fuel and other operating expenses 12,579 10,802 24,533 23,150
Operating taxes and licenses 2,658 2,614 5,265 4,999
Insurance and claims 2,117 1,781 4,028 3,903
Depreciation 1,066 1,240 2,145 2,326
Other operating expenses 897 908 1,987 2,232
56,736 53,145 110,225 106,617
Operating income (loss) 879 1,804 90 3,082
Interest expense (614) (733) (1,190) (1,521)
Other expense, net (110) (116) (219) (231)
Earnings (loss) before income taxes 155 955 (1,319) 1,330
Provision for income taxes - (286) - (399)
Net earnings (loss) $ 155 $ 669 $ (1,319) $ 931
Earnings (loss) per common and common
equivalent share $ 0.01 $ 0.05 $ (0.10) $ 0.08
The accompanying notes are an integral part of these consolidated financial statements.
INTRENET, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Shareholders' Equity
For the Six Months Ended June 30, 1996
(In Thousands of Dollars)
Retained
Common Stock Earnings Equity
Shares Dollars
Balance, December 31, 1995 13,197,728 $16,245 $6,773 $23,018
Exercise of stock options 29,610 49 - 49
Net loss for 1996 - - (1,319) (1,319)
Balance, June 30, 1996 13,227,338 $16,294 $5,454 $21,748
The accompanying notes are an integral part of these consolidated financial statements.
INTRENET, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three Months and Six Months Ended June 30, 1996 and 1995
(In Thousands of Dollars)
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
Cash flows from operating activities:
Net earnings (loss) $ 155 $ 669 $ (1,319) $ 931
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Deferred income taxes 0 34 0 147
Depreciation and amortization 1,171 1,345 2,355 2,536
Provision for doubtful accounts 73 88 156 300
Changes in assets and liabilities, net:
Receivables (4,134) 27 (6,621) (1,238)
Prepaid expenses 1,644 442 (475) (1,260)
Accounts payable and accrued expenses 1,151 (348) 2,384 2,347
Other 0 130 0 74
Net cash provided by (used in)
operating activities 60 2,387 (3,520) 3,837
Cash flows from financing activities:
Net borrowings on line of credit, net (811) 333 3,942 1,709
Principal payments on long-term debt (1,707) (1,418) (3,556) (2,800)
Proceeds from exercise of stock options 0 53 49 304
Net cash provided by financing activities (2,518) (1,032) 435 (787)
Cash flows from investing activities:
Additions to property and equipment (283) (2,147) (690) (4,228)
Disposals of property and equipment 2,653 385 3,826 531
Net cash provided by (used in)
investing activities 2,370 (1,762) 3,136 (3,697)
Net increase (decrease) in cash
and cash equivalents (88) (407) 51 (647)
Cash and cash equivalents:
Beginning of period 310 2,494 171 2,734
End of period $ 222 $ 2,087 $ 222 $ 2,087
The accompanying notes are an integral part of these consolidated financial statements.
INTRENET, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 1996
(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, 1996 were Roadrunner Trucking, Inc. (RRT), Eck
Miller Transportation Corporation (EMT), Advanced Distribution
System, Inc. (ADS), and Roadrunner Distribution Services, Inc.
(RDS). 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, 1995 included in the Company's 1995
Annual Report on Form 10-K.
The results for the three month and six month periods ended
June 30, 1996 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.
(3) Income Taxes
Income taxes in interim periods are generally provided on the
basis of the estimated effective tax rate for the year. In 1996,
however, as a result of the year-to-date pre-tax losses, and the
uncertainty related to forecasting future operating results in
the current competitive operating environment, the Company has
not recorded any income tax benefit in the six months ended June
30, 1996. The tax benefit from the losses will be recorded when
earnings recover, and the tax benefit becomes realizable.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
Introduction
The Company reported net earnings of $ 155,000 ($ 0.01 per
share) on revenues of $ 57.6 million in the three months and a
net loss of $ 1.3 million ($ 0.10 per share) on revenues of $
110.3 million in the six months ended June 30, 1996. This
compares with net earnings of $ 669,000 on revenues of $ 54.9
million, and net earnings of $ 931,000 on revenues of $ 109.7
million in the comparable periods of 1995, respectively. The
1995 six months results include a $ 1.8 million pre-tax loss
from the operations of the Company's former munitions carrier,
C. I. Whitten Transfer Company (CIW), which was sold in August,
1995.
As discussed in more detail below, the Company's performance in
1996 reflects the soft market trends which began in the third
and fourth quarters of 1995 and continued into the first quarter
of 1996. Over-capacity in the truckload industry, severe weather
conditions and higher fuel costs combined to produce lower
freight rates, reduced equipment utilization, and significantly
higher operating costs in the first quarter of 1996. These
factors lead to reduced profit margins, resulting in an
inability to cover other fixed costs in the first quarter
period. Business began to strengthen in the second quarter as
better weather, a strengthening U.S. economy and a resumption of
construction activity in the country resulted in increased
demand for transportation services which allowed the Company to
return to more favorable operating efficiencies. Substantially
higher fuel prices, and other increased costs, however,
continued to negatively impact the Company's profit margins.
While the effects of the higher fuel costs were blunted, to a
degree, through the implementation of fuel surcharges,
competitive conditions limited the surcharges to only a small
portion of the Company's revenues. Management estimates that the
higher fuel costs, net of surcharge revenue retained by the
Company, reduced margins by approximately $ 500,000 in the three
months and $ 1 million in the six months ended June 30, 1996,
when compared to fuel prices paid in the comparable periods of
1995.
A discussion of the impact of the above and other factors on
the results of operations in the three months and six months
ended June 30, 1996 as compared to the comparable periods of
1995 follows.
1996 Compared to 1995
Three Months Ended June 30 Six Months Ended June 30
Key Operating Statistics 1996 1995 %Change 1996 1995 %Change
Operating Revenues ($ millions) $ 57.6 $ 54.9 5.0% $ 110.3 $ 109.7 0.5%
Net Earnings (Loss) ($ 000's) $ 155 $ 669 (76.8%) ($ 1,319) $ 931 NM
Average Number of Tractors 2,041 1,927* 5.9% 2,079 1,908* 9.0%
Total Loads (000's) 66.1 60.8* 8.7% 128.1 120.9* 5.9%
Revenue Miles (millions) 42.8 38.2* 12.0% 81.9 75.6* 8.3%
Average Revenue per
Revenue Mile $ 1.35 $ 1.38* (2.2%) $ 1.35 $ 1.39* (2.8%)
* Certain 1995 amounts exclude the effects of CIW, which was
sold in August, 1995.
Operating Revenues
Operating revenues for the three months and six months ended
June 30, 1996 totaled $ 57.6 million and $ 110.3 million,
respectively, as compared to $54.9 million and $ 109.7 million
for the same periods in 1995. Despite intense competitive
conditions in the truckload industry, the Company's four
carriers continued to grow in 1996. Revenue at these carriers
was up $ 4.8 million, or 9.1%, in the three months, and $ 5.6
million, or 5.3%, in the six months ended June 30, 1996, over
the comparable 1995 periods. Approximately $ 250,000 of fuel
surcharges are included in revenues for the three month and six
month periods ended June 30, 1996.
The approximately 8.3 % increase in revenue miles (volume) in
1996 over 1995 (excluding CIW), is attributable to a 9.0 %
increase in the average number of tractors deployed, offset by
lower equipment utilization resulting from excess capacity in
the truckload industry. Volumes in the second quarter of 1996,
however, were substantially better than in the first quarter of
1996, as well as the second quarter of 1995, as a result of a
strengthening U.S. economy and a return to more favorable
operating efficiencies. Revenue miles in the second quarter of
1996 were up 9.5% over the first quarter of 1996, and were up
12.0% over the comparable 1995 quarter. The increased number of
tractors in 1996 over 1995 is the result of the Company's
internal growth plans implemented in 1995 and 1994 which
increased the number of company-operated tractors, coupled with
an increase in the average number of owner-operator tractors.
Approximately 60 % of the Company's revenue in the three month
and six month periods ended June 30, 1996 was generated by
company-operated equipment, and 35 % by owner-operator
equipment. This relationship is essentially unchanged from the
comparable 1995 periods. The remaining revenues were from
freight brokered to other carriers.
The decline in the average revenue per revenue mile (price) of
2.8 % in 1996 as compared to 1995, is the result of reduced
traffic opportunities in 1996 due to excess industry capacity,
which required the Company to move more equipment with lower
priced spot market loads, and to generally lower transportation
rates due to increased competition.
Operating Expenses
The following table sets forth the percentage relationship of
operating expenses to operating revenues for the three months
ended June 30. The reduced per mile freight rates in 1996
account partially for the increase in operating expenses
expressed as a percentage of revenue.
Three Months Six Months
Ended June 30 Ended June 30
1996 1995 1996 1995
Operating revenues 100% 100% 100% 100%
Operating expenses:
Purchased transportation
and equipment rents 38.5 37.2 38.6 36.7
Salaries, wages and benefits 26.4 27.9 26.9 27.1
Fuel and other operating expenses 21.8 19.7 22.2 21.1
Operating taxes and licenses 4.6 4.8 4.8 4.6
Insurance and claims 3.7 3.2 3.7 3.6
Depreciation 1.9 2.3 1.9 2.1
Other operating expenses 1.6 1.6 1.8 2.0
Total operating expenses 98.5% 96.7% 99.9% 97.2%
Purchased transportation and equipment rents increased in 1996
over 1995 as a percentage of revenue due to the increased use of
owner-operators and to increased company-operated equipment
rents. Salaries and wages decreased as a result of reduced
non-driver headcounts primarily as a result of the sale of CIW,
offset by driver wage increases implemented in 1995 in response
to competitive conditions. Fuel and other operating expenses
increased as fuel costs were two cents per total mile higher in
1996 versus 1995, as a result of the approximately ten cent per
gallon increase in the cost of diesel fuel. The Company
estimates the increased fuel costs added approximately $
500,000, net of fuel surcharges retained by the Company, to
second quarter 1996 operating expenses, and approximately $ 1.0
million, net, to operating expenses in the first half of 1996.
Insurance and claims expense was higher in the second quarter of
1996 over 1995 as a result of higher accident levels, but was up
only slightly in the first half period. Depreciation decreased
as a result of the continued use of operating lease financing
for the Company's power equipment. Other operating expenses
remained relatively constant in 1996 over 1995.
Interest Expense
Interest expense decreased in 1996 over 1995, primarily as a
result of a $ 105,000 decline in interest costs attributable to
the conversion of the Company's 7% convertible subordinated
debentures on March 31, 1995. Further, the Company's bank credit
facility, amended January 15, 1996, carried lower interest rates
and fees in 1996 than in 1995.
Interest expense is expected to increase in the remaining
quarters of 1996, as the Company has ceased selling certain
accounts receivable to a collection clearing house. Instead, the
Company is now financing these accounts receivable with its bank
credit facility. The increased interest costs will be more than
offset by reduced collection fees from the clearing house, which
are presently included in Other operating expenses.
Provision for Income Taxes
Income taxes in interim periods are generally provided on the
basis of the estimated effective tax rate for the year. In 1996,
however, as a result of the year-to-date pre-tax losses, and the
uncertainty related to forecasting future operating results in
the current competitive operating environment, the Company has
not recorded any income tax benefit in the six months ended June
30, 1996. The tax benefit attributable to the first quarter
losses will be recorded when earnings recover, and the tax
benefit becomes realizable.
Liquidity and Capital Resources
The Company generated $ 0.1 million of cash in the first six
months of 1996. As reflected in the accompanying Consolidated
Statements of Cash Flows, the Company used $ 3.5 million of cash
in operating activities, primarily to finance increased accounts
receivable and to purchase plates and permits for the Company's
fleet. This cash use was funded by $ 0.4 million of cash
generated by financing activities, and $ 3.1 million generated
from investing activities, primarily from the sale of aging 48
foot van trailers at RDS. In March 1996, the Company began to
reduce the sale of certain customer accounts receivable to a
collection clearing house, a process which was completed on June
30, 1996. This resulted in an increased use of cash from
operating activities to finance approximately $ 4.0 million of
accounts receivable which would otherwise have been sold.
The Company's day-to-day financing is provided by borrowings
under a bank credit facility. The credit facility consists of a
$ 5 million term loan with a final maturity of December 31,
1999, and a $ 28 million revolving line of credit which expires
January 15, 1999. Quarterly principal payments of $ 312,500 on
the term loan commenced on April 1, 1996. The line of credit
includes provisions for the issuance of up to $ 12 million in
stand-by letters of credit which, as issued, reduce available
borrowings under the line of credit. Borrowings under the line
of credit are limited to amounts determined by a formula tied to
the Company's eligible accounts receivable and inventories, as
defined in the credit facility. Borrowings under the revolving
line of credit totaled $ 4.3 million at June 30, 1996, and
outstanding letters of credit totaled $ 7.6 million at that
date. The combination of these two bank credits totaled $11.9
million, leaving $ 8.2 million of borrowing capacity available
at June 30, 1996. Since that date, the Company's available
borrowing capacity under the credit facility has increased due
to reduced letter of credit requirements, and now averages
approximately $ 10.0 million as of the date of this report.
The Company believes that cash generated from operations, and
cash available to it under the bank credit facility will be
sufficient to meet the Company's needs for the foreseeable
future.
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 proceedings
previously reported in the Company's 1995 Annual Report on Form
10-K, and litigation incidental to its business, primarily
involving claims for personal injury and property damage
incurred in the transporting of freight. There have been no
material developments in any previously reported proceedings.
The Company maintains insurance which covers liability resulting
from transportation related claims in amounts management
believes are prudent and consistent with accepted industry
practices, subject to deductibles for the first $100,000 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 May 22, 1996. 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
Jackson A. Baker 10,449,584 330,660
Eric C. Jackson 10,762,663 17,581
Fernando Montero 10,762,673 17,571
Edwin H. Morgens 10,449,584 330,660
Thomas J. Noonan, Jr. 10,762,673 17,571
A. Torrey Reade 10,762,673 17,571
Philip Scaturro 10,762,673 17,571
The shareholders of the Company also ratified the selection of Arthur
Andersen LLP as auditors for 1996, with 10,718,563 votes in favor, 9,418
against and 52,263 abstentions. There were no broker non-votes.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 10.1 - First Amendment to the Fourth Amended and
Restated Loan Agreement between Intrenet, Inc. and subsidiaries
and The Huntington National Bank dated as of March 31, 1996.
Exhibit 10.2 - Employment Agreement between Intrenet, Inc.and
John P. Delavan dated June 4, 1996
Exhibit 10.3 - Stock Option Agreement between Intrenet, Inc.
and John P. Delavan dated June 4, 1996
Exhibit 11 - Computation of Per Share Earnings
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
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 7, 1996 /s/ Jonathan G. Usher
Jonathan G. Usher,
Vice President - Finance,
Treasurer and Chief Financial
Officer
(Principal Financial and
Accounting Officer)