SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(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, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE
REQUIRED]
For the transition period from to .
Commission file number 0-14060
Intrenet, Inc.
(Exact name of registrant as specified in its charter)
Indiana 35-1597565
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 TechneCenter Drive, Suite 200
Milford, Ohio 45150
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (513)576-6666
Securities registered pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, without par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the common stock (based upon the
closing sale price on such date) held by non-affiliates of the
registrant as of March 1, 1996, was approximately $ 4,745,966.
Applicable only to registrants involved in bankruptcy
proceedings during the preceding five years: Indicate by check
mark whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution
of securities under a plan confirmed by a court. Yes X No
(Applicable only to corporate registrants) Indicate the number
of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. As of March 1,
1996, there were 13,227,338 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
1996 Annual Meeting of Shareholders of Part III
Registrant
Page 1 of ___ pages
INTRENET, INC.
1995 Annual Report on Form 10-K
Table of Contents
Part I Page
Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 8. Financial Statements and Supplementary Data 12
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosures 12
Part III
Item 10. Directors and Executive Officers of the Registrant 12
Item 11. Executive Compensation 12
Item 12. Security Ownership of Certain Beneficial Owners and
Management 12
Item 13. Certain Relationships and Related Transactions 12
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 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 carrier subsidiaries (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); and, Roadrunner Distribution Services,
Inc., (RDS). In addition, the Company owns an intercompany
employee leasing subsidiary, and an inactive Bermuda
captive-insurance subsidiary.
The Company's Operating Subsidiaries presently operate more
than 2,100 tractors, including tractors provided by
owner-operators. Some of the Company's Operating Subsidiaries
rely 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 1995, the Company's fleet
traveled over 150 million revenue miles delivering approximately
234,000 loads for Company customers. The Company also brokered
over 12,000 loads to other carriers.
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, 1995 are as
follows:
RRT EMT ADS RDS Total
Company Tractors 532 372 192 181 1,277
Owner-Operator Tractors 68 414 322 55 859
Total Tractors 600 786 514 236 2,136
Company Trailers 864 458 210 428 1,960
Company Drivers 566 375 186 198 1,325
Total Employees 744 515 270 248 1,777
Sales Agents 20 184 134 14 352
Length of Haul 789 563 519 1,002 660
miles miles miles miles 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 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 truckload
carrier that transports a variety of general commodity freight,
including aluminum, steel, automotive products, and building
materials over routes primarily in the Great Lakes, Central and
Southeastern regions of the United States. EMT is an Indiana
corporation, headquartered in Rockport, Indiana.
EMT depends in part on commissioned agents as sources for
business and on owner-operators to provide equipment and drivers
to haul shipments. The utilization of owner-operators limits
EMT's investment in labor and equipment.
Advanced Distribution System, Inc. ADS is a truckload carrier
that transports general commodity freight, including iron,
steel, pipe, heavy machinery and building products, throughout
service lanes in the Southeast, Midwest and Central States on
flatbed trailers. ADS is a Florida corporation, headquartered
in Columbus, Ohio.
ADS is primarily dependent upon commissioned agents as sources
for business. ADS also depends in part on owner-operators to
provide equipment and drivers to haul shipments. The utilization
of owner-operators limits ADS' investment in labor and
equipment.
Roadrunner Distribution Services, Inc. RDS is a van truckload
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 is a Texas corporation, headquartered
in Indianapolis, Indiana.
Other Factors
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.
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.
No customer accounted for more than 10% of the Company's
revenues in 1995.
Revenue Equipment
At December 31, 1995, the Company owned or leased 1,277
tractors, 1,496 flatbed trailers and 464 dry van trailers. The
following is a summary of Company owned and leased revenue
equipment at December 31, 1995:
Trailers
Tractors Flatbed Dry Van
Model year prior to 1993 106 708 452
1993 510 243 12
1994 255 261 0
1995 361 153 0
1996 45 131 0
1,277 1,496 464
In addition, at the same date owner-operators under
contract provided 859 tractors for Company operations.
Employees
At December 31, 1995, the Company employed 1,777 individuals,
of whom 1,325 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) preempts, 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.
Competition for drivers is intense in the trucking industry,
and the Company has at times experienced difficulty attracting
and retaining sufficient qualified drivers. From time to time,
there have been industry wide shortages of qualified drivers and
there can be no assurance that the Company will not be affected
by a shortage of qualified drivers in the future. Prolonged
difficulty in attracting or retaining qualified drivers could
have a material adverse effect on the Company's operations and
limit its growth.
Regulation
Each of the Operating Subsidiaries is a motor carrier 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 will perform 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 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 Operating Companies had a Satisfactory safety rating with
the DOT at December 31, 1995.
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
customary for the industry, and in amounts management believes
to be adequate.
Workers' compensation and employer's liability exposure is
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, and physical damage 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.
While 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, management
believes that the Company's operations and profits are no more
susceptible to such conditions than those of its competitors.
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 imposed by 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 in some
of the jurisdictions in which the Company maintains fuel
terminals. The Company believes that it is in material
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.
Item 2. Properties.
The Company leases its headquarters facility, which consists of
approximately 4,000 square feet of office space. The lease
provides for rent at approximately $ 5,000 per month and is
presently for a three year period expiring in August, 1996, with
an option for an additional two year period.
The following table provides information concerning other
significant properties owned or leased by the Operating
Subsidiaries.
Owned
Operating Type of or Approximate
Location Subsidiary Facility Leased Acreage
Albuquerque, NM RRT Company Headquarters, Owned 15
Terminal, Maintenance
Facility and Bulk Fueling
Station
Albuquerque, NM RRT Terminal and Office Facility Owned 6
(Under lease to others)
Snowflake, AZ RRT Terminal & Bulk Fueling Leased 1
Station
Vinton, TX RRT Terminal, Maintenance Leased 4
Facility and Bulk Fueling
Station
Fontana, CA RRT/RDS Terminal and Bulk Fueling Leased 4
Station
Indianapolis, IN. RDS Company Headquarters Leased 4
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
Rock Hill, SC ADS Terminal Leased 2
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.
Except as discussed below, there are no material pending legal
proceedings to which the Company or any of its subsidiaries is a
party or of which any of their property is the subject, other
than routine litigation incidental to its business, primarily
involving claims for personal injury and property damage
incurred in the transportation of freight. The Company
maintains insurance which covers liability resulting from such
transportation related claims in amounts customary for the
industry and which management believes to be adequate. The
Company is not aware of any claims or threatened claims that are
likely to materially affect the Company's operating results or
financial condition.
On January 2, 1996, Compton Management Corporation ("Compton")
commenced an action in the United States District Court for the
District of New Jersey against the Company for alleged
violations of federal securities laws, fraudulent
misrepresentation and breach of contract arising out of
Compton's option to purchase 264,212 shares of the Company's
common stock and subsequent sale of the stock pursuant to a
registration statement filed by the Company at Compton's
request. Compton provided management services to the Company
from January 1991 to January 1993. Compton alleged that the
Company wrongfully delayed filing the registration statement and
that the delay prevented Compton from selling its shares at
favorable market prices. The complaint seeks compensatory
damages of not less than $1,000,000 and punitive damages of at
least $5,000,000. The Complaint was only filed recently and the
Company has not yet been required to respond. Management
believes that the Company has no liability to Compton and
intends to vigorously defend the claims.
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, 1995.
Executive Officers of the Registrant.
Pursuant to federal Instruction G(3) of Form 10-K and
Instruction 3 to Item 401(b) of Regulation S-K, the following
information is included in lieu of being included in the Proxy
Statement for its Annual Meeting of Stockholders:
Certain information concerning the executive officers of the
Company as of December 31, 1995 is set forth below.
Name and Position Age
Jackson A. Baker 57
President and Chief Executive Officer
James V. Davis 55
Executive Vice President
Jonathan G. Usher 41
Vice President-Finance , Chief Financial
Officer, Secretary and Treasurer
Officers of the Company serve at the discretion of the Board of
Directors.
Jackson A. Baker has been a Director and President and Chief
Executive Officer since January, 1993. Prior to joining the
Company, Mr. Baker was self-employed as a transportation
consultant from January 1990 to December 1992. Mr. Baker was
President and Chief Operating Officer of Sea-Land Service, Inc.
(a container shipping company) from February 1987 to December
1989.
James V. Davis has been Executive Vice President since August,
1993. Prior to joining the Company, Mr. Davis was Executive
Vice President and Chief Operating Officer of Mitsui O.S.K.
Lines (America), Inc. from April, 1990. Prior to Mitsui, he
held several positions at Sea-Land Service, Inc., including Vice
President for the Atlantic Division.
Jonathan G. Usher has been Vice President - Finance and Chief
Financial Officer of the Company since June 1989. Previously,
Mr. Usher was a manager in the audit division of Arthur Andersen
LLP in the Indianapolis, Indiana office.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The Common Stock is traded on The NASDAQ Small-Cap Market
(NASDAQ) under the symbol INET. The following table sets forth
the high and low sales prices as reported by NASDAQ.
1994 HIGH LOW
First Quarter 4.500 3.125
Second Quarter 4.375 3.375
Third Quarter 3.875 3.250
Fourth Quarter 4.500 3.250
1995
First Quarter 6.000 3.562
Second Quarter 4.375 3.000
Third Quarter 4.125 3.250
Fourth Quarter 3.250 1.625
1996
First Quarter
(through February 28) 2.625 1.750
On March 1, 1996, there were 253 holders of record of Common
Stock.
The Company has never paid a cash dividend on its Common Stock.
The Company's bank agreement contains covenants which restrict
the Company's ability to pay cash dividends. See Note 2 of
Notes to Consolidated Financial Statements. The Company does
not anticipate paying cash dividends on Common Stock in the
foreseeable future.
Item 6. Selected Financial Data.
Year Ended December 31,
(In Thousands, Except Share and Per Share Amounts)
1995 1994 1993 1992 1991
STATEMENT OF OPERATIONS DATA
Operating revenues $ 214,973 $ 214,838 $ 191,390 $ 174,801 $ 179,183
Operating expenses:
Purchased transportation
and equipment rents 80,997 79,946 73,071 73,741 79,559
Salaries, wages and benefits 58,733 53,281 44,245 37,486 38,660
Fuel and other operating expenses 46,610 44,777 41,196 36,177 34,678
Operating taxes and licenses 10,093 9,846 7,196 4,459 4,559
Insurance and claims 6,986 7,680 8,622 8,010 6,709
Depreciation 4,651 4,826 5,386 5,478 5,491
Other operating expenses 3,842 4,077 4,941 4,728 5,310
Total operating expenses 211,912 204,433 184,657 170,079 174,966
Operating income (loss) 3,061 10,405 6,733 4,722 4,217
Interest expense (2,886) (3,557) (3,949) (4,622) (4,861)
Other income (expense), net (82) (357) (352) (344) 10
Earnings (loss) before income taxes
and extraordinary items 93 6,491 2,432 (244) (634)
Income taxes (305) (1,326) (922) - -
Earnings (loss) before
extraordinary items (212) 5,165 1,510 (244) (634)
Extraordinary gain, net 0 0 1,188 - -
Net earnings (loss) $ (212) $ 5,165 $ 2,698 $ (244) $ (634)
Primary
Before extraordinary items $ (0.02) $ 0.52 $ 0.16 $ (0.05) $ (0.13)
Extraordinary items, net $ - $ - $ 0.12 $ - $ -
Net earnings (loss) $ (0.02) $ 0.52 $ 0.28 $ (0.05) $ (0.13)
Fully Diluted
Before extraordinary items $ (0.02) $ 0.40 $ 0.14 $ (0.05) $ (0.13)
Extraordinary items, net $ - $ - $ 0.09 $ - $ -
Net earnings (loss) $ (0.02) $ 0.40 $ 0.23 $ (0.05) $ (0.13)
BALANCE SHEET DATA
Current assets $ 26,716 $ 29,320 $ 27,206 $ 24,099 $ 27,739
Current liabilities 27,339 28,329 24,170 29,014 37,437
Total assets 67,638 69,058 64,636 67,702 66,952
Long-term debt 14,981 22,291 26,223 33,258 23,041
Shareholders' equity 23,018 16,438 11,243 2,430 2,674
8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
Introduction
The Company reported a net loss of $ (0.2) million ($ 0.02 per
share) in 1995, on revenues of $ 215.0 million, as compared to
net earnings of $ 5.2 million ($0.52 per share) on revenues of $
214.8 million in 1994, and net earnings of $2.7 million ($0.28
per share) on revenues of $191.4 million in 1993.
In 1995, particularly in the fourth quarter, the slower growth
of the U.S. economy, coupled with increased trucking industry
capacity, led to intense competitive pressures. These increased
pressures reduced average freight rates per total mile by nearly
3 % for the year, and over 4 % in the fourth quarter, when
compared to the same time periods of 1994, and made it more
difficult to operate the fleet efficiently, leading to a higher
proportion of empty miles to paid miles, and substantially lower
operating margins. Further, continued competition for qualified
drivers resulted in higher empty truck factors in 1995, and led
the Company to increase driver wages and driver recruiting
expenditures at a time of slowing volumes and declining rates.
Lastly, the 1995 results were negatively impacted by $ 1.85
million of pre-tax losses, net of a $ 350,000 gain on sale, at
the Company's former munitions specialty carrier, C. I. Whitten
Transfer Company (CIW), which was sold on August 28, 1995. All
of the above factors combined to reduce the Company's
profitability significantly in 1995 when compared to the results
achieved by the Company in 1994, which occurred at a time of an
expanding U.S. economy, and record industry profits.
The Company operated profitably during the first three quarters
of 1995, despite the significant losses at CIW. Freight volumes
and rates, however, declined sharply in the fourth quarter of
1995 as a result of the slowing U.S economy, and winter seasonal
and holiday factors. The Company lost money in the fourth
quarter of 1995 as a result of the reduced volumes and prices,
and the less efficient operation of the fleet. These
unprofitable competitive conditions continued into the first
quarter of 1996, and have been compounded by the inclement
weather experienced across much of the country in January and
February. The Company is implementing a number of steps intended
to increase the Company's competitiveness including disposing of
excess tractors, realigning staffing levels, combining certain
aspects of the operations of RRT and RDS, and increasing
marketing efforts. Management is cautiously optimistic that
these and other actions will strengthen the Company's
operations, and return them to profitability. However, other
factors outside of the Company's control, including the growth
of the U.S. economy and actions of competitors, may adversely
affect the Company in 1996 to a greater extent. The Company
expects to report a loss for the first quarter of 1996.
A discussion of the impact of the above and other factors on
the results of operations in 1995 as compared to 1994, and 1994
as compared to 1993 follows.
1995 Compared to 1994
%
Key Operating Statistics 1995 1994 Change
Operating Revenues ($ millions) $215.0 $214.8 - %
Net Earnings (0.2) 5.2 (100%)
Average Tractors 2,063 1,840 12.1%
Total Loads (000's) 246.9 233.1 5.9%
Revenue Miles (millions) 155.3 155.3 - %
Average Revenue per Revenue Mile $1.307 $ 1.322 (1.0%)
Operating Revenues. Operating revenues were essentially
unchanged in 1995 at $ 215.0 million versus $ 214.8 million in
1994. While total revenues remained unchanged, revenues
generated with company-operated equipment increased $ 2.9
million or 2.3 %, and brokered revenues increased $ 2.5 million
or 25.7 %. At the same time, owner operator revenues declined by
$ 5.3 million, or 6.8 %. The decrease in owner operator revenues
is primarily attributable to the sharply reduced owner operator
revenues at CIW in 1995 over 1994.
The 5.9% increase in total loads (volume) in 1995 is primarily
attributable to an increase in the average number of Company
trucks (up 11.4%), coupled with an increase in brokered traffic,
offset by reduced loads hauled by owner operators. The 1.0%
decrease in revenue per revenue mile (price) is a result of
reduced traffic opportunities in 1995 due to the less robust
U.S. economy, which required the Company to move more equipment
with lower priced spot market loads. In addition, the lower
revenue contribution by CIW in 1995 over 1994 reduced the
average Company-wide rate per revenue mile.
Operating Expenses. The following table sets forth the
percentage relationship of operating expenses to operating
revenues for the years ended December 31, 1995 and 1994.
1995 1994
Operating Revenues 100.0% 100.0%
Operating Expenses:
Purchased transportation and
equipment rents 37.8 37.2
Salaries, wages and benefits 27.3 24.9
Fuel and other operating expenses 21.6 20.8
Operating taxes and licenses 4.7 4.6
Insurance and claims 3.2 3.6
Depreciation 2.1 2.2
Other operating expenses 1.8 1.9
Total Operating Expenses 98.5% 95.2%
In 1995 and 1994, the mix of company-operated versus
owner-operator equipment continued to shift, although less
significantly than in recent years, toward company-operated
equipment as a result of increased competition for qualified
owner-operators, and the Company's ability to secure affordable
financing and freight to operate additional Company tractors.
Approximately 61% of the Company's revenue was generated with
company-operated equipment in 1995, as compared to approximately
60% in 1994.
The relatively higher use of company-operated equipment
resulted in increases in salaries, wages and benefits, fuel and
other operating expenses and fixed costs related to ownership or
lease of the equipment, and decreases in owner operator
purchased transportation as a percentage of revenue. In
addition, the Company has raised the pay rates for its drivers
in order to continue to be able to attract sufficient qualified
drivers. Lastly, in February 1995, the Company commenced
treating all driver pay as taxable compensation, and eliminated
driver road expense payments. This increased taxable driver
compensation, resulted in higher payroll-related taxes and
insurance.
The Company's insurance expense decreased to 3.2% of revenue in
1995 from 3.6% of revenue in 1994. This decrease results
primarily from reduced liability insurance premium rates due to
improved accident control over the past several years, and to
higher deductible retentions by the Company. Approximately
two-thirds of the Company's insurance expense in 1995
represented premium payments which are not susceptible to
significant adjustment in the future. The remaining one-third of
the expense is comprised of estimates for claim and deductible
obligations as a result of accidents and claims.
Operating taxes and licenses increased in 1995 as compared to
1994 as a result of the greater proportion of company-operated
equipment in 1995, for which the Company is responsible for
operating taxes and licenses.
Depreciation expense decreased in 1995 as compared to 1994 as
the Company has replaced owned or capital-leased tractors
primarily with operating-leased tractors.
Other operating expenses decreased to 1.8% of revenue in 1995
from 1.9% in 1994 due to reduced communication and other
miscellaneous expenses, offset somewhat by increased
expenditures for legal and professional fees in 1995 as compared
to 1994.
Interest Expense. Interest expense decreased by approximately
$0.7 million in 1995 as compared to 1994, primarily as a result
of 1) the replacement of capital-leased equipment with equipment
financed under operating leases, coupled with 2) reduced bank
interest and fees as a result of lower average bank borrowings,
offset by higher average interest rates in 1995 as compared to
1994, and 3) the Company's 7% Convertible Subordinated
Debentures were converted to common stock on March 31, 1995,
thereby eliminating the related interest expense thereafter.
Following is a summary of interest expense for the years ended
December 31, (in millions):
1995 1994
Interest on Debentures $ 0.1 $ 0.4
Interest and fees on notes
payable to banks 1.3 1.4
Interest on capital leases and
other indebtedness 1.5 1.8
$ 2.9 $ 3.6
Provision For Income Taxes. A provision for income taxes of
approximately $ 0.3 million, or approximately 328 % of pre-tax
earnings, was provided in 1995. The higher than statutory
effective tax rate results from the effect of certain
non-deductible expenses. A provision for income taxes of
approximately $ 1.3 million, or approximately 20% of pre-tax
earnings, was provided in 1994. As more fully discussed in Note
5 of Notes to Consolidated Financial Statements, the Company's
1994 provision for income taxes was favorably influenced by the
release of valuation allowances held against certain net
deferred tax assets.
1994 Compared to 1993
%
Key Operating Statistics 1994 1993 Change
Operating Revenues ($ millions) $214.8 $191.4 12.2%
Net Earnings 5.2 2.7 91.4%
Average Tractors 1,840 1,708 7.7%
Total Loads (000's) 233.1 208.1 12.0%
Revenue Miles (millions) 155.3 142.5 9.0%
Average Revenue per Revenue Mile $1.322 $ 1.281 3.1%
Operating Revenues. Operating revenues increased in 1994 to $
214.8 million from $191.4 million in 1993. This 12.2% increase
in revenues in 1994 is attributable to an increase of
approximately 12.0% in the total number of loads and
approximately 9.0% in the number of revenue miles billed in
1994 as compared to 1993.
The 9.0% increase in volume in 1994 is attributable to an
increase in the average number and productivity of the Company's
trucks, coupled with an overall improvement in general economic
conditions. Management attributes this improvement to the
strengthening of general economic activity in the full year of
1994 as compared to 1993.
The 3.1% improvement in revenue per mile is a result of strong
shipper demand for the Company's services, which allowed the
Company to selectively choose loads that yield higher revenues,
coupled with rate increases implemented in late 1993 and
throughout 1994.
Operating Expenses. The following table sets forth the
percentage relationship of operating expenses to operating
revenues for the years ended December 31, 1994 and 1993.
1994 1993
Operating Revenues 100.0% 100.0%
Operating Expenses:
Purchased transportation and
equipment rents 37.2 38.2
Salaries, wages and benefits 24.9 23.1
Fuel and other operating expenses 20.8 21.5
Operating taxes and licenses 4.6 3.8
Insurance 3.6 4.5
Depreciation 2.2 2.8
Other operating expenses 1.9 2.6
Total Operating Expenses 95.2% 96.5%
In 1994 and 1993, the mix of company-operated versus
owner-operator equipment continued to shift toward
company-operated equipment as a result of increased competition
for qualified owner-operators, and the Company's improved access
to financing for equipment, and additional drivers and freight.
Approximately 60% of the Company's revenue was generated with
company-operated equipment in 1994, as compared to approximately
56% in 1993.
The relatively higher use of company-operated equipment results
in increases in salaries, wages and benefits, fuel and other
operating expenses and fixed costs related to ownership or lease
of the equipment, and decreases in purchased transportation as a
percentage of revenue. Fuel and other operating expenses
declined as a percentage of revenue in 1994 as compared to 1993.
While the total gallons consumed increased in 1994 as a result
of the larger company-operated fleet, the average fuel economy
improved, and the average cost of fuel per gallon decreased,
offsetting the effect of the increased consumption.
The Company's insurance expense decreased to 3.6% of revenue in
1994 from 4.5% of revenue in 1993. This decrease results
primarily from reduced liability insurance premium rates due to
improved accident control over the past several years.
Approximately two-thirds of the Company's insurance expense in
1994 represented premium payments which are not susceptible to
significant adjustment in the future. The remaining one-third of
the expense is comprised of estimates for claim and deductible
obligations as a result of accidents and claims.
Depreciation expense decreased in 1994 as compared to 1993 as
the Company has replaced owned or capital-leased tractors
primarily with operating-leased tractors.
Operating taxes and licenses increased in 1994 as compared to
1993 as a result of the greater proportion of company-operated
equipment in 1994, for which the Company is responsible for
operating taxes and licenses.
Other operating expenses decreased to approximately 1.9% of
revenue in 1994 from 2.6% in 1993, primarily as a result of
reduced legal, professional and consulting expenses, coupled
with reduced communication expenses. Also, the Company incurred
certain management change costs in 1993 which were not incurred
in 1994.
Interest Expense. Interest expense decreased by approximately
$0.3 million in 1994 as compared to 1993, primarily as a result
of the replacement of capital-leased equipment with equipment
financed under operating leases, coupled with reduced interest
as a result of lower average bank borrowings, offset by higher
average interest rates in 1994 as compared to 1993.
Following is a summary of interest expense for the years ended
December 31, (in millions):
1994 1993
Interest on Debentures $ 0.4 $ 0.4
Interest and fees on notes
payable to banks 1.4 1.5
Interest on capital leases and
other indebtedness 1.8 2.0
$ 3.6 $ 3.9
Provision For Income Taxes. A provision for income taxes of
approximately $ 1.3 million, or approximately 20% of pre-tax
earnings, was provided in 1994, as compared to a provision of
approximately $ 1.5 million which was provided in 1993. As more
fully discussed in Note 5 of Notes to Consolidated Financial
Statements, the Company's 1994 provision for income taxes was
favorably influenced by the release of valuation allowances held
against net deferred tax assets.
Extraordinary Gain On Retirement Of Debt, Net. On January 19,
1993, in connection with a private offering of $ 12 million of
debt and equity securities, the Company retired approximately
$7.2 million of bank debt for approximately $5.4 million,
yielding an after-tax extraordinary gain of $1.2 million in
1993. No similar transaction occurred in 1994.
Liquidity and Capital Resources
The Company used $ 2.6 million of cash and cash equivalents in
the year ended December 31, 1995, as compared to generating $0.4
million in 1994. As reflected in the accompanying Consolidated
Statements of Cash Flows, in 1995, $ 6.1 million of cash was
generated from operating activities, $ 5.1 million, net, was
used in financing activities, and $ 3.6 million, net, was used
in investing activities. The Company's cash balance was drawn
down in 1995 as the Company's bank lenders allowed the Company
to make term loan payments from certain restricted money market
balances.
The Company's day-to-day financing is provided by borrowings
under a $ 33 million bank credit facility, as most recently
amended on January 15, 1996. The credit facility consists of a
$ 5 million term loan with a final maturity of December 31,
1999, and a $ 28 million revolving line of credit which expires
January 15, 1999. Quarterly principal payments of $ 312,500 on
the term loan commence April 1, 1996. The line of credit
includes provisions for the issuance of up to $ 12 million in
stand-by letters of credit which, as issued, reduce available
borrowings under the line of credit. Borrowings under the line
of credit are limited to amounts determined by a formula tied to
the Company's eligible accounts receivable and inventories, as
defined in the credit facility. The credit facility 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 specified amounts which
management believes are currently adequate. Borrowings under
the credit facility totaled $ 5.0 million at December 31, 1995,
and outstanding stand-by letters of credit totaled $ 7.7 million
at that date. The combination of these two bank credits totaled
$ 12.7 million, leaving $ 7.3 million of borrowing capacity
available at December 31, 1995. Borrowing capacity under the
amended credit facility as of March 1, 1996 was $ 5.5 million.
The decreased availability results primarily from the financing
of plates and permits for the Company's tractor and trailer
fleet, and to the increased working capital needs of the
business during the first quarter of 1996.
The Company has plans to acquire approximately 300 tractors in
1996, of which approximately 200 will replace older tractors
and the balance of approximately 100 units will be incremental
growth units. The Company has the ability to cancel the tractors
anytime prior to 60 days before delivery (and in certain cases
has already done so), and the growth units will not be accepted
if competitive conditions do not improve. The new tractors will
be financed primarily under walk-away operating leases, and are
not expected to require any significant deposits or down
payments.
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 1996.
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.
Management believes the continued intense competition for
qualified drivers will lead to higher driver wages and
recruiting costs in the future. Changes in market interest
rates can be expected to impact the Company to the extent that
revenue equipment is added and replaced and because the
Company's bank financing is based on the prime rate.
The trucking industry is generally affected by customer
business cycles and by seasonality. Revenues are also affected
by inclement weather and holidays because revenues are directly
related to available working days of shippers. Customers
typically reduce shipments during and after the winter holiday
season. The Company's revenues tend to follow this pattern and
are strongest in the summer months. Generally, the second and
third calendar quarters have higher load bookings than the
fourth and first calendar quarters.
Item 8. Financial Statements and Supplementary Data.
Index to Consolidated Financial Statements
Page
Consolidated Balance Sheets 16
Consolidated Statements of Operation 17
Consolidated Statements of Shareholders' Equity 18
Consolidated Statements of Cash Flows 19
Notes to Consolidated Financial Statements 20
Report of Independent Public Accountants 24
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures.
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this Item is incorporated herein by
reference to the Company's definitive Proxy Statement for its
annual meeting of shareholders to be filed with the Commission
pursuant to Regulation 14A.
Item 11. Executive Compensation.
The information required by this Item is incorporated herein by
reference to the Company's definitive Proxy Statement for its
annual meeting of shareholders to be filed with the Commission
pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information required by this Item is incorporated herein by
reference to the Company's definitive Proxy Statement for its
annual meeting of shareholders to be filed with the Commission
pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions.
The information required by this Item is incorporated herein by
reference to the Company's definitive Proxy Statement for its
annual meeting of shareholders to be filed with the Commission
pursuant to Regulation 14A.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.
(a)(1) Financial Statements
All financial statements of the Registrant are set forth under
Item 8 of this Report.
(2) Financial Statement Schedule
Schedule Number Description Page
II Valuation and Qualifying Accounts 25
The report of the Registrant's independent public accountants
with respect to the above-listed financial statements and
financial statement schedules appears on page 24 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
1995.
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/ Jackson A. Baker
Jackson A. Baker
President and Chief Executive Officer
Date: March 12, 1996
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/ Jackson A. Baker President, Chief Executive March 12, 1996
Jackson A. Baker Officer and Director
(Principal Executive Officer)
/s/ Jonathan G. Usher Vice President-Finance, Chief March 12, 1996
Jonathan G. Usher Financial Officer, Treasurer
and Secretary (Principal
Financial and Accounting
Officer)
/s/ Edwin H. Morgens Chairman of the Board and March 12, 1996
Edwin H. Morgens Director
/s/ Joseph A. Ades Director March 12, 1996
Joseph A. Ades
/s/ Eric C. Jackson Director March 12, 1996
Eric C. Jackson
/s/ Fernando Montero Director March 12, 1996
Fernando Montero
/s/ Thomas J. Noonan, Jr. Director March 12, 1996
Thomas J. Noonan, Jr.
/s/ A. Torrey Reade Director March 12, 1996
A. Torrey Reade
/s/ Philip Scaturro Director March 12, 1996
Philip Scaturro
/s/ Jeffrey B. Stone Director March 12, 1996
Jeffrey B. Stone
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 ___
Agreement dated as of January 15, 1996
by and among the Registrant, certain
subsidiaries and The Huntington
National Bank
10.2 1992 Non-Qualified Stock Option Plan Annual Report on Form 10-K
for the year ended December
31, 1992 as Exhibit 10.2
10.3 Stock Option Agreement dated as of Annual Report on Form 10-K
December 31, 1992 between the Company for the year ended December
and Jackson A. Baker 31, 1992 as Exhibit 10.3
10.4 Stock Option Agreement dated as of Annual Report on Form 10-K for the
January 15, 1991 between the year ended December 31, 1990 as
Company and Compton Management Exhibit 10.4
Corporation
10.5 Employment Agreement dated as of Annual Report on Form 10-K for the
December 31, 1992 between the Company year ended December 31, 1992 as
and Jackson A. Baker Exhibit 10.5
10.51 Amendment to Employment Agreement ___
between the Company and Jackson A. Baker,
dated December 29, 1995
10.6 Employment Agreement dated as of Annual Report on Form 10-K for the
March 1, 1994 between the Company year ended December 31, 1993 as
and Jonathan G. Usher Exhibit 10.6
10.61 Amendment to Employment Agreement ___
between the Company and Jonathan G.
Usher dated December 8, 1995
10.7 Employment Agreement dated as of Annual Report on Form 10-K for the
August 1, 1993 between the Company year ended December 31, 1993 as
and James V. Davis Exhibit 10.7
10.8 Stock Option Agreement dated as of Annual Report on Form 10-K for the
August 1, 1993 between the Company year ended December 31, 1993 as
and James V. Davis Exhibit 10.8
10.9 1993 Stock Option and Incentive Plan Registration Statement on Form S-8
(Registration No. 33-69882) filed
September 29, 1993, as exhibit 4E.
11 Computation of Per Share Earnings ___
21 List of Subsidiaries of the Registrant ___
23 Consent of Independent Public Accountants ___
27 Financial Data Schedule ___
INTRENET, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
Years Ended December 31, 1995 and 1994
(In Thousands of Dollars)
Assets 1995 1994
Current assets:
Cash and cash equivalents $ 171 $ 2,734
Receivables, principally freight revenue less
allowance for doubtful accounts of $572 in 1995
and $1,363 in 1994 20,972 20,177
Prepaid expenses and other 5,573 6,409
Total current assets 26,716 29,320
Property and equipment, at cost, less accumulated
depreciation of $ 12,923 in 1995 and $ 11,164 in 1994 29,577 27,976
Reorganization value in excess of amounts allocated
to identifiable assets, net of accumulated amortization
of $4,138 in 1995 and $3,718 in 1994 8,031 8,451
Deferred income taxes, net 2,723 2,723
Other assets 591 588
Total assets $ 67,638 $ 69,058
Liabilities and Shareholders' Equity
Current liabilities:
Current debt and capital lease obligations $ 6,134 $ 7,425
Accounts payable and cash overdrafts 7,744 8,553
Current accrued claim liabilities 7,031 6,084
Other accrued expenses 6,430 6,267
Total current liabilities 27,339 28,329
Long-term debt and capital lease obligations 14,981 22,291
Long-term accrued claim liabilities 2,300 2,000
Total liabilities 44,620 52,620
Shareholders' equity:
Common stock, without par value; 20,000,000
shares authorized; 13,197,728 and 9,087,164 shares
issued and outstanding at December 31, respectively 16,245 9,453
Retained earnings since January 1, 1991 6,773 6,985
Total shareholders' equity 23,018 16,438
Total liabilities and shareholders' equity $ 67,638 $ 69,058
The accompanying notes are an integral part of these consolidated financial
statements.
16
INTRENET, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1995, 1994 and 1993
(In Thousands of Dollars, Except Per Share Data)
1995 1994 1993
Operating revenues $ 214,973 $ 214,838 $ 191,390
Operating expenses:
Purchased transportation
and equipment rents 80,997 79,946 73,071
Salaries, wages, and benefits 58,733 53,281 44,245
Fuel and other operating expenses 46,610 44,777 41,196
Operating taxes and licenses 10,093 9,846 7,196
Insurance and claims 6,986 7,680 8,622
Depreciation 4,651 4,826 5,386
Other operating expenses 3,842 4,077 4,941
211,912 204,433 184,657
Operating Income 3,061 10,405 6,733
Interest expense (2,886) (3,557) (3,949)
Other expense, net (82) (357) (352)
Earnings before income taxes and 93 6,491 2,432
extraordinary items
Provision for income taxes (305) (1,326) (922)
Earnings (loss) before extraordinary items (212) 5,165 1,510
Extraordinary gain on retirement of debt, net of
related income taxes of $612 1,188
Net earnings (loss) $ (212) $ 5,165 $ 2,698
Earnings (loss) per common and common
equivalent share
Primary:
Before extraordinary items $ (0.02) $ 0.52 $ 0.16
Extraordinary gain, net $ $ 0.12
Net earnings (loss) $ (0.02) $ 0.52 $ 0.28
Fully diluted:
Before extraordinary items $ (0.02) $ 0.40 $ 0.14
Extraordinary gain, net $ $ 0.09
Net earnings (loss) $ (0.02) $ 0.40 $ 0.23
The accompanying notes are an integral part of these consolidated financial
statements.
17
INTRENET, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1995, 1994 and 1993
(In Thousands of Dollars)
Retained Earn
Common Stock (Deficit) Equity
Shares Dollars
Balance, December 31, 1992 4,977,164 $3,308 ($878) $2,430
Issuance of common stock, net of costs 4,000,000 5,980 - 5,980
Exercise of stock options 90,000 135 - 135
Net Earnings for 1993 - - 2,698 2,698
Balance, December 31, 1993 9,067,164 9,423 1,820 11,243
Exercise of stock options 20,000 30 - 30
Net earnings for 1994 - - 5,165 5,165
Balance, December 31, 1994 9,087,164 9,453 6,985 16,438
Exercise of stock options, including
tax benefit 474,212 802 - 802
Conversion of 7% convertible
subordinate debentures 3,636,352 5,990 - 5,990
Net loss for 1995 - - (212) (212)
Balance, December 31, 1995 13,197,728 $16,245 $6,773 $23,018
The accompanying notes are an integral part of these consolidated financial
statements.
18
INTRENET, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1995, 1994 and 1993
(In Thousands of Dollars)
1995 1994 1993
Cash flows from operating activities:
Net earnings (loss) $ (212) $ 5,165 $ 2,698
Adjustments to reconcile net earnings(loss) to net cash
provided by operating activities:
Deferred income taxes 305 1,128 922
Extraordinary gain on retirement of debt, net (1,188)
Depreciation and amortization 5,071 5,246 5,806
Provision for doubtful accounts 85 93 701
Changes in assets and liabilities, net:
Receivables (880) (2,105) (3,654)
Prepaid expenses 422 215 1,220
Accounts payable and accrued expenses 1,392 1,774 (873)
Other (40) 20 (20)
Net cash provided by operating activities 6,143 11,536 5,612
Cash flows from financing activities:
Net borrowings (repayments) in line of credit, net (2,000) (2,949) (9,950)
Issuance of long-term debt 2,299 358 2,513
Principal payments on long-term debt (5,666) (8,719) (9,689)
Proceeds from sale of common stock and 7% convertible
subordinated debentures 12,000
Proceeds from exercise of stock options 304 30 135
Increase in claim liability collateral funds (1,500)
Net cash (used in) financing activities (5,063) (11,280) (6,491)
Cash flows from investing activities:
Additions to property and equipment (6,713) (3,244) (3,639)
Disposals of property and equipment 157 3,366 5,481
Sale of assets of C.I. Whitten 2,913
Net cash provided by (used in) investing activities (3,643) 122 1,842
Net increase (decrease) in cash and cash equivalents (2,563) 378 963
Cash and cash equivalents:
Beginning of period 2,734 2,356 1,393
End of period $ 171 $ 2,734 $ 2,356
The accompanying notes are an integral part of these consolidated financial
statements.
19
INTRENET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Intrenet, Inc., and all of its subsidiaries (the
Company). Truckload carrier subsidiaries at December 31, 1995
were Roadrunner Trucking, Inc. (RRT), Eck Miller Transportation
Corporation (EMT), Advanced Distribution System, Inc. (ADS), and
Roadrunner Distribution Services, Inc. (RDS). All significant
intercompany transactions are eliminated in consolidation.
Through its subsidiaries, the Company provides general and
specialized regional truckload carrier 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 the weighted average common shares
outstanding during the periods (13.2 million in 1995, 9.1
million in 1994, and 8.8 million in 1993). No effect has been
included for options or warrants outstanding, if the effect
would be antidilutive. Fully diluted earnings per share for
1994 and 1993 have been computed under the assumption that the
Debentures were converted into common stock on the date of their
issuance, using the if-converted method.
Credit Risk
Financial investments that subject the Company to
concentrations of credit risk consist primarily of trade
accounts receivable. Concentrations of credit risk with respect
to customer receivables are limited due to the Company's diverse
customer base, with no one customer, industry, or geographic
region comprising a large percentage of customer receivables or
revenues.
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 $ 2.8 million, $ 3.5 million,
and $4.1 million 1995, 1994, and 1993, respectively. Cash
payments for Federal alternative minimum income taxes were $ 0.1
million in 1995 and $ 0.2 million in 1994. No Federal tax
payments were made in 1993.
Capital lease obligations of $ 3.6 million, $ 8.0 million, and
$3.8 million were incurred in 1995, 1994 and 1993, respectively,
primarily for revenue equipment. In 1995, the Company converted
$ 5.9 million of Convertible Subordinated Debentures into common
stock.
Reclassifications
Certain 1994 and 1993 amounts have been reclassified for
purposes of comparison to the related 1995 amounts.
(2) Bank Credit Facility
On January 15, 1996, the Company amended its credit facility
with a bank. The $ 33 million credit facility now consists of a
$28.0 million revolving line of credit which expires January 15,
1999, and a $5.0 million term loan with a final maturity of
December 31, 1999. 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 credit facility totaled $ 5.0
million at December 31, 1995, and outstanding letters of credit
totaled $ 7.7 million, leaving $ 7.3 million of available credit
under the then $22.0 million facility at that date. The interest
rate under the credit facility prior to the most recent
amendment was 1 1/4 % over the bank's prime rate, or 9.75%, at
December 31, 1995 and 1994.
Interest on the outstanding principal balance of loans under
the amended bank agreement is currently payable at a variable
rate of 1/2 % over the bank's prime rate. Principal of the $5.0
million term loan is not required to be paid prior to April
1996, at which time, quarterly payments of $ 312,500 commence.
The bank agreement requires the Company to meet certain minimum
net worth, debt to net worth and current ratio requirements,
prohibits the payment of dividends, and limits capital
expenditures to specific amounts which management believes to be
currently adequate. Obligations under the bank agreement are
secured by liens on or security interests in all of the
otherwise unencumbered assets of the Company and its
subsidiaries.
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, 1995 and 1994 was:
1995 1994
Bank term loan, interest at 1 1/4 %
over bank prime rate $ 5,000 $7,000
Convertible subordinated
debentures, interest at 7 % - 5,988
Real estate mortgage obligation,
variable interest rate at 2.45 %
over commercial paper, currently
8.29 %, option to fix interest rate
at 2.50 % over ten year Treasury
rate, maturing in 2007 2,310 -
Obligations collateralized by
equipment, maturing through
2000, interest rates ranging
from 7.33 % to 10.80 % 3,216 5,684
Capital lease obligations
collateralized by equipment,
maturing through 2000,
interest rates ranging
from 7.33 % to 11.55 % 10,589 11,044
Total 21,115 29,716
Less current maturities (6,134) (7,425)
Long-term debt $ 14,981 $ 22,291
Maturities of long-term debt, excluding capital lease
obligations, in the coming five years are $ 2,714, 2,587, 1,726,
1,738 and 179 in 1996, 1997, 1998, 1999 and 2000.
Future minimum lease payments under capital and non-cancelable
operating lease agreements at December 31, 1995 were as follows:
Capital Operating
Leases Leases
1996 $ 4,283 $ 16,800
1997 3,605 11,370
1998 2,316 6,801
1999 1,702 2,191
Thereafter 484 -
Future minimum lease payments 12,390 $ 37,162
Amounts representing interest (1,801)
Principal amount $10,589
Total rental expense under non-cancelable operating leases was
$ 17,765, $14,728, and $10,924, in 1995, 1994, and 1993,
respectively. The Company presently intends to lease
approximately 300 tractors ($ 21 million) under operating
leases and approximately 650 trailers ($ 14 million) under
capital and operating leases in 1996.
Purchased transportation and equipment rents expense includes
payments to owner-operators of equipment under various
short-term lease arrangements.
(4) Litigation and Contingencies
The Company is a party to routine litigation incidental to its
business, primarily involving claims for personal injury and
property damage incurred in the transporting of freight. The
Company maintains insurance programs in amounts customary for
the industry, and in amounts management believes to be adequate,
subject to deductibles ranging to $250,000 of exposure for each
incident. Except as discussed below, the Company is not aware
of any claims or threatened claims that are likely to materially
affect the Company's operating results or financial condition.
In January, 1996, an action against the Company was filed in
the United States District Court for the District of New Jersey
by Compton Management Corporation (Compton). Compton provided
executive management services to the Company from January 15,
1991 to January 19, 1993. Compton alleged violations of federal
securities laws, fraudulent misrepresentation and breach of
contract arising out of Compton's option to purchase 264,212
shares of the Company's common stock and subsequent sale of the
stock pursuant to a registration statement filed by the Company
at Compton's request. Compton alleged that the Company
wrongfully delayed filing the registration statement and that
the delay prevented Compton from selling its shares at favorable
market prices.
The complaint seeks compensatory damages of not less than
$1,000,000 and punitive damages of at least $5,000,000. The
Complaint was only filed recently and the Company has not yet
been required to respond. Management believes that the Company
has no liability to Compton and intends to vigorously defend the
claims.
(5) Income Taxes
The provision for income taxes for the years ended December 31,
1995, 1994 and 1993 was as follows:
1995 1994 1993
Current $ - $ 200 $ -
Deferred :
Income from operations 305 1,126 922
Extraordinary gain - - 612
Total Provision $ 305 $1,326 $ 1,534
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:
1995 1994 1993
Taxes at statutory rate $ 31 $ 2,207 $ 827
Increase (decrease) resulting from:
Non-deductible amortization 143 143 143
Non-deductible driver
subsistence pay 131 1,489 499
Release of valuation
allowance held against
post-reorganization
net deferred tax assets - (2,538) (547)
Other, net - 25 -
Provision for Income Taxes $ 305 $ 1,326 $ 922
The tax effects of temporary differences that give rise to
significant portions of deferred tax assets and deferred tax
liabilities at December 31, 1995 and 1994 are as follows:
1995 1994
Deferred Tax Assets
Insurance claim liabilities $ 3,366 $ 2,816
Reserve for doubtful accounts 194 463
Other 220 192
3,780 3,471
Deferred Tax Liabilities
Property differences, primarily
depreciation (3,331) (2,927)
Other (386) (474)
(3,717) (3,401)
Net Temporary Differences 63 70
Carryforwards -
Pre-reorganization, limited, net
operating loss and other tax carryforwards
(Expiring 2004-2006) 5,541 5,570
Post-reorganization net operating
loss and other tax carryforwards
(Expiring 2006-2010) 2,003 1,967
Total Carryforwards 7,544 7,537
Net Deferred Tax Assets 7,607 7,607
Valuation Allowance (4,884) (4,884)
Recorded Net Deferred Tax Assets $ 2,723 $ 2,723
Net changes to the valuation allowance in 1994 and 1995, were as
follows:
Valuation allowance, beginning of year $ (4,884) $ (11,273)
Release of allowance held against pre-
organization deferred tax assets, and
credited against Reorganization Value - 3,851
Release of allowance held against post-
reorganization deferred tax assets, and
taken to income - 2,538
Valuation allowance, end of year $ (4,884) $ (4,884)
Benefits from realization of pre-reorganization net deferred
tax assets are reported as a reduction of Reorganization Value
in Excess of Amounts Allocated to Identifiable Assets.
Conversely, realization of post-reorganization net deferred tax
assets are recognized as a reduction of income tax expense. In
1993 and 1994, the Company released valuation allowances held
against both pre- and post-reorganization net deferred tax
assets to the extent those assets were realized in the Company's
tax returns for those years. In addition, in 1994, based upon
current and anticipated future operating results, the Company
concluded that future realization of a portion of the
pre-reorganization net deferred tax assets was more likely than
not. As a result, the Company released approximately $ 2.5
million of valuation allowances held against those assets, and
reduced the Reorganization Value in Excess of Amounts Allocated
to Identifiable Assets by a corresponding amount.
While management is optimistic that all net deferred tax assets
will be realized, such realization is dependent upon future
taxable earnings. The Company's carryforwards expire at specific
future dates and utilization of certain carryforwards is limited
to specific amounts each year. Accordingly, the Company has
recorded a valuation allowance against a portion of those net
deferred tax assets.
(6) Stock Options and Employee Compensation
On August 15, 1992, the Company adopted the 1992 Non-Qualified
Stock Option Plan (the 1992 Option Plan). The 1992 Option Plan
allows 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. On the same date
the 1992 Option Plan was approved, the Company granted all of
the options available under the 1992 Option Plan. All of the
options 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 activity in the Company's 1992 and 1993 Option Plans in
1995, 1994, and 1993 was as follows:
Balance at December 31, 1992 590,000 $1.00 to $1.50
Granted 100,000 $2.75
Exercised (90,000) $1.50
Canceled (20,000) $1.50
Balance at December 31, 1993 580,000 $1.00 to $2.75
Granted 258,750 $3.625 to 3.875
Exercised (20,000) $1.50
Canceled (9,000) $3.625 to 3.875
Balance at December 31, 1994 809,750 $1.00 to $3.875
Granted 400,000 $2.50
Exercised (210,000) $1.00 to $1.50
Canceled (27,750) $3.625 to 3.875
Balance at December 31, 1995 972,000 $1.00 to $3.875
In addition to those options granted above, on January 19,
1993, the Company granted non-qualified options to purchase
200,000 shares of Common Stock to an executive officer of the
Company, at $ 1.50 per share. These options are fully vested at
December 31, 1995.
(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 follows (in
thousands of dollars):
1995 1994
Land $ 1,532 $ 1,621
Buildings and leasehold improvements 6,295 2,920
Revenue equipment 11,267 13,342
Revenue equipment under
capital leases 17,924 15,937
Other property 5,482 5,320
42,500 39,140
Less accumulated depreciation (12,923) (11,164)
$ 29,577 $ 27,976
(8) Prepaid and Accrued Expenses
An analysis of prepaid and accrued expenses at December 31,
1995, and 1994 follows (in thousands of dollars):
1995 1994
Prepaid expenses:
Insurance $ 789 $ 1,406
Shop and truck supplies 2,151 2,018
Other 2,633 2,985
$ 5,573 $ 6,409
Accrued Expenses:
Salaries and wages $ 1,921 $ 1,930
Fuel and mileage taxes 504 469
Equipment leases 618 585
Other 3,387 3,283
$ 6,430 $ 6,267
(9) Transactions with Affiliated Parties
In 1993, the Company entered into a financial consulting
agreement with an affiliate of a member of the Company's Board
of Directors. This agreement, which expired on January 31,
1994, provided for payments totaling $275,000 for consulting
services rendered.
In 1995, 1994 and 1993, the Company leased approximately 290,
150, and 430 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 $ 1,164,000 in
1995, $ 307,000 in 1994 and $ 123,000 in 1993.
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, 1995 and 1994, and the related consolidated
statements of operations, shareholders' equity and cash flows
for each of the three years in the period ended December 31,
1995. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Intrenet, Inc. and subsidiaries as of December 31,
1995, and 1994, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 1995, 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 20, 1996.
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, 1995 :
Allowance for
doubtful accounts $ 1,363 $ 85 $ - $ (876) $ 572
Year Ended
December 31, 1994:
Allowance for
doubtful accounts $ 1,481 $ 93 $ - $ (211) $ 1,363
Year Ended
December 31, 1993:
Allowance for
doubtful accounts $ 1,368 $ 701 $ - $ (588) $ 1,481