SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE
REQUIRED]
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 (I.R.S. 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
Securities registered pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, without par value
(Title of class)
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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the common stock (based upon the
closing sale price on such date) held by non-affiliates of the
registrant as of March 1, 1997, was approximately $ 9,995,983
Applicable only to registrants involved in bankruptcy
proceedings during the preceding five years: Indicate by check
mark whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution
of securities under a plan confirmed by a court. Yes X No
(Applicable only to corporate registrants) Indicate the number
of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. As of March 1,
1997, there were 13,447,138 shares issued and outstanding.
Documents Incorporated By Reference: Portions of the
following documents have been incorporated by reference into
this report:
Identity of Document Parts of Form 10 - K into
Proxy Statement to be filed for the Which Document is
Incorporated
1997 Annual Meeting of Shareholders of Registrant
Part III
Page 1 of ___ pages
INTRENET, INC.
1996 Annual Report on Form 10-K
Table of Contents
Part I Page
Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 8. Financial Statements and Supplementary Data 12
Item 9. Changes in and Disagreements With Accountants on
Accounting and 12
Financial Disclosures
Part III
Item 10. Directors and Executive Officers of the Registrant 12
Item 11. Executive Compensation 12
Item 12. Security Ownership of Certain Beneficial Owners and
Management 12
Item 13. Certain Relationships and Related Transactions 12
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 12
Signatures 13
Index to Exhibits 14
PART I
Item 1. Business.
General
The Company was incorporated in 1983 under the laws of the
State of Indiana, as a holding company for truckload carrier
subsidiaries. The Company owns, directly or indirectly, 100% of
four licensed truckload motor carriers and an intermodal
brokerage logistics operation (the operating subsidiaries),
which provide general and specialized regional truckload carrier
services throughout North America. The operating subsidiaries
are Roadrunner Trucking, Inc., (RRT); Eck Miller Transportation
Corporation, (EMT); Advanced Distribution System, Inc., (ADS);
Roadrunner Distribution Services, Inc., (RDS), and INET
Logistics, Inc., (INL). In addition, the Company owns an
intercompany employee leasing subsidiary, and an inactive
Bermuda captive-insurance subsidiary.
The Company's operating subsidiaries presently operate more
than 2,100 tractors, including tractors provided by
owner-operators. Some of the Company's operating subsidiaries
rely in part upon a network of commissioned agents and
independent contractors who own and operate tractors and
trailers. Other operating subsidiaries primarily use
company-operated equipment. In 1996, the Company's fleet
traveled over 160 million revenue miles delivering approximately
245,000 customer loads. The Company also brokered nearly 14,000
loads to other carriers. No customer accounted for more than 10%
of the Company's revenues in 1996.
The Company's executive offices are located at 400 TechneCenter
Drive, Suite 200, Milford, Ohio 45150 and its telephone number
is (513) 576-6666. Except as otherwise indicated by the
context, the term Company, as used herein, means Intrenet, Inc.
and its consolidated subsidiaries.
Operating Subsidiaries
Select operating statistics as of December 31, 1996 are as
follows:
RRT EMT ADS RDS Total
Company Tractors 500 334 203 180 1,217
Owner-Operator Tractors 82 349 384 98 913
Total Tractors 582 683 587 278 2,130
Company Trailers 846 422 217 512 1,997
Company Drivers 461 347 200 180 1,188
Total Employees 628 491 269 227 1,631
Sales Agents 28 149 174 10 361
Average Length of Haul in
Revenue Miles 741 566 556 1,013 663
Roadrunner Trucking, Inc. RRT is a truckload carrier
transporting a wide variety of general commodities, including
machinery, building materials, steel, paper, cable and wire.
RRT's primary traffic flows are in the western two-thirds of the
United States where it operates one of the largest fleets of
flatbed trailers in its market area. RRT services Mexico through
El Paso, TX and Nogales, AZ, and has three large logistics and
dedicated fleets operating both flatbed and dry van trailers.
RRT also operates a nationwide freight brokerage business. RRT
is a New Mexico corporation, headquartered in Albuquerque, New
Mexico.
Eck Miller Transportation Corporation. EMT is a specialized
truckload carrier operating a nationwide service system of 700
sided-flatbed and heavy-haul trailers. EMT primarily transports
metal articles, building materials and machinery, over lanes
radiating from the Midwest to all other regions of the United
States. EMT is an Indiana corporation, headquartered in
Rockport, Indiana.
EMT operates a fleet of company-operated and owner- operator
tractors. Most of its 150 field offices are operated by
commissioned sales agents. The utilization of agents and
owner-operators limits EMT's investment in labor and equipment.
Advanced Distribution System, Inc. ADS is a truckload carrier
that transports general commodity freight, including iron,
steel, pipe, heavy machinery and building materials on flatbed
and dry van trailers, throughout the United States and Canada.
ADS is a Florida corporation, headquartered in Columbus, Ohio.
ADS is primarily dependent upon commissioned agents as sources
for business. ADS also depends in part on owner-operators to
provide equipment and drivers to haul shipments. The utilization
of agents and owner-operators limits ADS' investment in labor
and equipment.
Roadrunner Distribution Services, Inc. RDS is a truckload dry
van carrier that transports a wide variety of general
commodities, including electronics, auto parts, sportswear and
consumer goods throughout service lanes in the Central and
Southwestern regions of the United States. RDS operates a
nationwide freight brokerage business, and services customers in
Mexico through El Paso, TX and Nogales, AZ. RDS is a Texas
corporation, headquartered in Indianapolis, Indiana.
INET Logistics, Inc. INL is an intermodal marketing company, a
freight broker, and a logistics management company that arranges
the shipment of various commodities for its customers. INL books
and coordinates transportation services with various rail and
road transportation providers, offering a cost efficient and
service effective alternative to customers. INL is an Indiana
corporation, headquartered in Schaumburg, IL.
Commissioned Sales Agents and Owner-Operators
The operating subsidiaries generally do not have long-term
contractual agreements with their commissioned sales agents or
owner-operators, and treat both categories of persons as
independent contractors. Working relationships with such
persons are dependent upon mutually beneficial characteristics
including confidence in service levels, support in customer
relations, compensation levels and systems and opportunities for
growth. Many of the Company's agreements with its commissioned
agents are non-exclusive.
From time to time, various legislative or regulatory proposals
are introduced at the federal or state levels to change the
employment status of independent contractors to treat them as
employees for either employment tax purposes (withholding,
social security, Medicare and unemployment taxes) or other
benefits available to employees. Currently, most individuals are
classified as employees or independent contractors for
employment tax purposes, based on contractual relationships and
industry practice.
Although management is unaware of any proposals currently
pending to change the employee/independent contractor
classification, the costs associated with potential changes, if
any, could adversely affect the Company's results of operations
if the Company were unable to reflect them in its fee
arrangements with its independent owner-operators and
commissioned sales agents, or in the prices paid by its
customers.
Revenue Equipment
At December 31, 1996, the Company owned or leased 1,217
tractors, 1,450 flatbed trailers and 547 dry van trailers. The
following is a summary of Company-operated revenue equipment at
December 31, 1996:
Trailers
Tractors Flatbed Dry Van
Model year Prior to 1994 222 623 97
1994 287 372 1
1995 352 229 0
1996 71 226 449
1997 285 0 0
1,217 1,450 547
In addition, at the same date owner-operators under
contract provided 913 tractors for Company operations.
The Company has plans to acquire approximately 240
tractors in 1997, of which approximately 220 will replace older
tractors. The new tractors are expected to be financed
primarily under walk-away operating leases.
Employees
At December 31, 1996, the Company employed 1,631 individuals,
of whom 1,188 were drivers. Management considers its
relationship with employees to be good. None of the Company's
employees are represented by a collective bargaining unit.
Competition and Availability of Drivers
The trucking industry is characterized by intense competition,
resulting from the presence of many carriers in the market, low
barriers to entry, and the commodity nature of the services
provided by many carriers. The Company competes with other
irregular route, long-haul carriers and, to a lesser extent,
with medium-haul carriers, railroads, less-than-truckload
carriers, freight brokers and proprietary transportation
systems. The Federal Aviation Administration Authorization Act
of 1994 (the FAA Act) preempted, effective January 1, 1995,
certain state and local laws regulating the prices, routes, or
services of motor carriers, thereby deregulating intra-state
transport, and increasing competitive conditions.
At December 31, 1996, the Company employed 1,188 drivers.
Drivers are selected in accordance with specific guidelines,
relating primarily to safety records, driving experience,
personal evaluations, a physical examination and mandatory drug
testing. All drivers attend orientation programs and ongoing
driver efficiency and safety programs.
The truckload industry continues to experience shortages of
qualified drivers. In 1996, some driver shortages were
experienced by the Company as a consequence of intense industry
competition for qualified drivers. Prolonged difficulty in
attracting or retaining qualified drivers could have a material
adverse effect on the Company's operations and limit its growth.
Management believes the Company's ability to avoid severe driver
shortages results from specific measures it takes to attract and
retain highly qualified drivers.
The Company tracks each driver's location on its computer
systems, allowing him or her to return home on an average of
once every two to three weeks. The Company also purchases or
leases premium quality tractors and equips them with optional
comfort and safety features, such as air ride suspension and
seats, stereo systems, air conditioners, and oversized sleeper
cabs. Drivers are compensated on the basis of miles driven and
number of stops or deliveries made, plus bonuses relating to
performance, fuel efficiency and compliance with the Company's
safety policies. In 1996, the Company increased driver
compensation in order to enhance its ability to retain and
attract sufficient qualified drivers. Drivers also are eligible
to participate in the Company's 401(k) profit sharing plan and
health insurance plans. None of the Company's drivers is
represented by a collective bargaining unit.
Regulation
Each of the motor carrier subsidiaries is regulated by various
federal and state agencies. Effective January 1, 1996, the ICC
Termination Act of 1995 (the Act) abolished the Interstate
Commerce Commission (ICC) and established within the Department
of Transportation (DOT) the Surface Transportation Board. The
Surface Transportation Board performs a number of functions
previously performed by the ICC. The Act eliminates most tariff
filings and rate regulation, but retains most other regulations
issued by the ICC, until modified or terminated by the Surface
Transportation Board.
Each of the motor carrier subsidiaries is subject to safety
requirements prescribed by the DOT. Such matters as weight and
dimension of equipment are also subject to federal and state
regulations. All of the Company's drivers are required to
obtain national commercial driver's licenses pursuant to the
regulations promulgated by the DOT. Also, DOT regulations
impose mandatory drug and alcohol testing of drivers. Each of
the motor carrier subsidiaries had a satisfactory safety rating
with the DOT at December 31, 1996.
The trucking industry is subject to possible regulatory and
legislative changes (such as increasingly stringent
environmental regulations or limits on vehicle weight and size)
that may affect the economics of the industry by requiring
changes in operating practices or by changing the demand for
common or contract carrier services or the cost of providing
truckload services. These future regulations may unfavorably
affect the Company's operations.
Risk Management and Insurance
The Company's risk management programs provide protection of
its assets and interests through a combination of insurance and
self-insurance. The Company maintains both primary and excess
auto liability insurance with deductible amounts of $ 100,000 to
$ 250,000, and with limits in amounts management believes to be
adequate.
Workers' compensation and employer's liability risks are
partially mitigated by a combination of large-deductible primary
and excess insurance policies, a state approved self-insurance
program, monopolistic state workers compensation funds, and a
self-insured ERISA accident indemnity plan. Coverage is for
statutory limits, with deductibles generally for the first $
250,000 of exposure.
The Company also maintains insurance with varying deductibles
for cargo, property, physical damage and other exposures.
Fuel
As part of the Company's ongoing program to reduce fuel costs,
drivers are required to refuel at one of the Company's bulk fuel
storage facilities whenever possible. More frequently, when
impractical to fuel at a Company location, drivers purchase fuel
with a Company credit card at pre-authorized truckstops and
fueling locations.
Shortages of fuel, increases in fuel prices or rationing of
petroleum products could have a material adverse effect on the
trucking industry, including the Company. In the past, sharp
increases in fuel prices have been partially recovered from
customers through increased rates or surcharges. However, there
can be no assurance that the Company will be able to recover
increased fuel costs and fuel taxes through increased rates in
the future. The Company does not presently hedge its future
fuel purchase requirements.
The Company's fuel storage facilities are subject to the
environmental regulatory requirements of the U.S. Environmental
Protection Agency which imposes standards and requirements for
regulation of underground storage tanks of petroleum and certain
other substances, and by state law. Management believes that
the Company is in compliance with such requirements in all
material respects, and believes that future compliance-related
expenditures, in the aggregate, will not be material to the
Company's financial or competitive position.
Disclosure Regarding Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for forward looking statements. Certain
information in Items 1, 3, and 7 of this report include
information that is forward looking, such as the Company's
reliance on commissioned agents and owner-operators, its
exposure to increased fuel prices, its anticipated liquidity and
capital requirements and the expected impact of legal
proceedings. The matters referred to in these forward looking
statements could be affected by the risks and uncertainties
involved in the Company's business and in the trucking industry.
These risks and uncertainties include, but are not limited to,
the effect of general economic and market conditions, the
availability and cost of qualified drivers, the availability and
price of diesel fuel, the impact and cost of government
regulations and taxes on the operations of the business, as well
as certain other risks described in this report. Subsequent
written and oral forward looking statements attributable to the
Company or persons acting on its behalf are expressly qualified
in their entirety by the cautionary statements in this paragraph
and elsewhere in this report.
Item 2. Properties.
The Company leases space for its headquarters operation, which
consists of approximately 4,000 square feet of office space.
The lease provides for rent at approximately $ 5,000 per month
and is presently for a one year period expiring in August, 1997,
with an option for an additional one year period thereafter.
The following table provides information concerning other
significant properties owned or leased by the operating
subsidiaries.
Owned Operating Type of or
Approximate
Location Subsidiary Facility Leased Acreage
Albuquerque, NM RRT Company Headquarters, Owned 15
Terminal, Maintenance
Facility and Bulk Fueling
Station
Albuquerque, NM RRT Terminal and Office Facility Owned 6
(Under lease to others)
Snowflake, AZ RRT Terminal & Bulk Fueling Leased 1
Station
Vinton, TX RRT Terminal, Maintenance Leased 4
Facility and Bulk Fueling
Station
Fontana, CA RRT / RDS Terminal and Bulk Fueling Leased 4
Station
Indianapolis, IN. RDS Company Headquarters Leased 1
and Terminal
El Paso, TX RDS Terminal and Maintenance Owned 4
Facility
Rockport, IN. EMT Company Headquarters, Owned 13
Terminal, Maintenance
Facility and Bulk Fueling
Station
Columbus, OH ADS Company Headquarters Leased 2
Amlin, OH ADS Maintenance Facility Leased 2
Schaumburg, IL INL Company Headquarters Leased -
All properties owned by the Company and the operating
subsidiaries are subject to liens in favor of the Company's
primary lender or independent mortgage lenders. See Note 2 of
Notes to Consolidated Financial Statements.
Item 3. 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
transportation of freight. The Company maintains auto liability
insurance for such risks with deductible amounts customary in
the industry, and with limits in amounts management believes to
be adequate. Management is not aware of any claims or
threatened claims that are likely to materially affect the
Company's operating results or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders of the
Company during the three months ended December 31, 1996.
Executive Officers of the Registrant.
Pursuant to federal Instruction G(3) of Form 10-K and
Instruction 3 to Item 401(b) of Regulation S-K, the following
information is included in lieu of being included in the Proxy
Statement for its Annual Meeting of Stockholders:
Certain information concerning the executive officers of the
Company as of December 31, 1996 is set forth below.
Name and Position Age
John P. Delavan 44 President and Chief Executive Officer
Jonathan G. Usher 42 Vice President-Finance , Chief Financial
Officer, Secretary and Treasurer
Officers of the Company serve at the discretion of the Board of
Directors.
John P. Delavan has been President and Chief Executive Officer
since June, 1996, and a Director since September, 1996. From
1991 to June, 1996, Mr. Delavan was President of Landstar-Inway,
Inc., a truckload carrier affiliated with Landstar System, Inc.
Jonathan G. Usher has been Vice President - Finance and Chief
Financial Officer of the Company since June 1989. Previously,
Mr. Usher was a manager in the audit division of Arthur Andersen
LLP in the Indianapolis, Indiana office.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The Common Stock is traded on The NASDAQ Small-Cap Market
(NASDAQ) under the symbol INET. The following table sets forth
the high and low sales prices as reported by NASDAQ.
1995 HIGH LOW
First Quarter 6.000 3.562
Second Quarter 4.375 3.000
Third Quarter 4.125 3.250
Fourth Quarter 3.250 1.625
1996
First Quarter 2.625 1.875
Second Quarter 2.625 1.625
Third Quarter 2.625 1.625
Fourth Quarter 2.475 2.000
1997
First Quarter 2.3125 1.875
(through February 28)
On March 1, 1997 there were 243 holders of record of Common
Stock.
The Company has never paid a cash dividend on its Common Stock.
The Company's bank agreement contains covenants which restrict
the Company's ability to pay cash dividends. See Note 2 of
Notes to Consolidated Financial Statements. The Company does
not anticipate paying cash dividends on Common Stock in the
foreseeable future.
During the three months ended December 31, 1996, the Company
did not offer or sell any equity securities in a transaction
that was exempt from the requirements of the Securities Act of
1933, as amended.
Item 6. Selected Financial Data.
Year Ended December 31,
1996 1995 1994 1993 1992
(In Thousands, Except Per Share Amount)
STATEMENT OF OPERATIONS DATA
Operating revenues $ 224,613 $ 214,973 $ 214,838 $ 191,390 $ 174,801
Operating expenses:
Purchased transportation
and equipment rents 87,834 80,997 79,946 73,071 73,741
Salaries, wages and benefits 60,017 58,733 53,281 44,245 37,486
Fuel and other operating expenses 49,251 46,610 44,777 41,196 36,177
Operating taxes and licenses 10,670 10,093 9,846 7,196 4,459
Insurance and claims 8,812 6,986 7,680 8,622 8,010
Depreciation 5,096 4,651 4,826 5,386 5,478
Other operating expenses 3,591 3,842 4,077 4,941 4,728
Total operating expenses 225,271 211,912 204,433 184,657 170,079
Operating income (loss) (658) 3,061 10,405 6,733 4,722
Interest expense (2,397) (2,886) (3,557) (3,949) (4,622)
Other income (expense), net (420) (82) (357) (352) (344)
Earnings (loss) before income taxes
and extraordinary items (3,475) 93 6,491 2,432 (244)
Income taxes - (305) (1,326) (922) -
Earnings (loss) before
extraordinary items (3,475) (212) 5,165 1,510 (244)
Extraordinary gain, net - - - 1,188 -
Net earnings (loss) $ (3,475) $ (212) $ 5,165 $ 2,698 $ (244)
Primary
Before extraordinary items $ (0.26) $ (0.02) $ 0.52 $ 0.16 $ (0.05)
Extraordinary items, net $ - $ - $ - $ 0.12 $ -
Net earnings (loss) $ (0.26) $ (0.02) $ 0.52 $ 0.28 $ (0.05)
Fully Diluted
Before extraordinary items $ (0.26) $ (0.02) $ 0.40 $ 0.14 $ (0.05)
Extraordinary items, net $ - $ - $ - $ 0.09 $ -
Net earnings (loss) $ (0.26) $ (0.02) $ 0.40 $ 0.23 $ (0.05)
BALANCE SHEET DATA
Current assets $ 30,348 $ 26,716 $ 29,320 $ 27,206 $ 24,099
Current liabilities 30,216 27,339 28,329 24,170 29,014
Total assets 77,168 67,638 69,058 64,636 67,702
Long-term debt 24,210 14,981 22,291 26,223 33,258
Shareholders' equity 19,892 23,018 16,438 11,243 2,430
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
Introduction
The Company reported a net loss in 1996 of $ 3.5 million on
revenues of $ 224.6 million, as compared to a net loss of $ 0.2
million on revenues of $ 215.0 million in 1995, and net earnings
of $ 5.2 million on revenues of 214.8 million in 1994.
As discussed more fully below, the Company's performance
throughout 1996 reflects the soft market trends which began in
late 1995 and continued throughout 1996. Over-capacity in the
truckload industry, inclement weather conditions and higher fuel
costs combined to produce lower freight rates, reduced equipment
utilization, and significantly higher operating costs early in
the year. Business strengthened later in the year as a stronger
U.S. economy and a resumption of construction activity increased
demand for transportation services. However, substantially
higher fuel prices, continued competitive pressures on freight
rates, certain third quarter charges, and other increased costs
continued to negatively impact the Company's profit margins.
While the effects of the higher fuel prices were blunted, to a
degree, through the implementation of fuel surcharges,
competitive conditions limited the surcharges to only a portion
of the Company's revenues. Management estimates that the higher
fuel costs alone, net of surcharge revenue retained by the
Company, reduced margins by approximately $ 0.6 million in the
three months, and approximately $ 2.2 million in the full year
ended December 31, 1996, when compared to fuel prices paid in
the comparable periods of 1995.
Management has taken a number of actions in response to these
competitive conditions including implementing fuel surcharges,
raising rates where competitively feasible, reducing staffing
levels, cutting other fixed costs and increasing marketing
efforts. These actions are all beginning to take effect, and
management is cautiously optimistic that these and other actions
will return the Company to profitability. However, factors
outside of the Company's control, including continued high fuel
prices and actions of competitors, may continue to adversely
affect the Company in 1997.
A discussion of the impact of the above and other factors on
the results of operations in 1996 as compared to 1995, and 1995
as compared to 1994 follows.
1996 Compared to 1995
%
Key Operating Statistics 1996 1995 Change
Operating Revenues ($ millions) $224.6 $215.0 4.5%
Net Earnings (Loss) $ (3.5) (0.2) NM
Average Tractors 2,080 2,063 .8%
Total Loads (000's) 259.3 246.9 5.0%
Revenue Miles (millions) 162.8 155.3 4.8%
Avg. Revenue per Revenue Mile $1.298 $ 1.307 (0.7%)
Operating Revenues. Operating revenues increased by $ 9.6
million, or 4.5% in 1996 to $ 224.6 million from $ 215.0
million in 1995. The majority of this increase occurred in the
owner-operator fleet where revenues increased by $ 6.9 million
or 9.6%. Brokered revenues also increased nearly 10% in 1996
over 1995, while Company fleet revenues increased 1.2%.
The 4.8% increase in revenue miles (volume) in 1995 is
primarily attributable to an increase in the average number of
owner-operator trucks (up 6.4%).
The 0.7% decrease in average revenue per revenue mile (price)
is a result of significantly sharper competitive conditions
which drove prices down in early 1996. While pricing recovered
somewhat later in the year, some of the increased prices
resulted from fuel surcharges intended to recover steeply higher
fuel costs. Without fuel surcharges, the average revenue per
revenue mile would have declined by 1.2 % in 1996 over 1995.
Operating Expenses. The following table sets forth the
percentage relationship of operating expenses to operating
revenues for the years ended December 31, 1996 and 1995.
1996 1995
Operating Revenues 100.0% 100.0%
Operating Expenses:
Purchased transportation and
equipment rents 39.1 37.8
Salaries, wages and benefits 26.7 27.3
Fuel and other operating expenses 21.9 21.6
Operating taxes and licenses 4.8 4.7
Insurance and claims 3.9 3.2
Depreciation 2.3 2.1
Other operating expenses 1.6 1.8
Total Operating Expenses 100.3% 98.5%
In 1996, the mix of company-operated versus owner-operator
equipment began to shift back towards owner-operator equipment,
although the Company was still primarily dependent on
company-operated tractors. Approximately 59% of the Company's
revenue was generated with company-operated equipment in 1996,
as compared to approximately 61% in 1995.
The relatively higher use of owner-operator equipment in 1996
resulted in decreases in salaries, wages and benefits, and fixed
costs related to ownership or lease of revenue equipment, and
increases in owner-operator purchased transportation as a
percentage of revenue. Offsetting this trend towards higher
owner-operator based costs, and lower company-operated equipment
costs, however, was steeply higher fuel costs incurred to
operate company equipment in 1996. Management estimates that the
approximately 13 cent per gallon higher fuel price in 1996
resulted in increased fuel costs of approximately $ 3.0 million
over those incurred in 1995.
Operating taxes and licenses were relatively unchanged in 1996
when compared to 1995.
The Company's insurance expense increased to 3.9% of revenue in
1996 from 3.2% of revenue in 1995. This increase results
primarily from increased provisions for accident claims.
Approximately one third of the Company's insurance expense in
1996 represented premium payments. The remaining two thirds of
the expense is comprised of estimates for claim and deductible
obligations resulting from accidents and claims.
Depreciation expense increased in 1996 as compared to 1995 as
the Company replaced older, fully depreciated trailers with new,
modern replacement units.
Other operating expenses decreased to 1.6% of revenue in 1996
from 1.8% in 1995 primarily as a result of reduced accounts
receivable service fees, coupled with reduced legal and
professional fees. The Company ceased selling certain accounts
receivable to a collection clearing house effective June 30,
1996.
Interest Expense. Interest expense decreased by approximately
$0.5 million in 1996 as compared to 1995, due to lower interest
and fees on the Company's bank credit facility. The credit
facility was amended on January 15, 1996, lowering the interest
rate from 1 1/4 % over prime to 1/2 % over prime, and reducing
credit facility fees. In addition, the prime rate was lower in
1996, on average, than in 1995. Average borrowings outstanding
were flat.
Following is a summary of interest expense for the years ended
December 31, (in millions):
1996 1995
Interest on Debentures $ - $ 0.1
Interest and fees on notes
payable to banks 0.9 1.3
Interest on capital leases and
other indebtedness 1.5 1.5
$ 2.4 $ 2.9
Provision For Income Taxes. No provision for income taxes was
provided in 1996 as a result of the operating losses incurred. A
$ 1.0 million increase in net deferred tax assets was offset by
a $ 1.0 million increase in valuation allowances. A provision
for income taxes of approximately $ 0.3 million, or
approximately 328 % of pre-tax earnings, was provided in 1995.
The higher than statutory effective tax rate results from the
effect of certain non-deductible expenses.
1995 Compared to 1994
%
Key Operating Statistics 1995 1994 Change
Operating Revenues ($millions) $215.0 $214.8 - %
Net Earnings (0.2) 5.2 NM
Average Tractors 2,063 1,840 12.1%
Total Loads (000's) 246.9 233.1 5.9%
Revenue Miles (millions) 155.3 155.3 - %
Average Revenue per Revenue Mile $1.307 $ 1.322 (1.0%)
Operating Revenues. Operating revenues were essentially
unchanged in 1995 at $ 215.0 million versus $ 214.8 million in
1994. While total revenues remained unchanged, revenues
generated with company-operated equipment increased $ 2.9
million or 2.3 %, and brokered revenues increased $ 2.5 million
or 25.7 %. At the same time, owner operator revenues declined by
$ 5.3 million, or 6.8 %. The decrease in owner operator revenues
in 1995 over 1994 is primarily attributable to the sharply
reduced owner-operator revenues at C. I. Whitten Transfer
Company (CIW), the Company's munitions motor carrier subsidiary
sold in August, 1995.
The 5.9% increase in total loads (volume) in 1995 is primarily
attributable to an increase in the average number of
company-operated tractors (up 11.4%), coupled with an increase
in brokered traffic, offset by reduced loads hauled by
owner-operators. The 1.0% decrease in revenue per revenue mile
(price) is a result of reduced traffic opportunities in 1995 due
to the less robust U.S. economy, which required the Company to
move more equipment with lower priced spot market loads. In
addition, the lower revenue contribution by CIW in 1995 over
1994 reduced the average Company-wide rate per revenue mile.
Operating Expenses. The following table sets forth the
percentage relationship of operating expenses to operating
revenues for the years ended December 31, 1995 and 1994.
1995 1994
Operating Revenues 100.0% 100.0%
Operating Expenses:
Purchased transportation and
equipment rents 37.8 37.2
Salaries, wages and benefits 27.3 24.9
Fuel and other operating expenses 21.6 20.8
Operating taxes and licenses 4.7 4.6
Insurance and claims 3.2 3.6
Depreciation 2.1 2.2
Other operating expenses 1.8 1.9
Total Operating Expenses 98.5% 95.2%
In 1995 and 1994, the mix of company-operated versus
owner-operator equipment continued to shift, although less
significantly than in recent years, toward company-operated
equipment as a result of increased competition for qualified
owner-operators, and the Company's ability to secure affordable
financing and freight to operate additional company tractors.
Approximately 61% of the Company's revenue was generated with
company-operated equipment in 1995, as compared to approximately
60% in 1994.
The relatively higher use of company-operated equipment
resulted in increases in salaries, wages and benefits, fuel and
other operating expenses and fixed costs related to ownership or
lease of the equipment, and decreases in owner-operator
purchased transportation as a percentage of revenue. In
addition, the Company has raised the pay rates for its drivers
in order to continue to be able to attract sufficient qualified
drivers. Lastly, in February 1995, the Company commenced
treating all driver pay as taxable compensation, and eliminated
driver road expense payments. This increased taxable driver
compensation, resulted in higher payroll-related taxes and
insurance.
The Company's insurance expense decreased to 3.2% of revenue in
1995 from 3.6% of revenue in 1994. This decrease results
primarily from reduced liability insurance premium rates due to
improved accident control over the past several years, and to
higher deductible retentions by the Company. Approximately
two-thirds of the Company's insurance expense in 1995
represented premium payments. The remaining one-third of the
expense is comprised of estimates for claim and deductible
obligations as a result of accidents and claims.
Operating taxes and licenses increased in 1995 as compared to
1994 as a result of the greater proportion of company-operated
equipment in 1995, for which the Company is responsible for
operating taxes and licenses.
Depreciation expense decreased in 1995 as compared to 1994 as
the Company has replaced owned or capital-leased tractors
primarily with operating-leased tractors.
Other operating expenses decreased to 1.8% of revenue in 1995
from 1.9% in 1994 due to reduced communication and other
miscellaneous expenses, offset somewhat by increased
expenditures for legal and professional fees in 1995 as compared
to 1994.
Interest Expense. Interest expense decreased by approximately
$0.7 million in 1995 as compared to 1994, primarily as a result
of 1) the replacement of capital-leased equipment with equipment
financed under operating leases, coupled with 2) reduced bank
interest and fees as a result of lower average bank borrowings,
offset by higher average interest rates in 1995 as compared to
1994, and 3) the Company's 7% Convertible Subordinated
Debentures were converted to common stock on March 31, 1995,
thereby eliminating the related interest expense thereafter.
Following is a summary of interest expense for the years ended
December 31, (in millions):
1995 1994
Interest on Debentures $ 0.1 $ 0.4
Interest and fees on notes
payable to banks 1.3 1.4
Interest on capital leases and
other indebtedness 1.5 1.8
$ 2.9 $ 3.6
Provision For Income Taxes. A provision for income taxes of
approximately $ 0.3 million, or approximately 328 % of pre-tax
earnings, was provided in 1995. The higher than statutory
effective tax rate results from the effect of certain
non-deductible expenses. A provision for income taxes of
approximately $ 1.3 million, or approximately 20% of pre-tax
earnings, was provided in 1994. As more fully discussed in Note
5 of Notes to Consolidated Financial Statements, the Company's
1994 provision for income taxes was favorably influenced by the
release of valuation allowances held against certain net
deferred tax assets.
Liquidity and Capital Resources
The Company generated $ 0.2 million of cash and cash
equivalents in the year ended December 31, 1996, as compared to
a use of cash of $ 2.6 million in 1995. As reflected in the
accompanying Consolidated Statements of Cash Flows, in 1996, $
1.7 million of cash was generated from operating activities, and
$ 3.8 million, net, was generated from investing activities
through sale of equipment. Approximately $ 5.3 million, net, of
this cash was used in financing activities for principal
payments on long-term debt. 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,
net, of accounts receivable which would otherwise have been sold
to the clearing house.
The Company's day-to-day financing is provided by borrowings
under its bank credit facility. The credit facility consists of
a $ 5 million term loan with a final maturity of December 31,
1999, and a revolving line of credit, with a maximum limit of $
28 million, 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
(the Borrowing Base). Borrowings under the revolving line of
credit totaled $ 2.2 million at December 31, 1996, and
outstanding letters of credit totaled $ 6.0 million at that
date. The combination of these two bank credits totaled $ 8.2
million and, given the then existing Borrowing Base, left
approximately $10.7 million of borrowing capacity under the
revolving line of credit at December 31, 1996. The comparable
borrowing capacity under the revolving line of credit as of
March 1, 1997 was $ 7.1 million. The decrease in borrowing
capacity from December to March results primarily from the
financing of annual license plates and permits for the
company-operated fleet. The Company's borrowing capacity
typically is lowest in the first half of the year, and increases
throughout the second half of the year.
During the last quarter of 1996, management became aware that
the losses that would be reported for 1996 would cause the
Company to not be in compliance with the net worth and certain
other financial covenant tests contained in the loan agreements
for December 31, 1996 and later periods. Management requested
that the bank waive non-compliance with these provisions, and
establish new net worth and other financial covenant tests.
Subsequent to year end, the Company and the bank executed an
amendment to the loan agreements which waives non-compliance
with such tests and establishes new tests which management
believes the Company will be able to meet for the remaining
term of the credit facility.
The Company currently believes that cash generated from
operating, financing and investing activities and cash available
to it under the bank credit facility will be sufficient to meet
the Company's needs during 1997.
Other Factors.
Inflation can be expected to have an impact on most of the
Company's operating costs although the impact of inflation in
recent years has been minimal. Changes in market interest rates
can be expected to impact the Company to the extent that revenue
equipment is added and replaced and because the Company's bank
financing is based on the prime rate.
The trucking industry is generally affected by customer
business cycles and by seasonality. Revenues are also affected
by inclement weather and holidays because revenues are directly
related to available working days of shippers. Customers
typically reduce shipments during and after the winter holiday
season. The Company's revenues tend to follow this pattern and
are strongest in the summer months. Generally, the second and
third calendar quarters have higher load bookings than the
fourth and first calendar quarters.
Item 8. Financial Statements and Supplementary Data.
Index to Consolidated Financial Statements
Page
Consolidated Balance Sheets
15 Consolidated Statements of Operations
16
Consolidated Statements of Shareholders' Equity 17
Consolidated Statements of Cash Flows
18
Notes to Consolidated Financial Statements
19
Report of Independent Public Accountants
23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures.
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this Item is incorporated herein by
reference to the Company's definitive Proxy Statement for its
annual meeting of shareholders to be filed with the Commission
pursuant to Regulation 14A.
Item 11. Executive Compensation.
The information required by this Item is incorporated herein by
reference to the Company's definitive Proxy Statement for its
annual meeting of shareholders to be filed with the Commission
pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information required by this Item is incorporated herein by
reference to the Company's definitive Proxy Statement for its
annual meeting of shareholders to be filed with the Commission
pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions.
The information required by this Item is incorporated herein by
reference to the Company's definitive Proxy Statement for its
annual meeting of shareholders to be filed with the Commission
pursuant to Regulation 14A.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.
(a)(1) Financial Statements
All financial statements of the Registrant are set forth under
Item 8 of this Report.
(2) Financial Statement Schedule
Schedule Number Description
Page
II Valuation and Qualifying Accounts
24
The report of the Registrant's independent public accountants
with respect to the above-listed financial statements and
financial statement schedules appears on page 23 of this
Report.
All other financial statement schedules not listed above have
been omitted because the required information is included in the
consolidated financial statements or the notes thereto, or is
not applicable or required.
(3) Exhibits - See Index to Exhibits on page 14 of this Report.
THE COMPANY WILL FURNISH ANY EXHIBIT UPON REQUEST AND UPON
PAYMENT OF THE COMPANY'S REASONABLE EXPENSES IN FURNISHING SUCH
EXHIBIT.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of
1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ John P. Delavan
John P. Delavan
President and Chief Executive Officer
Date: March 18, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
Signature Title Date
/s/ John P. Delavan President, Chief
Executive March 18, 1997
John P. Delavan Officer and Director
(Principal Executive Officer)
/s/ Jonathan G. Usher Senior Vice
President, March 18, 1997
Jonathan G. Usher Treasurer and Secretary
(Principal Financial and
Accounting Officer)
/s/ Edwin H. Morgens Chairman of the Board
and Director March 18, 1997
Edwin H. Morgens
/s/ Eric C. Jackson Director March 18,
1997
Eric C. Jackson
/s/ Fernando Montero Director March 18,
1997 Fernando Montero
/s/ Thomas J. Noonan, Jr. Director March 18, 1997
Thomas J. Noonan, Jr.
/s/ Philip Scaturro Director March 18,
1997
Philip Scaturro
INDEX TO EXHIBITS
Page Number or Incorporation
Exhibit by Reference to an Exhibit
Number Description Filed as Part of
3.1 Restated Articles of the Registrant Registration Statement
on Form8-A/A
filed on August 11, 1995, as Exhibit 2 (a)
3.2 Restated Bylaws of the Registrant Registration Statement on
Form 8-A/A
filed on August 11, 1995, as Exhibit 2 (b)
10.1 Fourth Amended and Restated Loan Annual Report on Form
10-K for the
Agreement dated as of January 15, 1996 year ended December 31,
1995 as
by and among the Registrant, certain Exhibit 10.1
subsidiaries and The Huntington
National Bank
10.11 First Amendment to Fourth Amended and Quarterly Report on
Form10-Q for the
Restated Loan Agreement dated as of quarter ended June 30,
1996 as
March 31, 1996. Exhibit 10.1
10.12 Second Amendment to Fourth Amended and
___
Restated Loan Agreement dated as of
March 7, 1997.
10.2 1992 Non-Qualified Stock Option Plan Annual Report on Form
10-K for the
year ended December 31, 1992 as
Exhibit 10.2
10.3 Stock Option Agreement dated as of Quarterly Report on
Form 10-Q for the
June 4, 1996 between the Company quarter ended June 30, 1996
as
and John P. Delavan Exhibit 10.3
10.31 Stock Option Agreement dated as of
___
November 4, 1996 between the Company
and John P. Delavan
10.4 Employment Agreement dated as of Quarterly Report on Form
10-Q for the
June 4, 1996 between the Company quarter ended June 30, 1996
as
and John P. Delavan Exhibit 10.2
10.6 Employment Agreement dated as of Annual Report on Form
10-K for the
March 1, 1994 between the Company year ended December 31, 1993
as
and Jonathan G. Usher Exhibit 10.6
10.61 Amendment to Employment Agreement Annual Report on Form
10-K for the between the Company and Jonathan G. year ended
December 31, 1995 as
Usher dated December 8, 1995 Exhibit 10.61
10.9 1993 Stock Option and Incentive Plan Registration
Statement on Form S-8
(Registration No. 33-69882) filed
September 29, 1993, as exhibit 4E.
11 Computation of Per Share Earnings 25
21 List of Subsidiaries of the Registrant ___
23 Consent of Independent Public Accountants ___
27 Financial Data Schedule ___
INTRENET, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
Years Ended December 31, 1996 and 1995
(In Thousands of Dollars)
Assets 1996 1995
Current assets:
Cash and cash equivalents $ 410 $ 171
Receivables, principally freight revenue less
allowance for doubtful accounts of $770 in 1996
and $572 in 1995 25,334 20,972
Prepaid expenses and other 4,604 5,573
Total current assets 30,348 26,716
Property and equipment, at cost, less accumulated
depreciation of $ 13,861 in 1996 and $ 12,923 in 1995 35,882 29,577
Reorganization value in excess of amounts allocated
to identifiable assets, net of accumulated amortization
of $4,558 in 1996 and $4,138 in 1995 7,611 8,031
Deferred income taxes, net 2,723 2,723
Other assets 604 591
Total assets $ 77,168 $ 67,638
Liabilities and Shareholders' Equity
Current liabilities:
Current debt and capital lease obligations $ 6,510 $ 6,134
Accounts payable and cash overdrafts 8,190 7,744
Current accrued claim liabilities 8,400 7,031
Other accrued expenses 7,116 6,430
Total current liabilities 30,216 27,339
Long-term debt and capital lease obligations 24,210 14,981
Long-term accrued claim liabilities 2,850 2,300
Total liabilities 57,276 44,620
Shareholders' equity:
Common stock, without par value; 20,000,000
shares authorized; 13,412,138 and 13,197,728 shares
issued and outstanding at December 31, respectively 16,594 16,245
Retained earnings since January 1, 1991 3,298 6,773
Total shareholders' equity 19,892 23,018
Total liabilities and shareholders' equity $ 77,168 $ 67,638
The accompanying notes are an integral part of these consolidated financial statements.
INTRENET, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1996, 1995 and 1994
(In Thousands of Dollars, Except Per Share Data)
1996 1995 1994
Operating revenues $ 224,613 $ 214,973 $ 214,838
Operating expenses:
Purchased transportation
and equipment rents 87,834 80,997 79,946
Salaries, wages, and benefits 60,017 58,733 53,281
Fuel and other operating expenses 49,251 46,610 44,777
Operating taxes and licenses 10,670 10,093 9,846
Insurance and claims 8,812 6,986 7,680
Depreciation 5,096 4,651 4,826
Other operating expenses 3,591 3,842 4,077
225,271 211,912 204,433
Operating Income (658) 3,061 10,405
Interest expense (2,397) (2,886) (3,557)
Other expense, net (420) (82) (357)
Earnings (loss) before income taxes (3,475) 93 6,491
Provision for income taxes - (305) (1,326)
Net earnings (loss) $ (3,475) $ (212) $ 5,165
Earnings (loss) per common and common
equivalent share -
Primary $ (0.26) $ (0.02) $ 0.52
Fully diluted $ (0.26) $ (0.02) $ 0.40
The accompanying notes are an integral part of these consolidated financial statements.
INTRENET, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1996, 1995 and 1994
(In Thousands of Dollars)
Retained Shareholde
Common Stock Earnings Equity
Shares Dollars
Balance, December 31, 1993 9,067,164 $9,423 $1,820 $11,243
Exercise of stock options 20,000 30 - 30
Net earnings for 1994 - 5,165 5,165
Balance, December 31, 1994 9,087,164 9,453 6,985 16,438
Exercise of stock options, including
tax benefit 474,212 802 - 802
Conversion of 7% Convertible
Subordinate Debentures 3,636,352 5,990 - 5,990
Net loss for 1995 - (212) (212)
Balance, December 31, 1995 13,197,728 16,245 6,773 23,018
Exercise of stock options 229,610 349 - 349
Cancellation of shares (15,200) - -
Net loss for 1996 - (3,475) (3,475)
Balance, December 31, 1996 13,412,138 $16,594 $3,298 $19,892
The accompanying notes are an integral part of these consolidated financial statements.
INTRENET, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994
(In Thousands of Dollars)
1996 1995 1994
Cash flows from operating activities:
Net earnings (loss) $ (3,475) $ (212) $ 5,165
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Deferred income taxes - 305 1,128
Depreciation and amortization 5,516 5,071 5,246
Provision for doubtful accounts 478 85 93
Changes in assets and liabilities, net:
Receivables (4,841) (880) (2,105)
Prepaid expenses 783 422 215
Accounts payable and accrued expenses 3,225 1,392 1,774
Other - (40) 20
Net cash provided by operating activities 1,686 6,143 11,536
Cash flows from financing activities:
Net borrowings (repayments) in line of credit, net 1,293 (2,000) (2,949)
Issuance of long-term debt - 2,299 358
Principal payments on long-term debt (6,923) (5,666) (8,719)
Proceeds from exercise of stock options 349 304 30
Net cash (used in) financing activities (5,281) (5,063) (11,280)
Cash flows from investing activities:
Additions to property and equipment (1,444) (6,713) (3,244)
Disposals of property and equipment 5,278 157 3,366
Sale of assets of C.I. Whitten - 2,913
Net cash provided by (used in) investing activities 3,834 (3,643) 122
Net increase (decrease) in cash and cash equivalents 239 (2,563) 378
Cash and cash equivalents:
Beginning of period 171 2,734 2,356
End of period $ 410 $ 171 $ 2,734
The accompanying notes are an integral part of these consolidated financial statements.
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Intrenet, Inc., and all of its subsidiaries (the
Company). Truckload carrier subsidiaries at December 31, 1995
were Roadrunner Trucking, Inc. (RRT), Eck Miller Transportation
Corporation (EMT), Advanced Distribution System, Inc. (ADS), and
Roadrunner Distribution Services, Inc. (RDS). Also included is
the Company's intermodal broker and logistics manager INET
Logistics, Inc. (INL). All significant intercompany
transactions are eliminated in consolidation. Through its
subsidiaries, the Company provides general and specialized
regional truckload carrier, brokerage and logistics management
services throughout North America.
Accounting Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount
of assets and liabilities, and disclosure of contingent
liabilities, at the date of the financial statements, as well as
the reported amounts of revenues and expenses for the reporting
period(s). Actual results can differ from these estimates. The
effects of changes in accounting estimates are accounted for in
the period in which the estimate changes.
Revenue Recognition
Operating revenues are recognized when the freight is picked
up. Related transportation expenses including driver wages,
purchased transportation, fuel and fuel taxes, agent
commissions, and insurance premiums are accrued when the revenue
is recognized.
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
operations or financial condition of the Company.
Property and Equipment
Property and equipment is carried at cost less an allowance for
depreciation. Major additions and betterments are capitalized,
while maintenance and repairs that do not improve or extend the
life of the respective asset, are expensed as incurred.
Improvements to leased premises are amortized on a straight-line
basis over the terms of the respective lease. Operating lease
tractor rentals are expensed as a part of purchased
transportation and equipment rents. Depreciation of property and
equipment is provided on a straight-line basis over the
following estimated useful lives of the respective assets, or
life of the lease for equipment under capital leases:
Buildings and Improvements....................... 10 - 40 years
Revenue Equipment.................................... 3 - 8 years
Other Property.............................................. 3 - 7 years
Reorganization Value in Excess of
Amounts Allocated to Identifiable Assets
Reorganization Value in Excess of Amounts Allocated to
Identifiable Assets, resulting from the Chapter 11
reorganization of the Company in 1990, is being amortized on a
straight-line basis over 35 years. Benefits from recognition of
pre-reorganization net operating loss carryforwards (see Note 5)
are reported as reductions of the Reorganization Value, and thus
reduce its effective life.
Debt Issuance Costs and Bank Fees
Debt issuance costs and bank fees are amortized over the period
of the related debt agreement.
Accrued Claim Liabilities
The Company maintains insurance coverage for liability, cargo
and workers compensation risks, among others, which have
deductible obligations ranging to $ 250,000 per occurrence.
Provision is made in the Company's financial statements for the
estimated 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.
Income Taxes
The Company and its subsidiaries file a consolidated Federal
income tax return. The Company recognizes income taxes under the
liability method of accounting for income taxes. The liability
method recognizes tax assets and liabilities for future taxable
income or deductions resulting from differences in the tax and
financial reporting basis of assets and liabilities reflected in
the balance sheet and the expected tax impact of carryforwards
for tax purposes.
Earnings (Loss) Per Share
Earnings (loss) per common and common equivalent share have
been computed using the weighted average common shares
outstanding during the periods (13.4 million in 1996, 13.2
million in 1995, and 9.1 million in 1994). No effect has been
included for options or warrants outstanding, if the effect
would be antidilutive. Fully diluted earnings per share for
1994 have been computed under the assumption that the Company's
7% Convertible Subordinated Debentures (Debentures) were
converted into common stock on the date of their issuance, using
the if-converted method.
Credit Risk
Financial investments that subject the Company to
concentrations of credit risk consist primarily of trade
accounts receivable. Concentrations of credit risk with respect
to customer receivables are limited due to the Company's diverse
customer base, with no one customer, industry, or geographic
region comprising a large percentage of customer receivables or
revenues.
Fair Values of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No. 107,
"Disclosures About Fair Value of Financial Instruments,"
requires disclosure of fair value information for certain
financial instruments. The carrying amounts for trade
receivables and payables are considered to be their fair values.
The differences between the carrying accounts and the estimated
fair values of the Company's other financial instruments at
December 31, 1996 and 1995 were not material.
Statements of Cash Flows
Cash equivalents consist of highly liquid investments such as
certificates of deposit or money market funds with original
maturities of three months or less.
Cash payments for interest were $ 2.4 million, $2.8 million,
and $3.5 million 1996, 1995, and 1994, respectively. Cash
payments for Federal alternative minimum income taxes were $ 0.1
million in 1995 and $ 0.2 million in 1994. No Federal tax
payments were made in 1996.
Capital lease obligations of $ 15.2 million, $ 3.6 million, and
$8.0 million were incurred in 1996, 1995, and 1994,
respectively, primarily for revenue equipment. In 1995, the
Company converted $ 5.9 million of Debentures into common stock.
Accounting for Stock Options
The Company currently accounts for its employee stock option
plans using APB Opinion No. 25, Accounting for Stock Issued to
Employees, which results in no charge to earnings when issued
options are granted at fair market value. During 1995, the
Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS 123), which considers the stock
options as compensation expense to the Company, based on their
fair value at the date of grant. Under this new standard, the
Company has the option of accounting for employee stock option
plans as it currently does, or under the new method. The
Company intends to continue to use the APB 25 method, but has
adopted the disclosure requirements of SFAS 123.
(2) Bank Credit Facility
The Company has a $ 33 million credit facility with a bank that
consists of a revolving line of credit, with a maximum limit of
$ 28.0 million, which expires January 15, 1999, and a $5.0
million term loan with a final maturity of December 31, 1999.
The revolving line of credit includes provisions for the
issuance of up to $12.0 million in standby 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 eligible accounts
receivable and inventories, as defined in the agreement (the
Borrowing Base). Borrowings under the revolving line of credit
totaled $ 2.2 million at December 31, 1996, and outstanding
letters of credit totaled $ 6.0 million at that date. The
combination of these two bank credits totaled $ 8.2 million and,
given the then existing Borrowing Base, left approximately $10.7
million of borrowing capacity under the revolving line of credit
at December 31, 1996.
Interest on the outstanding principal balance of loans under
the credit facility is payable at a variable rate of 1/2% over
the bank's prime rate, or 8.75% at December 31, 1996. Quarterly
principal payments of $ 312,500 on the $5.0 million term loan
commenced April 1996. The bank agreement requires the Company to
meet certain minimum net worth, debt to net worth and current
ratio requirements, prohibits the payment of dividends, and
limits capital expenditures to specific amounts which management
believes to be currently adequate. Obligations under the bank
agreement are secured by liens on or security interests in all
of the otherwise unencumbered assets of the Company and its
subsidiaries.
During the last quarter of 1996, management became aware that
the losses that would be reported for 1996 would cause the
Company to not be in compliance with the net worth and certain
other financial covenant tests contained in the loan agreements
for December 31, 1996 and later periods. Management requested
that the bank waive non-compliance with these provisions, and
establish new net worth and other financial covenant tests.
Subsequent to year end, the Company and the bank executed an
amendment to the loan agreements which waives non-compliance
with such tests and establishes new tests which management
believes the Company will be able to meet for the remaining
term of the credit facility.
In connection with the credit facility, in 1993 the Company
issued to the bank warrants to purchase 300,000 shares of common
stock at a price of $1.65 per share. The warrants are
exercisable at any time prior to December 31, 1998.
(3) Leases and Other Long-Term Obligations
The Company finances a majority of its revenue equipment under
various capital and non-cancelable operating leases, and with
collateralized equipment borrowings.
Long-term debt at December 31, 1996 and 1995 was:
1996 1995
Bank term loan, interest at 1/2 %
over bank prime rate $ 4,062 $ 5,000
Bank revolving line of credit, interest
at 1/2 % over bank prime rate 2,230 -
Real estate mortgage obligation,
variable interest rate at 2.45 %
over commercial paper, currently
7.81 %, option to fix interest rate
at 2.50 % over ten year Treasury
rate, maturing in 2007 2,181 2,310
Obligations collateralized by
equipment, maturing through
2000, interest rates ranging
from 7.33 % to 10.80 % 1,647 3,216
Capital lease obligations
collateralized by equipment,
maturing through 2003,
interest rates ranging
from 7.20 % to 11.55 % 20,600 10,589
Total 30,720 21,115
Less current maturities (6,510) (6,134)
Long-term debt $ 24,210 $14,981
Scheduled maturities of long-term debt, excluding capital lease
obligations, in the coming five years are $ 2,512; 1,873; 3,987;
183; and 185 in 1997, 1998, 1999, 2000 and 2001.
Future minimum lease payments under capital and non-cancelable
operating lease agreements at December 31, 1996 were as follows:
Capital Operating
Leases Leases
1997 $ 5,586 $ 14,911
1998 4,916 11,578
1999 5,092 6,982
2000 2,720 3,986
2001 1,278 82
Thereafter 6,091 -
Future minimum lease payments 25,683 $ 37,539
Amounts representing interest (5,083)
Principal amount $20,600
Total rental expense under non-cancelable operating leases was
$ 17,005, $ 17,765, and $14,728 in 1996, 1995, and 1994,
respectively. The Company presently intends to lease
approximately 240 additional or replacement tractors (fair
market value of approximately $ 18 million) under operating
leases in 1997.
Purchased transportation and equipment rents includes payments
to owner-operators of equipment under various short-term lease
arrangements.
(4) Litigation and Contingencies
The Company is a party to routine litigation incidental to its
business, primarily involving claims for personal injury and
property damage incurred in the transporting of freight. The
Company maintains auto liability insurance for such risks with
deductible amounts customary in the industry, and with limits in
amounts management believes to be adequate. Management is not
aware of any claims or threatened claims that are likely to
materially affect the Company's operating results or financial
condition.
(5) Income Taxes
The provision for income taxes for the years ended December 31,
1996, 1995 and 1994 was as follows:
1996 1995 1994
Current $ - $ - $ 200
Deferred - 305 1,126
Total Provision $ - $ 305 $ 1,326
Income tax expense attributable to income from operations
differs from the amounts computed by applying the U. S. Federal
statutory tax rate of 34% to pre-tax income from operations as a
result of the following:
1996 1995 1994
Taxes at statutory rate $ (1,182) $ 31 $ 2,207
Increase (decrease)
resulting from:
Non-deductible amortization 143 143 143
Non-deductible driver
subsistence pay - 131 1,489
Provision for (release of)
valuation allowance for
net deferred tax assets 1,028 - (2,538)
Other, net 11 - 25
Provision for Income Taxes $ - $ 305 $ 1,326
The tax effects of temporary differences that give rise to
significant portions of deferred tax assets and deferred tax
liabilities at December 31, 1996 and 1995 are as follows:
1996 1995
Deferred Tax Assets -
Insurance claim liabilities $ 4,037 $ 3,366
Reserve for doubtful accounts 262 194
Other 345 220
4,644 3,780
Deferred Tax Liabilities -
Property differences, primarily
depreciation ( 2,265) (3,331)
Other (170) (386)
(2,435) (3,717)
Net Temporary Differences 2,209 63
Carryforwards -
Pre-reorganization, limited, net
operating loss and other tax carryforwards
(Expiring 2004-2006) 4,580 5,541
Post-reorganization net operating
loss and other tax carryforwards
(Expiring 2006-2010) 1,846 2,003
Total Carryforwards 6,426 7,544
Net Deferred Tax Assets 8,635 7,607
Valuation Allowance (5,912) (4,884)
Recorded Net Deferred Tax Assets $ 2,723 $ 2,723
Net changes to the valuation allowance in 1996 and 1995, were
as follows:
Valuation allowance, beginning of year $ (4,884) $(4,884)
Provision of valuation allowance
for net deferred tax assets (1,028) -
Valuation allowance, end of year $ (5,912) $ (4,884)
While management is optimistic that all net deferred tax assets
will be realized, such realization is dependent upon future
taxable earnings. The Company's carryforwards expire at specific
future dates and utilization of certain carryforwards is limited
to specific amounts each year. Accordingly, the Company has
recorded a valuation allowance against a portion of those net
deferred tax assets. In 1996, the Company generated
approximately $ 1.0 million of net deferred tax assets. The
Company concluded that realization of these assets was
sufficiently doubtful that a valuation allowance of a like
amount was recorded.
Benefits from realization of pre-reorganization net deferred
tax assets are reported as a reduction of Reorganization Value
in Excess of Amounts Allocated to Identifiable Assets.
Conversely, realization of post- reorganization net deferred tax
assets are recognized as a reduction of income tax expense. In
1994, based upon historical and anticipated future operating
results, the Company released approximately $ 2.5 million of
valuation allowances held against those pre- and
post-reorganization assets. A portion of this release reduced
tax expense and a portion was used to reduce Reorganization
Value in Excess of Amounts Allocated to Identifiable Assets.
(6) Stock Options and Employee Compensation
In 1992, the Company adopted the 1992 Non-Qualified Stock
Option Plan which allowed the Company to grant options to
purchase up to 590,000 shares of Common Stock to employees and
independent contractors of the Company and its operating
subsidiaries. All of the options were granted, vested
immediately, and are exercisable at prices ranging from $1.00 to
$1.50 per share.
In 1993, the Company adopted the 1993 Stock Option and
Incentive Plan (the 1993 Option Plan) which allows the Company
to grant options to purchase up to 1,000,000 shares of Common
Stock to officers and key employees of the Company and its
operating subsidiaries. Options issued to date under the 1993
Option Plan have an exercise price equal to market value on the
date of grant, and are generally exercisable for a ten year
period.
The Company accounts for both option plans using APB Opinion
No. 25, Accounting for Stock Issued to Employees, under which no
compensation expense is recognized for options issued at or
above market price on the date of grant. Had compensation
expense been determined under the provisions of Statement of
Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, no compensation expense would have
been recorded for options issued in 1995 and 1996.
The activity and weighted average prices for options in the
Company's 1992 and 1993 Option Plans in 1996, 1995, and 1994 was
as follows:
# of Weighted Avg.
Shares Exercise Price
Balance at December 31, 1993 580,000 $ 1.53
Granted 258,750 $ 3.77
Exercised (20,000) $ 1.50
Canceled ( 9,000) $ 3.63
Balance at December 31, 1994 809,750 $ 2.23
Granted 400,000 $ 2.50
Exercised (210,000) $ 1.29
Canceled (27,750) $ 3.81
Balance at December 31, 1995 972,000 $ 2.50
Granted 400,000 $ 2.03
Exercised (75,000) $ 1.00
Canceled (410,500) $ 2.77
Balance at December 31, 1996 886,500 $ 2.29
Weighted avg. remaining contractual life 8.0 yrs.
Exercisable at December 31, 1996 453,166 $ 2.42
All employees with at least one year's experience with the
Company may participate in the Company's 401 (k) plan. Company
matching expense for the plan was $ 180,000, $ 224,000, and $
111,000 in 1996, 1995 and 1994, respectively.
(7) Property and Equipment
Property and equipment, substantially all of which is pledged
as security under the bank credit facility (see Note 2), other
indebtedness or capital leases, at December 31, 1996 and 1995,
follows (in thousands of dollars):
1996 1995
Land $ 1,532 $ 1,532
Buildings and leasehold improvements 6,546 6,295
Revenue equipment 7,923 11,267
Revenue equipment under
capital leases 28,132 17,924
Other property 5,610 5,482
49,743 42,500
Less accumulated depreciation (13,861) (12,923)
$ 35,882 $ 29,577
(8) Prepaid and Accrued Expenses
An analysis of prepaid and accrued expenses at December 31,
1996 and 1995, follows (in thousands of dollars):
1996 1995
Prepaid expenses:
Insurance $ 471 $ 789
Shop and truck supplies 2,145 2,151
Other 1,988 2,633
$ 4,604 $ 5,573
Accrued Expenses:
Salaries and wages $ 2,372 $ 1,921
Fuel and mileage taxes 647 504
Equipment leases 515 618
Other 3,582 3,387
$ 7,116 $ 6,430
(9) Transactions with Affiliated Parties
In 1996, 1995 and 1994, the Company leased approximately 307,
290, and 150 tractors, respectively, from unaffiliated leasing
companies which had purchased the trucks from a dealership
affiliated with a member of the Company's Board of Directors.
The lessors paid a selling commission to the dealership. The
terms of the leases were the result of negotiations between the
Company and the lessors. The Company believes the involvement of
the selling dealership did not result in lease terms that are
more or less favorable to the Company than would otherwise be
available to it. The Company also purchases maintenance parts
and services from the dealership from time to time. Total
payments to the dealership for these services was $ 522,000 in
1996, $ 1,164,000 in 1995 and $ 307,000 in 1994.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Shareholders and Board of Directors
of Intrenet, Inc.:
We have audited the accompanying consolidated balance sheets of
INTRENET, INC. (an Indiana corporation) and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity and cash flows
for each of the three years in the period ended December 31,
1996. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit 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 consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Intrenet, Inc. and subsidiaries as of December 31,
1996, and 1995, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on
the basic consolidated financial statements taken as a whole.
The schedule listed in Item 14 (a) 2 is presented for purposes
of complying with the Securities and Exchange Commission's rules
and is not part of the basic consolidated financial statements.
This schedule has been subjected to the auditing procedures
applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as
a whole.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
March 7, 1997.
Schedule II
INTRENET, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
(In Thousands of Dollars)
Additions
Additions
Charged To
Beginning Costs and Charged To Ending
Balance Expenses Other Accounts Deductions Balance
Year Ended
December 31, 1996:
Allowance for
doubtful accounts $ 572 $ 478 $ - $ (280) $ 770
Year Ended
December 31, 1995 :
Allowance for
doubtful accounts $ 1,363 $ 85 $ - $ (876) $ 572
Year Ended
December 31, 1994:
Allowance for
doubtful accounts $ 1,481 $ 93 $ - $ (211) $ 1,363