SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(As filed via EDGAR on March 26, 1998)
(Mark One)
X 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, 1997
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 Item405 of RegulationS-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 PartIII of this Form10-K or any
amendment to this Form10-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 2, 1998, was approximately $25,952,259.
(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 March2,
1998, there were 13,550,638 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
1998 Annual Meeting of Shareholders of Registrant Part III
INTRENET, INC.
1997 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 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 13
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosures 13
Part III
Item 10. Directors and Executive Officers of the Registrant 13
Item 11. Executive Compensation 13
Item 12. Security Ownership of Certain Beneficial Owners
and Management 13
Item 13. Certain Relationships and Related Transactions 13
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 13
Signatures 14
Index to Exhibits 15
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 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 2,200 tractors, including tractors provided by
owner-operators. Some of the Company's operating subsidiaries
rely partially 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 1997, the Company's fleet
traveled over 170 million revenue miles delivering approximately
285,000 loads for Company customers. The Company also brokered
approximately 22,000 loads to other carriers. No customer
accounted for more than 10% of the Company's revenue in 1997.
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, 1997 are as
follows:
RRT EMT ADS RDS Total
Company Tractors 483 339 171 176 1,169
Owner-Operators 126 445 401 85 1,057
Total Tractors 609 784 572 261 2,226
Company Trailers 908 402 238 475 2,023
Company Drivers 513 362 199 170 1,244
Total Employees 691 499 287 198 1,693
Sales Agents 44 153 233 22 452
Avg. Length of Haul
in Revenue Miles 723 427 581 1,105 598
miles milesmilesmiles miles
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
nearly 800 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 owner-operators
and agents 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 products, throughout
the United States and Canada on flatbed trailers and dry vans.
ADS is a Florida corporation, headquartered in Columbus, Ohio.
ADS is primarily dependent upon commissioned agents as sources
for business. ADS also depends exceedingly 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 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 which use commissioned agents and
independent owner-operators generally do not have long-term
contractual agreements with their 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 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 or for other
benefits available to Company 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 agents, or in the prices paid by its customers.
Revenue Equipment
At December 31, 1997, the Company owned or leased 1,169
tractors, 1,425 flatbed trailers and 598 dry van trailers. The
following is a summary of Company operated revenue equipment at
December 31, 1997:
Trailers
Tractors Flatbed Dry Van
Model year
prior to 1995 241 854 122
1995 396 242 -
1996 49 300 476
1997 452 29 -
1998 31 - -
1,169 1,425 598
In addition, at the same date, owner-operators under
contract provided 1,057 tractors for Company operations.
The Company has plans to acquire approximately 350 tractors in
1998, of which approximately 320 will replace older tractors.
The new tractors are expected to be financed primarily under
operating leases.
Employees
At December 31, 1997, the Company employed 1,693 individuals,
of whom 1,244 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, 1997, the Company employed 1,244 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.
Competition for drivers is intense in the trucking industry,
and the Company has at times experienced difficulty attracting
and retaining a sufficient number of qualified drivers.
Management believes the Company's ability to avoid severe driver
shortages results from specific measures it takes to attract and
retain highly qualified drivers. These measures include
purchasing or leasing premium quality tractors equipped with
comfort and safety features, allowing the driver to return home
on a average of once every two to three weeks, and extending
participation in the Company's 401(k) profit sharing plan and
health insurance plan. Drivers are compensated on the basis of
miles driven and number of stops and deliveries made, plus
bonuses relating to performance, fuel efficiency and compliance
with the Company's safety policies. The Company continually
evaluates driver compensation in order to further enhance its
ability to retain and attract sufficient qualified drivers.
None of the Company's drivers is represented by a collective
bargaining unit.
Regulation
Each of the operating subsidiaries that is a motor carrier 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 operating 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 operating subsidiaries had a
satisfactory safety rating with the DOT at December 31, 1997.
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 limits and deductibles in amounts
of $100,000 to $250,000, and in amounts management believes to
be adequate.
Workers' compensation and employer's liability exposure are
covered by a combination of large-deductible 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. 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
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 it
is in compliance with such requirements that are applicable to
tanks it owns or operates, 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 its headquarters facility, which consists of
approximately 4,000square feet of office space. The lease
provides for rent at approximately $5,000 per month and is
presently in the last year of its option with the lease expiring
in August, 1998. The Company is currently negotiating to
re-lease its current headquarters site.
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)
Dallas, TX RRT Terminal Leased 5
Houston, TX RRT Terminal Leased 5
Vinton, TX RRT Terminal, Maintenance Leased 4
Facility and Bulk Fueling
Station
Kingman, AZ RRT Terminal Leased 4
Phoenix, AZ RRT Terminal Leased 3
Snowflake, AZ RRT Terminal & Bulk Fueling Leased 1
Station
Fontana, CA RRT Terminal and Bulk Fueling Leased 4
Station
Indianapolis, IN RDS Company Headquarters Leased 1
and Terminal
El Paso, TX RDS Terminal, Maintenance Owned 4
Facility and Bulk Fueling
Station
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.
On June 13, 1997, the Company received notice from the Central
States Southeast and Southwest Areas Pension Fund (the "Fund")
of a claim pursuant to the Employee Retirement Income Security
Act of 1974, as amended by the Multi-employer Pension Plan
Amendments Act of 1980 ("MPPAA"). MPPAA provides that, if an
employer withdraws from participation in a multi-employer
pension plan, such as the Fund, the employer and members of the
employer's "controlled group" of businesses are jointly and
severally liable for a portion of the plan's underfunding. The
claim is based on the withdrawal of R-W Service System, Inc.
("RW") from the Fund in 1992. The Company's records
indicate that RW was an indirect subsidiary of the Company's
predecessor, Circle Express, Inc., from March 1985 through April
1988, when it and certain other subsidiaries were sold. The
Fund currently claims that RW's withdrawal liability is
approximately $3.7 million plus accrued interest in the amount
of approximately $1.7 million. Based on its investigation to
date, and, after consultation with counsel, management believes
that the Company is not liable to the Fund for any of RW's
withdrawal liability. The Company has filed a formal request
for review of the claim as provided by the MPPAA and the Fund
rejected that request on January 28, 1998. The Company is in
the process of seeking resolution of the claim in binding
arbitration. The Company is obligated to make interim payments
to the Fund until the issue of liability is resolved. The
interim payment obligation is currently approximately $88,500
per month. There can be no assurance that either the need to
make interim payments to the Fund or the ultimate resolution of
this matter will not have a material adverse effect on the
Company's liquidity, results of operation or financial
condition.
There are no other 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 insurance
which covers liability resulting from such transportation
related claims in amounts customary for the industry and which
management believes to be adequate.
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, 1997.
Executive Officers of the Registrant.
Pursuant to federal InstructionG(3) of Form10-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, 1997, is set forth below.
Name Age
Position
John P. Delavan 45
President and Chief Executive Officer
Roger T. Burbage 54
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 Systems, Inc.
Roger T. Burbage has been the Chief Financial Officer since
March, 1997. Prior to joining the Company, Mr. Burbage was
President of Landstar Poole, Inc., a truckload carrier
affiliated with Landstar Systems, Inc. Mr. Burbage was with
Landstar Poole, Inc. for approximately five years.
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.
1996 HIGH LOW
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 2.813 1.875
Second Quarter 2.625 2.188
Third Quarter 3.250 2.438
Fourth Quarter 3.375 2.813
1998
First Quarter 3.438 3.063
(Through February 28)
On March 2, 1998, there were 230 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 Note2 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, 1997, 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,
1997 1996 1995 1994 1993
(In Thousands, Except Per Share Amounts)
STATEMENT OF OPERATIONS DATA
Operating revenues $247,888 $ 224,613 $ 214,973 $ 214,838 $ 191,390
Operating expenses:
Purchased transportation
and equipment rents 108,292 87,834 80,997 79,946 73,071
Salaries, wages and benefits 59,943 60,017 58,733 53,281 44,245
Fuel and other operating expenses 48,550 49,251 46,610 44,777 41,196
Operating taxes and licenses 10,045 10,670 10,093 9,846 7,196
Insurance and claims 7,987 8,812 6,986 7,680 8,622
Depreciation 4,526 5,096 4,651 4,826 5,386
Other operating expenses 3,316 3,591 3,842 4,077 4,941
Total operating expenses 242,659 225,271 211,912 204,433 184,657
Operating income (loss) 5,229 (658) 3,061 10,405 6,733
Interest expense (2,908) (2,397) (2,886) (3,557) (3,949)
Other income (expense), net (420) (420) (82) (357) (352)
Earnings (loss) before income taxes
and extraordinary items 1,901 (3,475) 93 6,491 2,432
Income taxes (580) - (305) (1,326) (922)
Earnings (loss) before
extraordinary items 1,321 (3,475) (212) 5,165 1,510
Extraordinary gain, net - - - - 1,188
Net earnings (loss) $ 1,321 $ (3,475) $ (212) $ 5,165 $ 2,698
Basic
Before extraordinary items $ 0.10 $ (0.26) $ (0.02) $ 0.57 $ 0.17
Extraordinary items, net $ - $ - $ - $ - $ 0.13
Net earnings (loss) $ 0.10 $ (0.26) $ (0.02) $ 0.57 $ 0.30
Diluted
Before extraordinary items $ 0.10 $ (0.26) $ (0.02) $ 0.40 $ 0.14
Extraordinary items, net $ - $ - $ - $ - $ 0.09
Net earnings (loss) $ 0.10 $ (0.26) $ (0.02) $ 0.40 $ 0.23
BALANCE SHEET DATA
Current assets $ 36,499 $ 30,348 $ 26,716 $ 29,320 $ 27,206
Current liabilities 29,293 30,216 27,339 28,329 24,170
Total assets 75,964 77,168 67,638 69,058 64,636
Long-term debt 22,401 24,210 14,981 22,291 26,223
Shareholders' equity 21,470 19,892 23,018 16,438 11,243
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
Introduction
The Company reported net earnings in 1997 of $1.3 million on
revenues of $247.9 million, as compared to a net loss of $3.5
million on revenues of $224.6 million in 1996, and a net loss of
$0.2 million on revenues of $215.0 million in 1995.
As discussed more fully below, the Company's performance
throughout 1997 reflects a generally stronger economy, lower
fuel prices at the pump (although prices are still above 1990
through 1995 levels), a continued emphasis on cost reduction and
growth in the size of the Company's owner-operator fleet.
A discussion of the impact of the above and other factors on
the results of operations in 1997 as compared to 1996, and 1996
as compared to 1995 follows.
1997 Compared to 1996
%
Key Operating Statistics 1997 1996 Change
Operating Revenues ($ millions) $247.9 $224.6 10.4%
Net Earnings (Loss) $1.3 $(3.5) NM
Average Tractors 2,225 2,080 7.0%
Total Loads (000's) 306.3 259.3 18.1%
Revenue Miles (millions) 170.1 162.8 4.5%
Average Revenue per Revenue Mile $1.321 $1.298 1.8%
Operating Revenues. Operating revenues increased by $23.3
million, or 10.4% in 1997 to $247.9 million from $224.6 million
in 1996. The majority of this increase occurred in the
owner-operator fleet where revenues increased by $16.5 million
or 20.9%. Brokered revenues also increased $10.1 million or
76.4% in 1997 over 1996, while Company fleet revenues decreased
$3.2 million or 2.5%.
The 4.5% increase in revenue miles (volume) in 1997 is
primarily attributable to a 21.3% increase in the average number
of owner-operator trucks.
The 1.8% increase in average revenue per revenue mile (price)
is a result of slightly improved competitive conditions which
allowed prices to increase modestly during 1997. This price
increase was minimally affected by fuel surcharge revenues which
were relatively the same in 1997, compared to 1996.
Operating Expenses. The following table sets forth the
percentage relationship of operating expenses to operating
revenues for the years ended December 31, 1997 and 1996.
1997 1996
Operating Revenues 100.0% 100.0%
Operating Expenses:
Purchased transportation and
equipment rents 43.7 39.1
Salaries, wages and benefits 24.2 26.7
Fuel and other operating expenses 19.6 21.9
Operating taxes and licenses 4.1 4.8
Insurance and claims 3.2 3.9
Depreciation 1.8 2.3
Other operating expenses 1.3 1.6
Total Operating Expenses 97.9% 100.3%
In 1997, the mix of company-operated versus owner-operator
equipment shifted to a higher dependence on owner-operator
equipment, although the Company was still primarily dependent on
company-operated tractors. Approximately 52% of the Company's
revenue was generated with company-operated equipment in 1997,
as compared to approximately 59% in 1996.
The decreased use of the Company fleet in 1997 resulted in
decreases in salaries, wages and benefits, and fixed costs
(operating taxes and licenses) related to ownership or lease of
revenue equipment. Conversely, higher use of owner-operator
equipment resulted in increases in purchased transportation as a
percentage of revenue. The Company also benefited from lower
fuel prices at the pump during 1997. The national average price
per gallon at the pump declined approximately $.035 per gallon.
Even with this decrease, the price per gallon at the pump is
still approximately $.08 per gallon higher than it averaged
during the first half of this decade. Relative to 1996,
management estimates this price decrease lowered operating
expenses by approximately $0.8 million in 1997.
The Company's insurance expense decreased to 3.2% of revenue in
1997 from 3.9% of revenue in 1996. This decrease is primarily
due to better accident experience and slightly lower insurance
premiums. Approximately one third of the Company's insurance
expense represented premium payments in 1997 and 1996. The
remaining two thirds of the expenses are comprised of estimates
for claims and deductible obligations resulting from accidents
and claims.
Depreciation expense decreased in 1997 as compared to 1996 as
the Company owned approximately 40 fewer tractors in 1997 and
replaced some capitalized leases with operating leases.
Other operating expenses decreased to 1.3% of revenue in 1997
from 1.6% in 1996 primarily as a result of reduced
communications expense and reduced legal and professional fees.
Interest Expense. Interest expense increased by approximately
$0.5 million in 1997 as compared to 1996 due to higher average
borrowings over the course of the year.
Following is a summary of interest expense for the years ended
December 31, (in millions):
1997 1996
Interest and fees on notes
payable to banks $ 1.1 $ 0.9
Interest on capital leases and
other indebtedness 1.8 1.5
$ 2.9 $ 2.4
Provision For Income Taxes. The provision in 1997 was
approximately $0.6 million, or 31% of pretax earnings. The
effective tax rate is lower than the statutory tax rate due to
the utilization of certain post-reorganization tax attributes
which had a full valuation allowance, offset by the impact of
certain non-deductible expenses.
No provision for income taxes was provided in 1996 as a result
of the operating losses incurred. A $1.0 million increase in
the net deferred tax assets was offset by a $1.0 million
increase in valuation allowances.
1996 Compared to 1995
%
Key Operating Statistics 1996 1995 Change
Operating Revenues ($ millions) $224.6 $215.0 4.5%
Net Earnings (Loss) $(3.5) $(0.2) NM
Average Tractors 2,080 2,063 0.8%
Total Loads (000's) 259.3 246.9 5.0%
Revenue Miles (millions) 162.8 155.3 4.8%
Average 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 1996 is
primarily attributable to a 6.4% increase in the average number
of owner-operator trucks.
The 0.7% decrease in average revenue per revenue mile 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.
Liquidity and Capital Resources
The Company generated $0.2 million of cash and cash equivalents
in the years ended December 31, 1997 and 1996. As reflected in
the accompanying Consolidated Statement of Cash Flows, in 1997,
$2.0 million of cash was generated from operating activities,
which was up slightly from the $1.7 million generated in 1996.
The $1.1 million, net, generated from investing activities in
1997 was lower than 1996 by approximately $2.7 million as a
result of fewer equipment disposals. Borrowings under the line
of credit increased by over $1.0 million primarily to fund
principal payments on long term debt, which were $1.3 million
lower than 1996, as a result of 40 fewer company-operated
tractors.
The Company's day-to-day financing is provided by borrowings
under its bank credit facility. The credit facility consists of
a $5.0 million term loan with a final maturity of December 31,
1999, and a revolving line of credit, with a maximum limit of
$28.0 million, which expires January 1, 2000. Quarterly
principal payments of $312,500 on the term loan are required
until its maturity. The 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 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 $5.9 million at December 31, 1997, and
outstanding letters of credit totaled $7.1 million at that date.
The combination of these two bank credits totaled $13.0 million
and, given the then existing Borrowing Base, left approximately
$8.6 million of borrowing capacity under the revolving line of
credit at December 31, 1997. The comparable borrowing capacity
under the revolving line of credit as of March 2, 1998, was
approximately $6.0 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.
The Company was in compliance with all of its financial
covenants contained in its bank credit facility during the year.
During the last quarter of 1997, management became aware that
the earnings that would be reported for 1997 would cause
the Company to not be in compliance with a financial covenant
test contained in a mortgage loan to one of the operating
subsidiaries for December 31, 1997, and later periods.
Management requested that the lender waive noncompliance with
this provision, and establish a new covenant test. Subsequent
to year end, the Company and the lender executed an amendment to
the agreement which waives noncompliance with such test and
establishes a new test which management believes the Company
will be able to meet for the remaining term of the loan.
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 1998.
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 lease
rates and bank financing is related to market interest rates.
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.
New Accounting Pronouncements
In June, 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income" which establishes standards for reporting
and display of comprehensive income and its components. The
FASB also issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which establishes standards
for reporting Information on operating segments. These
statements are effective for fiscal years beginning after
December 15, 1997. At this time, the Company has not determined
the impact of these statements on its disclosures.
Year 2000
The Company has assessed, and continues to assess, the
impact of the Year 2000 Issue on its reporting systems and
operations. The Year 2000 Issue exists because many computer
systems and applications currently use two-digit date fields to
designate a year. As the century date occurs, date sensitive
systems will recognize the year 2000 as 1900 or not at all.
This inability to recognize or properly treat the year 2000 may
cause our systems to process critical financial and operational
information incorrectly. One of the more significant Year 2000
issues faced by the Company are the systems in place within the
Company's dispatch and equipment control system, which are not
Year 2000 compliant. As a result, in 1998 the Company is
updating and working with the vendors of any products it is
using to install and modify all of its applications and computer
systems and, in particular, its dispatch and equipment control
system to insure that they will be Year 2000 compliant. All
programs are expected to be fully tested and problems resolved
by June 30, 1999. The Company does not expect the costs
associated with becoming Year 2000 compliant to be material.
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk.
Not Applicable.
Item 8. Financial Statements and Supplementary Data.
Index to Consolidated Financial Statements
Page
Consolidated Balance Sheets 16
Consolidated Statements of Operations 17
Consolidated Statements of Shareholders' Equity 18
Consolidated Statements of Cash Flows 19
Notes to Consolidated Financial Statements 20
Report of Independent Public Accountants 25
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 Regulation14A.
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 Regulation14A.
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 Regulation14A.
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 Regulation14A.
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 26
The report of the Registrant's independent public accountants
with respect to the above-listed financial statements and
financial statement schedule appears on page 25 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 15 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 1997.
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 26, 1998
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 26, 1998
John P. Delavan Officer and Director
(Principal Executive Officer)
/s/ Roger T. Burbage Chief Financial Officer, March 26, 1998
Roger T. Burbage Treasurer and Secretary
(Principal Financial and
Accounting Officer)
/s/ Edwin H. Morgens Chairman of the Board March 26, 1998
Edwin H. Morgens and Director
/s/ Director March 26, 1998
Ned N. Fleming, III
/s/ Director March 26, 1998
Eric C. Jackson
/s/ Thomas J. Noonan, Jr. Director March 26, 1998
Thomas J. Noonan, Jr.
/s/ Philip Scaturro Director March 26, 1998
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 Form 8-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
10.2 First Amendment to Fourth Amended and Quarterly Report on Form 10-Q for
Restated Loan Agreement dated as of the quarter ended June 30, 1996,
March 31, 1996 as Exhibit 10.1
10.3 Second Amendment to Fourth Amended and Annual Report on Form 10-K for the
Restated Loan Agreement dated as of year ended December 31, 1996, as
March 7, 1997 Exhibit 10.12
10.4 1992 Non-Qualified Stock Option Plan Annual Report on Form 10-K for the
year ended December 31, 1992, as
Exhibit 10.2
10.5 Stock Option Agreement dated as of Quarterly Report on Form 10-Q for
June 4, 1996, between the Company the quarter ended June 30, 1996, as
and John P. Delavan Exhibit 10.3
10.6 Stock Option Agreement dated as of Annual Report on Form 10-K for the
November 4, 1996, between the Company year ended December 31, 1996, as
and John P. Delavan Exhibit 10.31
10.7 Stock Option Agreement dated as of Quarterly Report on Form 10-Q for
March 10, 1997, between the Company the quarter ended March 31,1997, as
and Roger T. Burbage Exhibit 10.2
10.8 Employment Agreement dated as of Quarterly Report on Form 10-Q for
June 4, 1996, between the Company the quarter ended June 30, 1996,as
and John P. Delavan Exhibit 10.2
10.9 Employment Agreement dated as of Quarterly Report on Form 10-Q for
March 10, 1997, between the Company the quarter ended March 31,1997, as
and Roger T. Burbage Exhibit 10.1
10.10 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 27
21 List of Subsidiaries of the Registrant 28
23 Consent of Independent Public Accountants 28
27 Financial Data Schedule --
INTRENET, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
Years Ended December 31, 1997 and 1996
(In Thousands of Dollars)
Assets 1997 1996
Current assets:
Cash and cash equivalents $ 598 $ 410
Receivables, principally freight revenue less
allowance for doubtful accounts of $1,110 in 1997
and $770 in 1996 30,474 25,334
Prepaid expenses and other 4,697 4,604
Total current assets 35,769 30,348
Property and equipment, at cost, less accumulated
depreciation of $16,117 in 1997 and $13,861 in 1996 30,248 35,882
Reorganization value in excess of amounts allocated
to identifiable assets, net of accumulated amortization
of $4,998 in 1997 and $4,558 in 1996 5,889 7,611
Deferred income taxes, net 2,723 2,723
Other assets 1,335 604
Total assets $ 75,964 $ 77,168
Liabilities and Shareholders' Equity
Current liabilities:
Current debt and capital lease obligations $ 5,167 $ 6,510
Accounts payable and cash overdrafts 7,772 8,190
Current accrued claim liabilities 8,829 8,400
Other accrued expenses 7,525 7,116
Total current liabilities 29,293 30,216
Long-term debt and capital lease obligations 22,401 24,210
Long-term accrued claim liabilities 2,800 2,850
Total liabilities 54,494 57,276
Shareholders' equity:
Common stock, without par value; 20,000,000
shares authorized; 13,548,138 and 13,412,138 shares
issued and outstanding at December 31, respectively 16,851 16,594
Retained earnings since January 1, 1991 4,619 3,298
Total shareholders' equity 21,470 19,892
Total liabilities and shareholders' equity $ 75,964 $ 77,168
The accompanying notes are an integral part of these consolidated financial statements.
INTRENET, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1997, 1996 and 1995
(In Thousands of Dollars, Except Per Share Data)
1997 1996 1995
Operating revenues $ 247,888 $ 224,613 $ 214,973
Operating expenses:
Purchased transportation
and equipment rents 108,292 87,834 80,997
Salaries, wages, and benefits 59,943 60,017 58,733
Fuel and other operating expenses 48,550 49,251 46,610
Operating taxes and licenses 10,045 10,670 10,093
Insurance and claims 7,987 8,812 6,986
Depreciation 4,526 5,096 4,651
Other operating expenses 3,316 3,591 3,842
242,659 225,271 211,912
Operating Income 5,229 (658) 3,061
Interest expense (2,908) (2,397) (2,886)
Other expense, net (420) (420) (82)
Earnings before income taxes and
extraordinary items 1,901 (3,475) 93
Provision for income taxes (580) - (305)
Net earnings (loss) $ 1,321 $ (3,475) $ (212)
Earnings (loss) per common and common
equivalent share
Basic $ 0.10 $ (0.26) $ (0.02)
Diluted $ 0.10 $ (0.26) $ (0.02)
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, 1997, 1996 and 1995
(In Thousands of Dollars)
Retained Shareholders'
Common Stock Earnings Equity
Shares Dollars
Balance, December 31, 1994 9,087,164 $9,453 $6,985 $16,438
Exercise of stock options 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
Exercise of stock options 136,000 257 - 257
Net income for 1997 - - 1,321 1,321
Balance, December 31, 1997 13,548,138 $16,851 $4,619 $21,470
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, 1997, 1996 and 1995
(In Thousands of Dollars)
1997 1996 1995
Cash flows from operating activities:
Net earnings (loss) $ 1,321 $ (3,475) $ (212)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Deferred income taxes 580 - 305
Depreciation and amortization 4,946 5,516 5,071
Provision for doubtful accounts 397 478 85
Changes in assets and liabilities, net:
Receivables (5,537) (4,841) (880)
Prepaid expenses and others (822) 783 422
Accounts payable and accrued expenses 1,155 3,225 1,352
Net cash provided by operating activities 2,040 1,686 6,143
Cash flows from financing activities:
Net borrowings (repayments) in line of credit, net 2,459 1,293 (2,000)
Issuance of long-term debt - - 2,299
Principal payments on long-term debt (5,616) (6,923) (5,666)
Proceeds from exercise of stock options 193 349 304
Net cash (used in) financing activities (2,964) (5,281) (5,063)
Cash flows from investing activities:
Additions to property and equipment (1,179) (1,444) (6,713)
Disposals of property and equipment 2,291 5,278 157
Sale of assets of C.I. Whitten - - 2,913
Net cash provided by (used in) investing activities 1,112 3,834 (3,643)
Net increase (decrease) in cash and cash equivalents 188 239 (2,563)
Cash and cash equivalents:
Beginning of period 410 171 2,734
End of period $ 598 $ 410 $ 171
The accompanying notes are an integral part of these consolidated financial statements.
INTRENET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(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, 1997,
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, and do, 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 agreements.
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
these deductible obligations at the time the incidents occur,
and for claims incurred but not reported. Claim deductible
obligations which remain unpaid at the balance sheet date are
reflected in the financial statement caption "Accrued Claim
Liabilities" in the accompanying consolidated financial
statements. Current Accrued Claim Liabilities are claims
estimated to be paid in the twelve month period subsequent to
the balance sheet date, while Long-Term Accrued Claim
Liabilities are claims estimated to be paid thereafter.
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 basic and diluted weighted average common
shares outstanding during the period.
In February, 1997, the FASB issued SFAS No. 128, "Earnings
Per Share". The new Standard simplifies the computation of
earnings per share (EPS), and requires the presentation of two
new amounts, basic and diluted earnings per share. During 1997,
the Company adopted SFAS 128 and restated its computation of EPS
for the periods 1997, 1996, and 1995. The adoption of this new
standard resulted in an immaterial difference in its computation
of basic and diluted EPS.
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
receivable and payables are considered to be their fair value.
The differences between the carrying accounts and the estimated
fair values of the Company's other financial instruments as of
December 31, 1997, and 1996, 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 $2.9 million, $2.4 million,
and $2.8 million 1997, 1996, and 1995, respectively. Cash
payments for Federal alternative minimum income taxes were $0.1
million in 1997 and 1995. No Federal tax payments were made in
1996.
Capital lease obligations of $15.2 million and $3.6
million were incurred in 1996 and 1995, respectively, primarily
for revenue equipment. In 1995, the Company converted $5.9
million of Convertible Subordinated 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. The Company has elected to
follow APB No. 25 in accounting for its stock options and,
accordingly, no compensation cost has been recognized for stock
options in the consolidated financial statements.
(2) Bank Credit Facility
The Company has a $33.0 million credit facility consisting
of a $28.0 million revolving line of credit which expires
January 1, 2000, and a $5.0 million term loan with a final
maturity of December 31, 1999. In March 1998, the credit
facility was amended to extend the revolving line of credit's
maturity to January 1, 2000, and lower the interest rate. The
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 the Company's eligible accounts receivable and
inventories, as defined in the agreement. Borrowings under the
revolving line of credit totaled $5.9 million at December 31,
1997, and outstanding letters of credit totaled $7.1 million.
The combination of these two bank credits totaled $13.0 million
and, given the then existing borrowing base, left approximately
$8.6 million of borrowing capacity under the revolving line of
credit at December 31, 1997.
Interest on the credit facility is currently payable at a
variable rate of 1/2% over the bank's prime rate, or 9.0% at
December 31, 1997. Quarterly principal payments of $312,500 on
the $5.0 million term loan commenced in 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. The Company's most restrictive covenant is
the Net Worth Covenant which requires the Company to maintain
total Shareholders' Equity at $20.8 million as of December 31,
1997. 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.
The Company was in compliance with all of its financial
covenants contained in its bank credit facility during the year.
During the last quarter of 1997, management became aware that
the earnings that would be reported for 1997 would cause the
Company to not be in compliance with a financial covenant test
contained in a mortgage loan to one of the operating
subsidiaries for December 31, 1997 and later periods.
Management requested that the lender waive noncompliance with
this provision, and establish a new covenant test. Subsequent
to year end, the Company and the lender executed an amendment to
the agreement which waives noncompliance with such test and
establishes a new test which management believes the Company
will be able to meet for the remaining term of the loan.
In connection with the bank agreement, 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, 1997 and 1996 was:
1997 1996
Bank term loan, interest at
1/2% over bank prime rate $ 2,813 $ 4,062
Bank revolving line of credit, interest
at 1/2% over bank prime rate 5,939 2,230
Real estate mortgage obligation,
variable interest rate at 2.45%
over commercial paper, currently
8.03%, option to fix interest rate
at 2.50% over ten year Treasury
rate, maturing in 2007 2,048 2,181
Obligations collateralized by
equipment, maturing through
2000, interest rates ranging
from 7.3% to 10.2% 386 1,647
Capital lease obligations
collateralized by equipment,
maturing through 2003,
interest rates ranging
from 6.8% to 11.5% 16,382 20,600
Total 27,568 30,720
Less current maturities (5,167) (6,510)
Long-term debt $ 22,401 $ 24,210
Maturities of long-term debt, excluding capital lease
obligations, in the coming five years are $1,633; $1,854;
$6,124; $184; $184 in 1998, 1999, 2000, 2001 and 2002.
Future minimum lease payments under capital and
non-cancelable operating lease agreements at December 31, 1997,
were as follows:
Capital Operating
Leases Leases
1998 $4,767 $ 13,361
1999 5,018 8,803
2000 2,707 6,219
2001 4,082 1,835
2002 862 7
Thereafter 2,405 -
Future minimum lease payments 19,841 $ 30,225
Amounts representing interest (3,459)
Principal amount $16,382
Total rental expense under non-cancelable operating leases
was $15,811, $17,005, and $17,765, in 1997, 1996, and 1995,
respectively. The Company presently intends to lease
approximately 350 tractors ($26.8 million) and approximately
185 trailers ($2.6 million) under operating leases in 1998.
Purchased transportation and equipment rents expense
includes payments to owner-operators of equipment under various
short-term lease arrangements.
(4) Litigation and Contingencies
On June 13, 1997, the Company received notice from the Central
States Southeast and Southwest Areas Pension Fund (the "Fund")
of a claim pursuant to the Employee Retirement Income Security
Act of 1974, as amended by the Multi-employer Pension Plan
Amendments Act of 1980 ("MPPAA"). MPPAA provides that, if an
employer withdraws from participation in a multi-employer
pension plan, such as the Fund, the employer and members of the
employer's "controlled group" of businesses are jointly and
severally liable for a portion of the plan's underfunding. The
claim is based on the withdrawal of R-W Service System, Inc.
("RW") from the Fund in 1992. The Company's records
indicate that RW was an indirect subsidiary of the Company's
predecessor, Circle Express, Inc., from March 1985 through April
1988, when it and certain other subsidiaries were sold. The
Fund currently claims that RW's withdrawal liability is
approximately $3.7 million plus accrued interest in the amount
of approximately $1.7 million. Based on its investigation to
date, and, after consultation with counsel, management believes
that the Company is not liable to the Fund for any of RW's
withdrawal liability. The Company has not recorded any
liability related to this litigation. The Company has filed a
formal request for review of the claim as provided by the MPPAA
and the Fund rejected that request on January 28, 1998. The
Company is in the process of seeking resolution of the claim in
binding arbitration. The Company is obligated to make interim
payments to the Fund until the issue of liability is resolved.
The interim payment obligation is currently approximately
$88,500 per month. The Company has made payments to the Fund
that total approximately $730,000 as of December 31, 1997, which
are included in other assets on the Company's balance sheet.
There can be no assurance that either the need to make interim
payments to the Fund or the ultimate resolution of this matter
will not have a material adverse effect on the Company's
liquidity, results of operation or financial condition.
There are no other 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 insurance
which covers liability resulting from such transportation
related claims in amounts customary for the industry and which
management believes to be adequate.
(5) Income Taxes
The provision for income taxes for the years ended December
31, 1997, 1996 and 1995 was as follows:
1997 1996 1995
Current $ - $ - $ -
Deferred 580 - 305
Total Provision $ 580 $ - $ 305
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:
1997 1996 1995
Taxes at statutory rate $ 646 $ (1,182) $ 31
Increase (decrease)
resulting from:
Non-deductible amortization 143 143 143
Provision for (release of)
valuation allowance for
net deferred tax assets (345) 1,028 -
Other, net 136 11 131
Provision for Income Taxes $ 580 $ - $ 305
The tax effects of temporary differences that give rise to
significant portions of deferred tax assets and deferred tax
liabilities at December 31, 1997 and 1996 are as follows:
1997 1996
Deferred Tax Assets
Insurance claim liabilities $ 4,263 $ 4,037
Reserve for doubtful accounts 253 262
Other 419 345
4,935 4,644
Deferred Tax Liabilities
Property differences, primarily
depreciation (1,857) (2,265)
Other (127) (170)
(1,984) (2,435)
Net Temporary Differences 2,951 2,209
Carryforwards -
Pre-reorganization, limited, net
operating loss and other tax carryforwards
(Expiring 2004-2006) 3,822 4,580
Post-reorganization net operating
loss and other tax carryforwards
(Expiring 2006-2010) 1,075 1,846
Total Carryforwards 4,897 6,426
Net Deferred Tax Assets 7,848 8,635
Valuation Allowance (5,125) (5,912)
Recorded Net Deferred Tax Assets $ 2,723 $ 2,723
Net changes to the valuation allowance in 1997 and 1996, were as
follows:
Valuation allowance, beginning of year $(5,912)$ (4,884)
Release of allowance held against
pre-reorganization deferred tax assets
against Reorganization value in
excess amounts allocated to
identifiable assets 442 -
Release of allowance held against
post-reorganization deferred tax assets
against provision for income taxes 345 -
Provision of valuation allowance
for net deferred tax assets - (1,028)
Valuation allowance, end of year $ (5,125)$ (5,912)
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
these net deferred tax assets.
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.
(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). The 1993 Option Plan
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
cost been determined consistent with SFAS No. 123, Accounting
for Stock-Based Compensation, the Company's net income (loss)
would have been reduced to $888,310, ($3,721,812), and
($234,797) for 1997, 1996, and 1995, respectively (earnings per
share would have been reduced to $0.07, ($0.28), and ($0.02) for
1997, 1996, and 1995, respectively).
The activity and weighted average prices for options in
the Company's 1992 and 1993 Option Plans in 1997, 1996, and 1995
was as follows:
# of Weighted Avg.
Shares Exercise Price
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
Granted 248,000 $2.10
Exercised (136,000) $1.42
Canceled (177,166) $3.01
Balance at December 31, 1997 821,334 $2.22
Weighted avg. remaining contractual life 7.6 yrs
Exercisable at December 31, 1997 554,665 $2.27
Using the Black-Scholes option valuation model, the estimated
fair values of options granted during 1997, 1996, and 1995 were
$1.60, $1.53, and $1.90 per share respectively. Principal
weighted-average assumptions used in applying the Black-Scholes
model were as follows:
1997 1996 1995
Risk-free interest rate 6.5% 6.5% 6.2%
Expected volatility 64.9% 66.5% 59.5%
Expected Terms 10 yrs 10 yrs 10 yrs
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 $181,000, $180,000,
and $224,000 in 1997, 1996, and 1995, 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, 1997 and
1996, follows (in thousands of dollars):
1997 1996
Land $ 1,532 $ 1,532
Buildings and leasehold improvements 6,605 6,546
Revenue equipment 7,596 7,923
Revenue equipment under
capital leases 24,781 28,132
Other property 5,851 5,610
46,365 49,743
Less accumulated depreciation (16,117) (13,861)
$ 30,248 $ 35,882
(8) Prepaid and Accrued Expenses
An analysis of prepaid and accrued expenses at December 31,
1997 and 1996, follows (in thousands of dollars):
1997 1996
Prepaid expenses:
Insurance $ 418 $ 471
Shop and truck supplies 2,081 2,145
Other 2,198 1,988
$ 4,697 $ 4,604
Accrued Expenses:
Salaries and wages $ 2,593 $ 2,372
Fuel and mileage taxes 573 647
Equipment leases 541 515
Other 3,818 3,582
$ 7,525 $ 7,116
(9) Transactions with Affiliated Parties
In 1997, 1996 and 1995, the Company leased approximately 144,
307, and 290 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 $466,000 in
1997, $522,000 in 1996 and $1,164,000 in 1995.
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, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended
December 31, 1997. 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 schedule 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, 1997, and 1996, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1997, 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 are 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,
February 17, 1998.
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, 1997:
Allowance for
doubtful accounts $ 770 $ 397 $ - $ (57) $ 1,110
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