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 September 30, 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 November 1, 1998
INTRENET, INC.
FORM 10-Q
September 30, 1998
INDEX
PAGE
Part I - Financial Information:
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
September 30, 1998 and December 31, 1997 .................... 3
Condensed Consolidated Statements of Operations
Three Months and Nine Months Ended September 30, 1998 and 1997 . 4
Condensed Consolidated Statement of Shareholders' Equity
Nine Months Ended September 30, 1998 .................... 5
Condensed Consolidated Statements of Cash Flows
Three Months and Nine Months Ended September 30, 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 .................................... 13
Item 2. Changes in Securities .................................. 14
Item 3. Defaults Upon Senior Securities ........................ 14
Item 4. Submission of Matters to a Vote of Security Holders ..... 14
Item 5. Other Information ..................................... 14
Item 6. Exhibits and Reports on Form 8-K ....................... 14
<TABLE>
INTRENET, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 1998 and December 31, 1997
(In Thousands of Dollars)
<CAPTION>
Assets 1998 1997
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 866 $ 598
Receivables, principally freight revenue less
allowance for doubtful accounts of $1,480 in 1998
and $1,110 in 1997 35,032 30,474
Prepaid expenses and other 5,677 4,697
Total current assets 41,575 35,769
Property and equipment, at cost, less accumulated
depreciation 28,229 30,248
Reorganization value in excess of amounts allocated
to identifiable assets, net of accumulated amortization 5,135 5,889
Deferred income taxes, net 2,723 2,723
Other assets 2,193 1,335
Total assets $ 79,855 $ 75,964
Liabilities and Shareholders' Equity
Current liabilities:
Current debt and capital lease obligations $ 5,610 $ 5,167
Accounts payable and cash overdrafts 9,199 7,772
Current accrued claim liabilities 9,549 8,829
Other accrued expenses 6,787 7,525
Total current liabilities 31,145 29,293
Long-term debt and capital lease obligations 21,834 22,401
Long-term accrued claim liabilities 2,800 2,800
Total liabilities 55,779 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 7,220 4,619
Total shareholders' equity 24,076 21,470
Total liabilities and shareholders' equity $ 79,855 $ 75,964
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
INTRENET, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 1998 and 1997
(Unaudited)
(In Thousands of Dollars, Except Per Share Data)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Operating revenues $ 69,794 $ 64,352 $ 196,820 $ 186,522
Operating expenses:
Purchased transportation
and equipment rents 31,526 28,909 88,624 80,188
Salaries, wages, and benefits 16,952 15,351 47,183 45,453
Fuel and other operating expenses 12,759 11,819 35,919 36,857
Operating taxes and licenses 2,604 2,552 7,672 7,704
Insurance and claims 2,145 2,029 6,090 6,208
Depreciation 973 1,127 2,937 3,495
Other operating expenses 840 775 2,763 2,411
67,799 62,562 191,188 182,316
Operating income 1,995 1,790 5,632 4,206
Interest expense (638) (711) (1,941) (2,223)
Other expense, net (105) (105) (315) (315)
Earnings before income taxes 1,252 974 3,376 1,668
Provision for income taxes (284) (260) (775) (492)
Net earnings $ 968 $ 714 $ 2,601 $ 1,176
Earnings per common and common
equivalent share
Basic $ 0.07 $ 0.05 $ 0.19 $ 0.09
Diluted $ 0.07 $ 0.05 $ 0.19 $ 0.09
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
INTRENET, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Shareholders' Equity
For the Nine Months Ended September 30, 1998
(Unaudited)
(In Thousands of Dollars)
<CAPTION>
Retained Shareholders'
Common Stock Earnings Equity
Shares Dollars
<S> <C> <C> <C> <C>
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 - - 2,601 2,601
Balance, September 30, 1998 13,550,638 $ 16,856 $ 7,220 $ 24,076
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
INTRENET, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three and Nine Months Ended September 30, 1998 and 1997
(Unaudited)
(In Thousands of Dollars)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 968 $ 714 $ 2,601 $ 1,176
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Deferred income taxes 284 260 775 492
Depreciation and amortization 1,089 1,232 3,293 3,810
Provision for doubtful accounts 129 27 262 253
Changes in assets and liabilities, net:
Receivables (1,229) (1,941) (4,821) (8,003)
Prepaid expenses 763 420 (980) 16
Accounts payable and accrued expenses (664) 1,527 217 3,938
Net cash provided by
operating activities 1,340 2,239 1,347 1,682
Cash flows from financing activities:
Net borrowings (repayments) on line of
credit, net (184) (2,159) 2,645 2,769
Principal payments on long-term debt (945) (1,047) (2,771) (4,165)
Proceeds from exercise of stock options 0 76 5 143
Net cash (used in)
financing activities (1,129) (3,130) (121) (1,253)
Cash flows from investing activities:
Additions to property and equipment (421) (217) (1,067) (952)
Disposals of property and equipment 12 346 109 1,161
Net cash provided by (used in)
investing activities (409) 129 (958) 209
Net increase (decrease) in cash
and cash equivalents (198) (762) 268 638
Cash and cash equivalents:
Beginning of period 1,064 1,810 598 410
End of period $ 866 $ 1,048 $ 866 $ 1,048
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
INTRENET, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 1998
(Unaudited)
(1) Unaudited Consolidated Financial Statements
The accompanying unaudited consolidated financial statements
include the accounts of Intrenet, Inc. and all of its
subsidiaries (collectively, the Company). Operating subsidiaries
at September 30, 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 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 and nine month periods ended
September 30, 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 $1,320,000 as of September
30, 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 operations or financial
condition.
The Company's subsidiary, RDS, is a defendant in an action
brought on March 20, 1997, in the 327th District Court, El Paso,
Texas, by a former employee. The plaintiff alleged that he was
injured as a result of the negligence and gross negligence of
RDS and received discriminatory treatment in violation of the
Texas Health and Safety Code. On March 13, 1998, a default
judgment was entered against RDS in the approximate amount of
$1.0 million, representing damages for medical expenses, loss of
wage earning capacity, physical pain and mental anguish,
physical impairment, disfigurement and punitive damages. RDS
has filed an appeal to the 8th Circuit Court of Appeals in El
Paso, Texas, which is currently pending. In its appeal, RDS is
asserting it was never properly served in the action and that
there is insufficient basis to support an award of punitive
damages. RDS has notified its workers' compensation carrier of
the award. Management believes that the Company is likely to
prevail on its appeal and therefore, this action should not have
a material adverse effect on the Company's liquidity, results of
operations 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 such words as "believe",
"expect", "anticipate", and other 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 $968,000($0.07 per share)
on revenues of $69.8 million in the three months and net
earnings of $2,601,000 ($0.19 per share) on revenues of $196.8
million in the nine months ended September 30, 1998. This
compares with net earnings of $714,000 on revenues of $64.4
million, and net earnings of $1,176,000 on revenues of $186.5
million in the comparable periods of 1997, respectively. The
Company's revenue grew by 8.4 percent in the third quarter of
1998 and four of its five subsidiaries (RRT, EMT, ADS and INL)
reported revenue improvements. During the second and third
quarters of 1998, RDS's operations and administrative offices
were combined with RRT in Albuquerque, NM. Consequently, this
activity resulted in a decrease in revenue production for RDS
during the quarter compared to the prior year. On a year to date
basis, all of the subsidiaries except RDS reported revenue
growth. Fuel prices continued to decline during the third
quarter and were lower than the third quarter of the prior year.
Barring any unforeseen changes in the overall economy or in the
price of fuel, management expects that the Company will benefit
from continuing cost reduction programs in the area of safety,
fuel purchasing and insurance costs and greater equipment
utilization and that an expanded fleet will allow for revenue
growth. These trends should enable the Company to remain
profitable for the balance of 1998, exclusive of any contingent
liabilities discussed earlier.
A portion of revenue growth in the third quarter is
attributable to recent acquisitions. Early in the second
quarter of 1998, EMT acquired the assets of Regal
Transportation, a flatbed operation located in Niles, OH, with
revenues of approximately $5.0 million. Late in the second
quarter, Ram Trans, a flatbed brokerage and logistics company,
located in Denver, CO, with revenues of approximately $5 - 6
million per year, was acquired by INL. These acquisitions are
projected to add approximately $10 - 11 million in operating
revenues on an annual basis.
Revenue miles for the third quarter of 1998 increased slightly
to 43.6 million miles from 43.4 million miles. Revenue per mile
in the third quarter of 1998 improved by 4.5 percent to $1.38
per mile, up from $1.32 last year, continuing the trend reported
in the prior quarters.
The Company's total operating fleet, including owner-operators,
at the end of the third quarter of 1998 was 2,249 tractors, up
from 2,173 at the end of the third quarter of 1997, representing
an increase of 3.5 percent. The number of Company owned
tractors, at the end of the third quarter, grew by 11.0 percent,
as compared with the third quarter of 1997, while there was a
4.7 percent decrease in the number of owner-operators.
A discussion of the impact of the above and other factors on
the results of operations in the three months and nine months
ended September 30, 1998, as compared to the comparable periods
of 1997 follows.
1998 Compared to 1997
Three Months Nine Months
Ended Sep 30 Ended Sep 30
% %
KEY OPERATING STATISTICS 1998 1997 Change 1998 1997 Change
Operating Revenues ($ millions) $ 69.8 $ 64.4 8.4 $196.8 $186.5 5.5
Net Earnings ($ 000's) $ 968 $ 714 35.6 $2,601 $1,176 121.2
Average Number of Tractors 2,268 2,183 3.9 2,245 2,171 3.4
Total Loads (000's) 92.0 80.0 15.0 266.9 227.3 17.4
Revenue Miles (millions) 43.6 43.4 0.5 125.7 128.6 (2.3)
Average Revenue per Revenue Mile* $ 1.38 $ 1.32 4.5 $ 1.37 $ 1.32 3.8
* Excluding brokerage revenue
Operating Revenues
Operating revenues for the three months and nine months ended
September 30, 1998, totaled $69.8 million and $196.8 million,
respectively, as compared to $64.4 million and $186.5 million
for the same periods in 1997, reflecting better driver
availability than the prior year. Four of the Company's five
subsidiaries continued to grow in 1998. Revenue increased by
$5.4 million, or 8.4 percent, in the three months, and $10.3
million, or 5.5 percent, in the nine months ended September 30,
1998, over the comparable 1997 periods. The average number of
Company owned tractors increased 7.5 percent from 1,141 to 1,227
in the nine months ended September 30, 1998, from the
comparable period in 1997, and the average owner-operator
tractor count decreased 1.2 percent from 1,030 to 1,018.
Approximately 50.8 percent of the Company's revenue was
generated by Company-operated equipment, and 36.6 percent by
owner-operator equipment in the nine months ended September 30,
1998. This compares to 53.0 percent and 38.1 percent,
respectively, in the 1997 period. The remaining revenues were
from freight brokered to other carriers ("brokered freight").
The Company experienced a 4.5 percent improvement in the
average revenue per revenue mile in the three months ended
September 30, 1998, and a 3.8 percent improvement in the average
revenue per revenue mile in the first nine months of 1998, as
compared to 1997. This is generally the result of a larger
amount of freight choices offered to the Company and a slight
tightening of capacity in certain of the markets served by the
Company.
Operating Expenses
The following table sets forth the percentage relationship of
operating expenses to operating revenues for the three months
and nine months ended September 30.
Three Months Nine Months
Ended Sep 30 Ended Sep 30
1998 1997 1998 1997
Operating revenues 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Purchased transportation
and equipment rents 45.1 44.9 45.0 43.0
Salaries, wages and benefits 24.3 23.8 24.0 24.4
Fuel and other operating expenses 18.3 18.4 18.2 19.8
Operating taxes and licenses 3.7 4.0 3.9 4.1
Insurance and claims 3.1 3.2 3.1 3.3
Depreciation 1.4 1.7 1.5 1.9
Other operating expenses 1.2 1.2 1.4 1.2
Total operating expenses 97.1% 97.2% 97.1% 97.7%
For the three months ended September 30, 1998, purchased
transportation and equipment rents increased as a percentage of
revenue compared to the same period in 1997, due to the
increased amount of brokered freight which was primarily
attributable to the acquisition of Ram Trans. Salaries, wages
and benefits increased during the quarter in 1998, compared to
1997, as a percentage of revenue because the Company's average
drivers' pay increased more than $0.02 per mile. Fuel and other
operating expenses decreased only slightly during the 1998
quarter compared to 1997. Fuel prices at the pump were down
about $0.13 per gallon, however, most of this benefit was offset
by increased expenses associated with the acquisition of Regal
Transportation and Ram Trans. Depreciation expense decreased as
a result of the Company's continued reliance on non-capitalized
leases as a means of acquiring its tractors and trailers.
For the nine months ended September 30, 1998, purchased
transportation and equipment rent increased as a percentage of
revenue, compared to the same period in 1997, due to the
increased amount of brokered freight which was primarily
attributable to the acquisition of Ram Trans. Even though the
average drivers' wages increased over $0.01 per mile during the
nine months ended September 30, 1998, compared to the same
period in 1997, salaries, wages and benefits as a percentage of
revenue decreased because of the relatively smaller portion of
the Company's total revenue being generated by Company operated
equipment. Fuel and other operating expenses decreased
significantly during the nine months in 1998, compared to 1997,
because the average cost of fuel at the pump declined over $0.14
per gallon. The benefit of this decrease was offset by
acquisition expenses, a significant loss of fuel surcharge
revenue and the increased cost of communication expense
attributable to the pay phone users surcharge. Depreciation
expense during the nine months of 1998, compared to 1997,
decreased as a result of the Company's continued reliance on
non-capitalized leases as a means of acquiring its tractors and
trailers.
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 on bank
borrowings were flat in 1998, compared to 1997, due to a slight
increase in the borrowing base offset by a reduction in the
borrowing rate due to the amended bank agreement in 1998.
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 $268,000 of cash in the first nine months
of 1998. As reflected in the accompanying Consolidated
Statements of Cash Flows, $1,347,000 of cash was provided by
operating activities, primarily by earnings before depreciation
which was offset by increased accounts receivable and cash used
to purchase plates and permits for the Company's fleet.
Approximately $121,000 was used in financing activities,
primarily for principal payments on long-term debt. An
additional net cash of $958,000 was used in investing
activities, primarily additions to property and equipment.
The Company's day-to-day financing is provided by borrowings
under its bank credit facility. The credit facility consists of
a $5.0 million term loan with a final maturity of December 31,
1999, and a $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 standby letters of credit which,
as issued, reduce available borrowings under the line of credit.
Borrowings under the line of credit are limited to amounts
determined by a formula tied to the Company's eligible accounts
receivable and inventories, as defined in the credit facility.
Borrowings under the revolving line of credit totaled $9.5
million at September 30, 1998, and outstanding letters of credit
totaled $5.7 million at that date. The combination of these two
bank credits totaled $15.2 million, leaving approximately $10.2
million of borrowing capacity available at September 30, 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. The Company's
borrowing rate against its credit facility was again reduced by
an additional 25 basis points on September 1, 1998, as a result
of successfully meeting the June 30, 1998, bank covenants.
The Company believes that cash generated from operations, and
cash available to it under the bank credit facility will be
sufficient to meet the Company's needs for the foreseeable
future.
Year 2000
The Company has assessed, and continues to assess, the impact
of the Year 2000 Issue on its reporting systems and operations.
The Year 2000 Issue exists because many computer systems and
applications currently use two-digit date fields to designate a
year. As the century date occurs, date sensitive systems will
recognize the year 2000 as 1900, or not at all. This inability
to recognize or properly treat the year 2000 may cause our
systems to process critical financial and operational
information incorrectly or could result in business
interruption. One of the more significant Year 2000 Issues
faced by the Company are the systems in place within the
Company's dispatch and equipment control systems, which are not
Year 2000 compliant. As a result, in 1998, the Company is
updating and working with the vendors of any products it is
using to install and modify all of its applications and computer
systems and, in particular, its dispatch and equipment control
systems to insure that they will be Year 2000 compliant. All
programs are expected to be fully tested and problems resolved
by June 30, 1999. The Company does not expect the costs, (less
than $50,000), associated with becoming Year 2000 compliant to be
material. Management has no contingency plan at this time, but
will develop one if deemed necessary.
As part of the Company's comprehensive review, it is continuing
to verify the Year 2000 readiness of third parties (vendors and
customers) with whom the Company has material relationships. At
present, the Company is not able to determine the effect on the
Company's results of operations, liquidity, and financial
condition in the event the Company's material vendors and
customers are not Year 2000 compliant. The Company will
continue to monitor the progress of its material vendors and
customers and formulate a contingency plan when the Company
believes a material vendor or customer will not be compliant.
The estimated percentage of completion by June 30, 1999, the
date on which the Company believes it will complete its Year
2000 compliance efforts, and the expenses related to the
Company's Year 2000 compliance efforts are based upon
management's best estimates, which are based on assumptions of
future events, including the availability of certain resources,
third party modification plans and other factors. There can be
no assurances that these results and estimates will be achieved,
and the actual results could materially differ from those
anticipated. Specific factors that might cause such material
differences include, but are not limited to, the availability of
personnel trained in this area and the ability to locate and
correct all relevant computer codes. In addition, there can be
no assurances that the systems or products of third parties on
which the Company relies will be timely converted or that a
failure by a third party, or a conversion that is incompatible
with the Company's systems, would not have a material adverse
effect on the Company.
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. The Company has made
payments to the Fund that total approximately $1,320,000 as of
September 30, 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 operations or
financial condition.
The Company's subsidiary, RDS, is a defendant in an action
brought on March 20, 1997, in the 327th District Court, El Paso,
Texas, by a former employee. The plaintiff alleged that he was
injured as a result of the negligence and gross negligence of
RDS and received discriminatory treatment in violation of the
Texas Health and Safety Code. On March 13, 1998, a default
judgment was entered against RDS in the approximate amount of
$1.0 million, representing damages for medical expenses, loss of
wage earning capacity, physical pain and mental anguish,
physical impairment, disfigurement and punitive damages. RDS
has filed an appeal to the 8th Circuit Court of Appeals in El
Paso, Texas, which is currently pending. In its appeal, RDS is
asserting it was never properly served in the action and that
there is insufficient basis to support an award of punitive
damages. RDS has notified its workers' compensation carrier of
the award. Management believes that the Company is likely to
prevail on its appeal and, therefore, this action should not
have a material adverse effect on the Company's liquidity,
results of operations or financial condition.
There are no other material pending legal proceedings to which
the Company or any of its subsidiaries is a party to, or of which
any of their property is the subject, other than routine
proceedings previously reported in the Company's 1997 Annual
Report on Form 10-K, and litigation incidental to its business,
primarily involving claims for personal injury and property
damage incurred in the transporting of freight. 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 $250,000 of exposure
for each incident. The Company is not aware of any claims or
threatened claims that might materially affect the Company's
operating or financial results.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 11 - Computation of Per Share Earnings
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
INTRENET, INC.
(Registrant)
/s/ John P. Delavan
John P. Delavan,
President and Chief
Executive Officer
November 12, 1998
/s/ Roger T. Burbage
Roger T. Burbage,
Executive Vice-President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<TABLE>
INTRENET, INC.
STATEMENT RE: COMPUTATION
OF PER SHARE EARNINGS
<CAPTION>
Three Months Ended Sep 30, Nine Months Ended Sep 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Weighted average shares outstanding during period 13,550,638 13,476,421 13,550,171 13,454,984
Assumed exercise of options and warrants 373,240 371,737 410,627 242,465
Shares assumed for fully diluted earnings per share 13,923,878 13,848,158 13,960,798 13,697,449
Earnings for the period:
($ in Thousands)
Net earnings $ 968 $ 714 $ 2,601 $ 1,176
Earnings per common and common
equivalent share:
Basic: $ 0.07 $ 0.05 $ 0.19 $ 0.09
Diluted: $ 0.07 $ 0.05 $ 0.19 $ 0.09
Exhibit 11
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000778161
<NAME> INTRENET, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 866
<SECURITIES> 0
<RECEIVABLES> 36,512
<ALLOWANCES> (1,480)
<INVENTORY> 0
<CURRENT-ASSETS> 41,575
<PP&E> 28,229
<DEPRECIATION> 0
<TOTAL-ASSETS> 79,855
<CURRENT-LIABILITIES> 31,145
<BONDS> 21,834
0
0
<COMMON> 16,856
<OTHER-SE> 7,220
<TOTAL-LIABILITY-AND-EQUITY> 79,855
<SALES> 0
<TOTAL-REVENUES> 196,820
<CGS> 0
<TOTAL-COSTS> 191,188
<OTHER-EXPENSES> 315
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,941
<INCOME-PRETAX> 3,376
<INCOME-TAX> 775
<INCOME-CONTINUING> 2,601
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,601
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
