SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-14060
INTRENET, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1597565
(State or other jurisdiction of (IRS Employer Identification No)
incorporation or organization)
400 TechneCenter Drive, Suite 200, Milford, Ohio 45150
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (513)576-6666
Not Applicable
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Common Stock, without par value, 13,550,638 shares issued and
outstanding at May 1, 1998
INTRENET, INC.
FORM 10-Q
MARCH 31, 1998
INDEX
Page
Part I - Financial Information:
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
March 31, 1998 and December 31, 1997 .... 3
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 1998 and 1997 .... 4
Condensed Consolidated Statement of Shareholders' Equity
Three Months Ended March 31, 1998 .... 5
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997 .... 6
Notes to Condensed Consolidated Financial Statements .... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .... 9
Part II - Other Information:
Item 1. Legal Proceedings .... 12
Item 2. Changes in Secutities .... 12
Item 3. Defaults Upon Senior Securities .... 12
Item 4. Submission of Matters to a Vote of Security Holders .12
Item 5. Other Information .... 12
Item 6. Exhibits and Reports on Form 8-K .... 12
INTRENET, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, 1998 and December 31, 1997
(In Thousands of Dollars)
Assets 1998 1997
(Unaudited)
Current assets:
Cash and cash equivalents $ 813 $ 598
Receivables, principally freight revenue less
allowance for doubtful accounts of $1,130 in 1998
and $1,110 in 1997 30,420 30,474
Prepaid expenses and other 6,837 4,697
Total current assets 38,070 35,769
Property and equipment, at cost, less accumulated
depreciation 29,258 30,248
Reorganization value in excess of amounts allocated
to identifiable assets, net of accumulated amortization 5,784 5,889
Deferred income taxes, net 2,723 2,723
Other assets 1,419 1,335
Total assets $ 77,254 $ 75,964
Liabilities and Shareholders' Equity
Current liabilities:
Current debt and capital lease obligations $ 5,728 $ 5,167
Accounts payable and cash overdrafts 9,587 7,772
Current accrued claim liabilities 8,219 8,829
Other accrued expenses 7,569 7,525
Total current liabilities 31,103 29,293
Long-term debt and capital lease obligations 21,488 22,401
Long-term accrued claim liabilities 2,800 2,800
Total liabilities 55,391 54,494
Shareholders' equity:
Common stock, without par value; 20,000,000
shares authorized; 13,550,638 and 13,548,138 shares
issued and outstanding, respectively 16,856 16,851
Retained earnings since January 1, 1991 5,007 4,619
Total shareholders' equity 21,863 21,470
Total liabilities and shareholders' equity $ 77,254 $ 75,964
The accompanying notes are an integral part of these consolidated financial statements.
INTRENET, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 1998 and 1997
(Unaudited)
(In Thousands of Dollars, Except Per Share Data)
1998 1997
Operating revenues $ 60,676 $ 57,663
Operating expenses:
Purchased transportation
and equipment rents 27,237 23,835
Salaries, wages, and benefits 14,464 14,480
Fuel and other operating expenses 11,199 12,274
Operating taxes and licenses 2,514 2,618
Insurance and claims 1,971 1,981
Depreciation 987 1,178
Other operating expenses 1,020 702
59,392 57,068
Operating income 1,284 595
Interest expense (660) (742)
Other expense, net (105) (105)
Earnings (loss) before income taxes 519 (252)
Provision for income taxes (131) 0
Net earnings (loss) $ 388 $ (252)
Earnings (loss) per common and common
equivalent share
Basic $ 0.03 $ (0.02)
Diluted $ 0.03 $ (0.02)
The accompanying notes are an integral part of these consolidated financial statements.
INTRENET, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Shareholders' Equity
For the Three Months Ended March 31, 1998
(In Thousands of Dollars)
Retained Shareholders'
Common Stock Earnings Equity
Shares Dollars
Balance, December 31, 1997 13,548,138 $ 16,851 $ 4,619 $ 21,470
Exercise of stock options 2,500 5 - 5
Net earnings for 1998 - - $ 388 388
Balance, March 31, 1998 13,550,638 $ 16,856 $ 5,007 $ 21,863
The accompanying notes are an integral part of these consolidated financial statements.
INTRENET, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997
(Unaudited)
(In Thousands of Dollars)
1998 1997
Cash flows from operating activities:
Net earnings (loss) $ 388 $ (252)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Deferred income taxes 131 0
Depreciation and amortization 1,107 1,283
Provision for doubtful accounts 59 127
Changes in assets and liabilities, net:
Receivables (6) (2,610)
Prepaid expenses (2,140) (1,142)
Accounts payable and accrued expenses 1,035 1,216
Net cash provided by (used in)
operating activities 574 (1,378)
Cash flows from financing activities:
Net borrowings on line of
credit, net 619 4,449
Principal payments on long-term debt (972) (2,192)
Proceeds from exercise of stock options 5 52
Net cash provided by (used in)
financing activities (348) 2,309
Cash flows from investing activities:
Additions to property and equipment (89) (522)
Disposals of property and equipment 78 503
Net cash (used in)
investing activities (11) (19)
Net increase in cash
and cash equivalents 215 912
Cash and cash equivalents:
Beginning of period 598 410
End of period $ 813 $ 1,322
The accompanying notes are an integral part of these consolidated financial statements.
INTRENET, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 1998
(Unaudited)
(1) Unaudited Condensed Consolidated Financial Statements
The accompanying unaudited Consolidated Financial Statements
include the accounts of Intrenet, Inc. and all of its
subsidiaries (collectively, the "Company"). Truckload carrier
subsidiaries at March 31, 1998, 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.
The consolidated financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC). In management's opinion, these
financial statements include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation
of the results of operations for the interim periods presented.
Pursuant to SEC rules and regulations, certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted from these statements
unless significant changes have taken place since the end of the
most recent fiscal year. For this reason, the accompanying
Consolidated Financial Statements and Notes thereto should be
read in conjunction with the financial statements and notes for
the year ended December 31, 1997, included in the Company's 1997
Annual Report on Form 10-K.
The results for the three month period ended March 31, 1998,
are not necessarily indicative of the results to be expected for
the entire year.
(2) Earnings Per Common and Common Equivalent Share
Earnings per common and common equivalent share have been
computed on the basis of the weighted average common shares
outstanding during the periods. The Company has adopted the
Financial Accounting Standard Board issue of SFAS No. 128,
"Earnings Per Share", and restated its computation of EPS for
all prior periods. The adoption of this new standard resulted
in an immaterial difference in its computation of basic and
diluted EPS.
(3) Income Taxes
Income taxes in interim periods are generally provided on the
basis of the estimated effective tax rate for the year.
(4) Contingent Liabilities
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 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 $1,000,000 as of
March 31, 1998, 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.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
Introduction
The following discussion should be read in conjunction with the
Condensed Consolidated Financial Statements and Notes thereto
appearing elsewhere in this report. Certain statements made in
this report relating to trends in the Company's business, as
well as other statements including words such as "believe",
"expect", "estimate", "anticipate" and similar expressions,
constitute forward looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. For a
description of risks and uncertainties relating to forward
looking statements, see the discussion in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
The Company reported net earnings of $388,000 on revenues of
$60.7 million in the three month period ended March 31, 1998.
This compares with a net loss of $252,000 on revenues of $57.7
million in the comparable period of 1997. The Company's revenue
grew by 5.2 percent compared to the first quarter of 1997 and
three of its four largest wholly owned subsidiaries, EMT, RRT
and ADS, reported revenue improvements. The overall improvement
resulted from greater customer demand for high quality
transportation services and reduced operating expenses. Fuel
prices declined during the first quarter and are currently lower
than the Company experienced in the first quarter of 1997.
Barring any unforeseen changes in the overall economy or in the
price of fuel, management expects the Company will benefit from
continuing cost reduction programs in the areas of safety, fuel
purchasing and insurance costs. In addition, the Company
expects to experience growth in revenue from greater equipment
utilization and an expanded fleet. As a result, management
expects the Company will continue to operate profitably in 1998.
The Company reported revenue miles for the first quarter of
1998 of 40.0 million miles, approximately the same as reported
in the first quarter of 1997. Revenue per mile in the first
quarter of 1998 improved by 1.5 percent to $1.35 per mile, up
from $1.33 compared to first quarter 1997 results.
Intrenet's total operating fleet as of the end of the quarter,
including owner-operators, decreased about 2.0 percent during the first
quarter of 1998 to 2,203 tractors from 2,254 tractors in 1997. The decrease
in the Company's fleet is due to 29 fewer Company owned tractors and 22
fewer owner-operator tractors as compared with the first quarter
of 1997.
A discussion of the impact of the above and other factors on
the results of operations in the three months ended March 31,
1998, as compared to the comparable period of 1997 follows.
1998 Compared to 1997
Three Months Ended March 31
Key Operating Statistics 1998 1997 %Change
Operating Revenues ($ millions) $ 60.7 $ 57.7 5.2%
Net Earnings (Loss) ($ 000's) $ 388 ($ 252) NM
Average Number of Tractors 2,198 2,205 (0.3)%
Total Loads (000's) 83.8 68.3 22.7%
Revenue Miles (millions) 40.0 40.4 (1.0)%
Average Revenue per Revenue Mile* $ 1.35 $ 1.33 1.5%
* Excluding brokerage revenue
Operating Revenues
Operating revenues for the three months ended March 31, 1998,
totaled $60.7 million as compared to $57.7 million for the same
period in 1997, reflecting better freight availability than the
prior year. Three of the company's four motor carrier
subsidiaries ( EMT, RRT and ADS) reflected revenue growth in
the first quarter of 1998 by comparison to the prior year.
The $3.0 million in revenue growth resulted from an increase in
revenue from owner operators ($1.2 million) and freight brokered
to other carriers ($2.8 million), offset by a decline in the
revenue generated by Company owned tractors ($1.0 million). The
average number of Company owned tractors declined 4.0% from
1,214 to 1,169, but the average owner-operator tractor count
increased from 991 to 1,029. Approximately 51% of the Company's
revenue in the three month period ended March 31, 1998, was
generated by Company owned equipment, and 38% by owner-operator
equipment. This compares to approximately 55% and 37%,
respectively in the 1997 period. The remaining revenues were
from freight brokered to other carriers.
The Company experienced a slight, 1.5%, improvement in the
average revenue per revenue mile in 1998 as compared to 1997.
Operating Expenses
The following table sets forth the percentage relationship of
operating expenses to operating revenues for the three months
ended March 31.
Three Months Ended March 31
1998 1997
Operating revenues 100% 100%
Operating expenses:
Purchased transportation and
equipment rents 44.9 41.3
Salaries, wages and benefits 23.8 25.1
Fuel and other operating expenses 18.5 21.3
Operating taxes and licenses 4.1 4.6
Insurance and claims 3.3 3.5
Depreciation 1.6 2.0
Other operating expenses 1.7 1.2
Total operating expenses 97.9% 99.0%
Purchased transportation and equipment rents increased as a
percentage of revenue due to the Company's proportionately
higher use of owner-operators. Correspondingly, salaries, wages
and benefits decreased as a percentage of revenue because of the
relatively smaller portion of the Company's total revenue
generated by Company owned equipment and the growing portion of
the Company's total revenue from freight brokered to other
carriers. Fuel and other operating expenses are attributable to
Company owned equipment and these expenses also declined in
relation to the growth in the use of owner-operators and freight
brokered to other carriers. Declining diesel fuel prices have
also been a significant factor relating to this expense
decrease. Other operating expenses increased in 1998 over 1997
due to slightly higher communication cost and increased
professional fees as a result of the MPPAA litigation.
Interest Expense
Interest expense decreased in 1998, primarily as a result of
the decreased borrowings under capital lease obligations as
equipment is replaced with operating leases. Interest expense
on bank borrowings were slightly higher in 1998 due to a higher
average borrowing base.
Provision for Income Taxes
Income taxes in interim periods are generally provided on the
basis of the estimated effective tax rate for the year.
Liquidity and Capital Resources
The Company generated $0.2 million in cash in the first three
months of 1998. As reflected in the accompanying Condensed
Consolidated Statement of Cash Flows, $0.6 million of cash was
provided by operating activities as compared to a use of $1.4
million in the first quarter of 1997. Historically, the
Company's cash needs are greatest in the first quarter when the
plates and permits are purchased for the Company's fleet.
Borrowing under the Company's bank credit facility increased by
over $0.6 million primarily to fund principal payments on long
term debt.
The Company's day-to-day financing is provided by borrowings
under a bank credit facility. The credit facility consists of a
$5.0 million term loan, $2.2 million of which is currently
outstanding, with a final maturity of December 31, 1999, and a
$28.0 million revolving line of credit which expires January 1,
2000. Quarterly principal payments of $312,500 on the term loan
are required. The line of credit includes provisions for the
issuance of stand-by letters of credit which, as issued, reduce
available borrowings under the line of credit. Borrowings under
the line of credit are limited to amounts determined by a
formula tied to the Company's eligible accounts receivable and
inventories, as defined in the credit facility. Borrowings
under the line of credit totaled $6.9 million at March 31, 1998,
and outstanding letters of credit totaled $7.0 million at that
date. The combination of these two totaled $13.9 million,
leaving approximately $8.8 million of borrowing capacity
available at March 31, 1998.
During the first quarter, the Company's bank agreement was
amended, resulting in a reduction of the borrowing rate on the
Company's credit facility from the bank's prime rate plus one
half percent to, at the election of the Company, the prime rate
or 250 basis points over the 30 day LIBOR rate. The bank also
reduced the rate on the term loan from the prime rate plus one
half to, at the election of the Company, one quarter percent
plus the prime rate or 275 basis points in excess of the 30, 90,
or 120 day LIBOR rate. Among other changes, the bank increased
the ratio of adjusted liabilities from 3:1 to 4:1, removed
limitations on capital expenditures for tractors and trailers,
but added a "Fixed Charge Coverage Ratio" defined by EBITDA plus
Historical Operating Lease payments divided by Fixed Charges
plus Prospective Operating Lease payments.
Management believes that cash generated from operations, and
cash available to the Company under the bank credit facility
will be sufficient to meet the Company's needs for the
foreseeable future.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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 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
transporting of freight. The Company maintains insurance which
covers liability resulting from transportation related claims in
amounts management believes are prudent and consistent with
accepted industry practices, subject to deductibles for the
first $100,000 to $250,000 of exposure for each incident. The
Company is not aware of any claims or threatened claims that
might materially affect the Company's operating or financial
results.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 10.1 - Third Amendment to Fourth Amended and Restated Loan Agreement
Exhibit 11 - Computation of Per Share Earnings
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
INTRENET, INC.
(Registrant)
May 14, 1998 /s/ John P. Delavan
John P. Delavan,
President and Chief
Executive Officer
/s/ Roger T. Burbage
Roger T. Burbage,
Chief Financial Officer
(Principal Financial and
Accounting Officer)