SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to .
Commission file number 0-14060
Intrenet, Inc.
(Exact name of registrant as specified in its charter)
Indiana 35-1597565
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 TechneCenter Drive, Suite 200, Milford, Ohio 45150
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (513)576-6666
Securities registered pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, without par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item405 of RegulationS-K is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in PartIII of this Form10-K or any
amendment to this Form10-K. [ X ]
The aggregate market value of the common stock (based upon the
closing sale price on such date) held by non-affiliates of the
registrant as of March 1,1999, was approximately $27,297,862.
(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,
1999, there were 13,672,066 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
1999 Annual Meeting of Shareholders of Registrant Part III
Page 1 of 46 pages
INTRENET, INC.
1998 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 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 13
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosures 13
Part III
Item 10. Directors and Executive Officers of the Registrant 13
Item 11. Executive Compensation 13
Item 12. Security Ownership of Certain Beneficial Owners and Management 13
Item 13. Certain Relationships and Related Transactions 13
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 13
Signatures 14
Index to Exhibits 15
PART I
Item 1. Business.
General
The Company was incorporated in 1983 under the laws of the
State of Indiana, as a holding company for truckload carrier
subsidiaries. The Company owns, directly or indirectly, 100% of
four licensed truckload carriers and an intermodal brokerage
logistics operation (the operating subsidiaries), which provide
general and specialized regional truckload carrier services
throughout North America. The operating subsidiaries are
Roadrunner Trucking, Inc., (RRT); Eck Miller Transportation
Corporation, (EMT); Advanced Distribution System, Inc., (ADS);
Roadrunner Distribution Services, Inc., (RDS); and INET
Logistics, Inc., (INL). In addition, the Company owns an
intercompany employee leasing subsidiary and an inactive Bermuda
captive-insurance subsidiary.
The Company's operating subsidiaries presently operate more
than 2,300 tractors, including tractors provided by
owner-operators. All of the Company's truckload carriers rely
to some extent upon a network of commissioned agents and
independent contractors who own and operate tractors and
trailers. All of the Company's truckload carriers use
company-operated equipment. In 1998, the Company's fleet
traveled over 166 million revenue miles delivering approximately
325,000 loads for Company customers. The Company also brokered
approximately 30,000 loads to other carriers. No customer
accounted for more than 5% of the Company's revenue in 1998.
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, 1998, are as follows:
RRT EMT ADS RDS Total
Company Tractors 516 386 219 182 1,303
Owner-Operators 166 410 378 54 1,008
Total Tractors 682 796 597 236 2,311
Company Trailers 950 499 257 489 2,195
Company Drivers 572 398 202 230 1,402
Total Employees 765 552 296 257 1,899
Sales Agents 30 135 218 7 390
Avg. Length of Haul in
Revenue Miles 633 345 542 1,159 514
Roadrunner Trucking, Inc. RRT is a truckload carrier
transporting a wide variety of general commodities, including
machinery, building materials, steel, paper, cable and wire.
RRT's primary traffic flows are in the western two-thirds of the
United States where it operates one of the largest fleets of
flatbed trailers in its market area. RRT services Mexico through
El Paso, TX and Nogales, AZ, and has three large logistics and
dedicated fleets operating both flatbed and dry van trailers.
RRT also operates a nationwide freight brokerage business. RRT
is a New Mexico corporation, headquartered in Albuquerque, New
Mexico.
Eck Miller Transportation Corporation. EMT is a specialized
truckload carrier operating a nationwide service system of
nearly 800 sided flatbed and heavy-haul trailers. EMT primarily
transports metal articles, building materials and machinery over
lanes radiating from the midwest to all other regions of the
United States. EMT is an Indiana corporation, headquartered in
Rockport, Indiana.
EMT operates a fleet of company-operated and owner-operator
tractors. Most of its 140 field offices are operated by
commissioned sales agents. The utilization of owner-operators
and agents limits EMT's investment in labor and equipment.
Advanced Distribution System, Inc. ADS is a truckload carrier
that transports general commodity freight, including iron,
steel, pipe, heavy machinery and building products, throughout
the United States and Canada on flatbed trailers and dry vans.
ADS is a Florida corporation, headquartered in Columbus, Ohio.
ADS is primarily dependent upon commissioned agents as sources
for business. ADS also operates a fleet of company-operated and
owner-operated equipment.
Roadrunner Distribution Services, Inc. RDS is a truckload van
carrier that transports a wide variety of general commodities,
including electronics, auto parts, sportswear and consumer goods
throughout service lanes in the Central and Southwestern regions
of the United States. RDS operates a nationwide freight
brokerage business, and services customers in Mexico through El
Paso, TX and Nogales, AZ. RDS is a Texas corporation,
headquartered in Albuquerque, New Mexico.
INET Logistics, Inc. INL is an intermodal marketing company, a
freight broker, and a logistics management company that arranges
the shipment of various commodities for its customers. INL
books and coordinates transportation services with various rail
and road transportation providers, offering a cost efficient and
service effective alternative to customers. INL is an Indiana
corporation, headquartered in Schaumburg, IL.
Commissioned Sales Agents and Owner-Operators
The operating subsidiaries which use commissioned agents and
independent owner-operators generally do not have long-term
contractual agreements with their agents or owner-operators, and
treat both categories of persons as independent contractors.
Working relationships with such persons are dependent upon
mutually beneficial characteristics including confidence in
service levels, support in customer relations, compensation
levels and systems and opportunities for growth. Many of the
Company's agreements with commissioned agents are non-exclusive.
The operating subsidiaries will cancel working relationships,
at any time, with agents and owner-operators for lack of
confidence in, but not limited to, those characteristics listed
above.
From time to time, various legislative or regulatory proposals
are introduced at the federal or state levels to change the
employment status of independent contractors to treat them as
employees for either employment tax purposes or for other
benefits available to Company employees. Currently, most
individuals are classified as employees or independent
contractors for employment tax purposes, based on contractual
relationships and industry practice.
Although management is unaware of any proposals currently
pending to change the employee/independent contractor
classification, the costs associated with potential changes, if
any, could adversely affect the Company's results of operations
if the Company were unable to reflect them in its fee
arrangements with its independent owner-operators and
commissioned agents, or in the prices paid by its customers.
Revenue Equipment
At December 31, 1998, the Company owned or leased 1,303
tractors, 1,583 flatbed trailers, and 612 dry van trailers. The
following is a summary of Company operated revenue equipment at
December 31, 1998:
Trailers
Tractors Flatbed Dry Van
Model year
prior to 1996 334 854 97
1996 54 241 478
1997 451 308 37
1998 249 93 -
1999 215 87 -
1,303 1,583 612
In addition, at the same date, owner-operators under
contract provided 1,008 tractors for Company operations.
The Company has plans to acquire approximately 440 tractors in
1999, of which approximately 335 will replace older tractors.
The new tractors are expected to be financed primarily under
operating leases.
Employees
At December 31, 1998, the Company employed 1,899 individuals,
of whom 1,402 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), effective January 1, 1995, preempted
certain state and local laws regulating the prices, routes, or
services of motor carriers, thereby deregulating intra-state
transport, and increasing competitive conditions.
At December 31, 1998, the Company employed 1,402 drivers.
Drivers are selected in accordance with specific guidelines,
relating primarily to safety records, driving experience,
personal evaluations, a physical examination and mandatory drug
testing. All drivers attend orientation programs and ongoing
driver efficiency and safety programs.
Competition for drivers is intense in the trucking industry,
and the Company has at times experienced difficulty attracting
and retaining a sufficient number of qualified drivers.
Management believes the Company's ability to avoid severe driver
shortages results from specific measures it takes to attract and
retain highly qualified drivers. These measures include
purchasing or leasing premium quality tractors equipped with
comfort and safety features, allowing the driver to return home
on a average of once every two to three weeks, and extending
participation in the Company's 401(k) profit sharing plan and
health insurance plan. Drivers are compensated on the basis of
miles driven and number of stops and deliveries made, plus
bonuses relating to performance, fuel efficiency and compliance
with the Company's safety policies. The Company continually
evaluates driver compensation in order to further enhance its
ability to retain and attract sufficient qualified drivers.
None of the Company's drivers is represented by a collective
bargaining unit.
Regulation
Each of the operating subsidiaries that is a motor carrier is
regulated by various federal and state agencies. Effective
January 1, 1996, the ICC Termination Act of 1995 (the Act)
abolished the Interstate Commerce Commission (ICC) and
established within the Department of Transportation (DOT) the
Surface Transportation Board. The Surface Transportation Board
performs a number of functions previously performed by the ICC.
The Act eliminates most tariff filings and rate regulation, but
retains most other regulations issued by the ICC, until modified
or terminated by the Surface Transportation Board.
Each of the motor carrier operating subsidiaries is subject to
safety requirements prescribed by the DOT. Such matters as
weight and dimension of equipment are also subject to federal
and state regulations. All of the Company's drivers are
required to obtain national commercial driver's licenses
pursuant to the regulations promulgated by the DOT. Also, DOT
regulations impose mandatory drug and alcohol testing of
drivers. Each of the motor carrier operating subsidiaries has a
satisfactory safety rating with the DOT.
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 currently
at $100,000, and in amounts management believes to be adequate.
Prior to the end of 1998, limits and deductibles
ranged from $100,000 to $250,000.
Workers' compensation and employer's liability exposure are
covered by a combination of large-deductible insurance policies,
a state approved self-insurance program, monopolistic state
workers' compensation funds, and a self-insured ERISA accident
indemnity plan. Coverage is for statutory limits, with
deductibles generally for the first $250,000 of exposure.
The Company also maintains insurance with varying deductibles
for cargo, property, physical damage and other exposures.
Fuel
As part of the Company's ongoing program to reduce fuel costs,
drivers are required to refuel at one of the Company's bulk fuel
storage facilities whenever possible. When impractical to fuel
at a Company location, drivers purchase fuel with a Company
credit card at pre-authorized truckstops and fueling locations.
Shortages of fuel, increases in fuel prices or rationing of
petroleum products could have a material adverse effect on the
trucking industry, including the Company. In the past, sharp
increases in fuel prices have been partially recovered from
customers through increased rates or surcharges. However, there
can be no assurance that the Company will be able to recover
increased fuel costs and fuel taxes through increased rates in
the future. The Company does not presently hedge its future
fuel purchase requirements.
The Company's fuel storage facilities are subject to
environmental regulatory requirements of the U.S. Environmental
Protection Agency which imposes standards and requirements for
regulation of underground storage tanks of petroleum and certain
other substances, and by state law. Management believes that it
is in compliance with such requirements that are applicable to
tanks it owns or operates, and believes that future
compliance-related expenditures, in the aggregate, will not be
material to the Company's financial or competitive position.
Disclosure Regarding Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for forward looking statements. Certain
information in Items 1, 3, and 7 of this report include
information that is forward looking, such as the Company's
reliance on commissioned agents and owner-operators, its
exposure to increased fuel prices, its anticipated liquidity and
capital requirements and the expected impact of legal
proceedings. The matters referred to in these forward looking
statements could be affected by the risks and uncertainties
involved in the Company's business and in the trucking industry.
These risks and uncertainties include, but are not limited to,
the effect of general economic and market conditions, including
downturns in customers' business cycles, the availability and
cost of qualified drivers, the availability and price of diesel
fuel, the impact and cost of government regulations and taxes on
the operations of the business, competition, as well as certain
other risks described in this report. Subsequent written and
oral forward looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their
entirety by the cautionary statements in this paragraph and
elsewhere in this report.
Item 2. Properties.
The Company leases its headquarters facility, which consists of
approximately 4,000 square feet of office space. The lease
provides for rent at approximately $5,400 per month and is
presently in the first year of its five-year lease renewal
expiring in August, 2003.
The following table provides information concerning other
significant properties owned or leased by the operating
subsidiaries.
Owned
Operating Type of or Approximate
Location Subsidary Facility Leased Acreage
Albuquerque, NM RRT Company Headquarters, Owned 15
Terminal, Maintenance
Facility and Bulk Fueling
Station
Albuquerque, NM RRT Terminal and Office Facility Owned 6
(Under lease to others)
Dallas, TX RRT Terminal Leased 5
Houston, TX RRT Terminal Leased 5
Vinton, TX RRT Terminal, Maintenance Leased 4
Facility and Bulk Fueling
Station
Kingman, AZ RRT Terminal Leased 4
Phoenix, AZ RRT Terminal Leased 3
Snowflake, AZ RRT Terminal and Bulk Fueling Leased 1
Station
Fontana, CA RRT Terminal and Bulk Fueling Leased 4
Station
Indianapolis, IN RDS Terminal Leased 1
El Paso, TX RDS Terminal, Maintenance Owned 4
Facility and Bulk Fueling
Station
Rockport, IN EMT Company Headquarters, Owned 13
Terminal, Maintenance
Facility and Bulk Fueling
Station
Columbus, OH ADS Company Headquarters Leased 2
Amlin, OH ADS Maintenance Facility Leased 2
Schaumburg, IL INL Company Headquarters Leased -
Denver, CO INL Terminal Leased -
All properties owned by the Company and the operating
subsidiaries are subject to liens in favor of the Company's
primary lender or independent mortgage lenders. See Note 2 of
Notes to Consolidated Financial Statements.
Item 3. Legal Proceedings.
On June 13, 1997, the Company received notice from the Central
States Southeast and Southwest Areas Pension Fund (the "Fund")
of a claim pursuant to the Employee Retirement Income Security
Act of 1974, as amended by the Multi-employer Pension Plan
Amendments Act of 1980 ("MPPAA"). MPPAA provides that, if an
employer withdraws from participation in a multi-employer
pension plan, such as the Fund, the employer and members of the
employer's "controlled group" of businesses are jointly and
severally liable for a portion of the plan's underfunding. The
claim is based on the withdrawal of R-W Service System, Inc.
("RW") from the Fund in 1992. The Company's records indicate
that RW was an indirect subsidiary of the Company's predecessor,
Circle Express, Inc., from March 1985 through April 1988, when
it and certain other subsidiaries were sold. The Fund currently
claims that RW's withdrawal liability is approximately $3.7
million plus accrued interest in the amount of approximately
$1.7 million. Based on its investigation to date, and, after
consultation with counsel, management believes that the Company
is not liable to the Fund for any of RW's withdrawal liability.
The Company has filed a formal request for review of the claim
as provided by the MPPAA and the Fund rejected that request on
January 28, 1998. The Company is in the process of seeking
resolution of the claim in binding arbitration. The Company is
obligated to make interim payments to the Fund until the issue
of liability is resolved. The interim payment obligation is
currently approximately $88,500 per month. The Company has made
payments to the Fund that total approximately $1,588,000 as of
December 31, 1998, which are included in other assets on the
Company's balance sheet. There can be no assurance that either
the need to make interim payments to the Fund or the ultimate
resolution of this matter will not have a material adverse
effect on the Company's liquidity, results of 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 RDS 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 or of which
any of their property is the subject, other than routine
litigation incidental to its business, primarily involving
claims for personal injury and property damage incurred in the
transportation of freight. The Company maintains insurance
which covers liability resulting from such transportation
related claims in amounts customary for the industry and which
management believes to be adequate.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders of the
Company during the three months ended December 31, 1998.
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, 1998, is set forth below.
Name and Position Age
John P. Delavan 46
President and Chief Executive Officer
Roger T. Burbage 55
Executive Vice-President, Chief Financial
Officer, Secretary and Treasurer
Officers of the Company serve at the discretion of the Board of
Directors.
John P. Delavan has been President and Chief Executive Officer
since June, 1996, and a Director since September, 1996. From
1991 to June, 1996, Mr. Delavan was President of Landstar-Inway,
Inc., a truckload carrier affiliated with Landstar Systems, Inc.
Roger T. Burbage has been the Chief Financial Officer since
March, 1997, and Executive Vice-president since 1998. Prior to
joining the Company, Mr. Burbage was President of Landstar
Poole, Inc., a truckload carrier affiliated with Landstar
Systems, Inc. Mr. Burbage was with Landstar Poole, Inc. for
approximately five years.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The Common Stock is traded on The NASDAQ Small-Cap Market
(NASDAQ) under the symbol INET. The following table sets forth
the high and low sales prices as reported by NASDAQ.
1997 HIGH LOW
First Quarter 2.813 1.875
Second Quarter 2.625 2.188
Third Quarter 3.250 2.438
Fourth Quarter 3.375 2.813
1998
First Quarter 4.375 2.875
Second Quarter 4.750 3.313
Third Quarter 4.625 2.000
Fourth Quarter 3.438 2.125
1999
First Quarter 4.250 2.938
(Through March 1)
On March 1, 1999, there were 218 holders of record of Common
Stock.
The Company has never paid a cash dividend on its Common Stock.
The Company's bank agreement contains covenants which restrict
the Company's ability to pay cash dividends. See Note 2 of Notes
to Consolidated Financial Statements. The Company does not
anticipate paying cash dividends on Common Stock in the
foreseeable future.
During the three months ended December 31, 1998, the Company
did not offer or sell any equity securities in a transaction
that was exempt from the requirements of the Securities Act of
1933, as amended (the Act), except as follows: On December 30,
1998, the Company issued 111,428 shares of Common Stock in full
satisfaction of warrants to purchase 300,000 shares at $1.65 per
share. The Company relied upon the exemption from registration
contained in section 4(2) of the Act.
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996 1995 1994
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Operating revenues $ 262,722 $ 247,888 $ 224,613 $ 214,973 $ 214,838
Operating expenses:
Purchased transportation
and equipment rents 118,681 108,292 87,834 80,997 79,946
Salaries, wages and benefits 63,940 59,943 60,017 58,733 53,281
Fuel and other operating expenses 47,936 48,550 49,251 46,610 44,777
Operating taxes and licenses 10,077 10,045 10,670 10,093 9,846
Insurance and claims 8,089 7,987 8,812 6,986 7,680
Depreciation 3,949 4,526 5,096 4,651 4,826
Other operating expenses 3,657 3,316 3,591 3,842 4,077
Total operating expenses 256,329 242,659 225,271 211,912 204,433
Operating income (loss) 6,393 5,229 (658) 3,061 10,405
Interest expense (2,554) (2,908) (2,397) (2,886) (3,557)
Other expense, net (420) (420) (420) (82) (357)
Earnings (loss) before income taxes
and extraordinary items 3,419 1,901 (3,475) 93 6,491
Income taxes (523) (580) - (305) (1,326)
Net earnings (loss) $ 2,896 $ 1,321 $ (3,475) $ (212) $ 5,165
Basic
Net earnings (loss) $ 0.21 $ 0.10 $ (0.26) $ (0.02) $ 0.57
Diluted
Net earnings (loss) $ 0.21 $ 0.10 $ (0.26) $ (0.02) $ 0.40
BALANCE SHEET DATA
Current assets $ 38,906 $ 36,499 $ 30,348 $ 26,716 $ 29,320
Current liabilities 30,524 29,293 30,216 27,339 28,329
Total assets 77,800 75,964 77,168 67,638 69,058
Long-term debt 20,105 22,401 24,210 14,981 22,291
Shareholders' equity 24,371 21,470 19,892 23,018 16,438
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
Introduction
The Company reported net earnings in 1998 of $2.9 million on
revenues of $262.7 million, as compared to a net earnings of
$1.3 million on revenues of $247.9 million in 1997, and a net
loss of $3.5 million on revenues of $224.6 million in 1996.
As discussed more fully below, the Company's performance
throughout 1998 reflects a generally stronger economy, lower
fuel prices at the pump, a continued emphasis on cost reduction,
and some improvement in pricing, offset by an increase in driver
wages.
A discussion of the impact of the above and other factors on
the results of operations in 1998 as compared to 1997, and 1997
as compared to 1996 follows.
1998 Compared to 1997
%
Key Operating Statistics 1998 1997 Change
Operating Revenues ($ millions) $262.7 $247.9 6.0%
Net Earnings $ 2.9 $ 1.3 123.1%
Average Tractors 2,250 2,225 1.1%
Total Loads (000's) 354.6 306.3 15.8%
Revenue Miles (millions) 166.7 170.1 (2.0%)
Average Revenue per Revenue Mile $1.374 $1.321 4.0%
Operating Revenues. Operating revenues increased by $14.8
million, or 6.0% in 1998, to $262.7 million from $247.9 million
in 1997. The majority of this increase occurred in brokered
revenue which increased $10.6 million, or 45.5%, from $23.2
million in 1997, to $33.8 million in 1998. The acquisition of
the assets of Ram Trans, a flatbed brokerage and logistics
company located in Denver, Colorado, late in the second quarter
of 1998, accounted for $3.0 million of the increase in brokered
revenue. In addition to this acquisition, all of the operating
subsidiaries reported significant growth in their brokerage
business. Company fleet revenues also increased $4.3 million,
or 3.4% in 1998, over 1997, while owner-operator revenues
decreased $0.1 million, or 0.1%.
There was virtually no change in the average fleet size in
1998, compared to 1997. In the aggregate, revenue miles
(volume), actually declined 2.0%. This decline was attributable
to the shorter length of haul from the RRT regional operations
and the container movements from EMT. Freight demand in 1998,
was relatively strong and accounted for the aforementioned
growth in the brokered revenues. These competitive conditions
allowed for a 4.0% increase in average revenue per revenue mile
(price), which led to the $4.3 million growth in Company fleet
revenues.
Operating Expenses. The following table sets forth the
percentage relationship of operating expenses to operating
revenues for the years ended December 31, 1998 and 1997.
1998 1997
Operating Revenues 100.0% 100.0%
Operating Expenses:
Purchased transportation and
equipment rents 45.2 43.7
Salaries, wages and benefits 24.3 24.2
Fuel and other operating expenses 18.2 19.6
Operating taxes and licenses 3.9 4.1
Insurance and claims 3.2 3.2
Depreciation 1.5 1.8
Other operating expenses 1.3 1.3
Total Operating Expenses 97.6% 97.9%
In 1998, purchased transportation and equipment rent increased
as a percentage of revenue compared to 1997 due to the amount of
freight brokered to other carriers. This increase occurred
because of the increase in freight demand and the acquisition of
Ram Trans.
Although the average driver's wages increased approximately
$0.02 per mile in 1998, ($2.9 million), compared to 1997,
salaries, wages and benefits increased only slightly as a
percentage of revenue because of the increase in the average
revenue per revenue mile and the relatively smaller portion of
the Company's total revenue being generated by company-operated
equipment.
Fuel and other operating expenses decreased significantly in
1998, compared to 1997, because the average cost of fuel at the
pump declined $0.15 per gallon. The benefit of this decrease
was partially 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 declined as a percentage of revenue in
1998, compared to 1997, 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 replacing equipment financed with
capital lease obligations with equipment financed by operating
leases. Interest on bank borrowings were flat in 1998, compared
to 1997, due to a slight increase in the average borrowings
offset by a reduction in the borrowing rate.
Provision For Income Taxes. The provision in 1998
was approximately $0.5 million, or 15.3% of pretax earnings.
The effective tax rate is lower than the statutory tax rate due
to the reversal of valuation allowance reserves established in
prior years, offset by the impact of certain non-deductible
expenses.
1997 Compared to 1996
%
Key Operating Statistics 1997 1996 Change
Operating Revenues ($ millions) $247.9 $224.6 10.4%
Net Earnings (Loss) $ 1.3 $ (3.5) NM
Average Tractors 2,225 2,080 7.0%
Total Loads (000's) 306.3 259.3 18.1%
Revenue Miles (millions) 170.1 162.8 4.5%
Average Revenue per Revenue Mile $1.321 $1.298 1.8%
Operating Revenues. Operating revenues increased by $23.3
million, or 10.4% in 1997 to $247.9 million from $224.6 million
in 1996. The majority of this increase occurred in the
owner-operator fleet where revenues increased by $16.5 million
or 20.9%. Brokered revenues also increased $10.1 million or
76.4% in 1997 over 1996, while Company fleet revenues decreased
$3.2 million or 2.5%.
The 4.5% increase in revenue miles (volume) in 1997 is
primarily attributable to a 21.3% increase in the average number
of owner-operator trucks.
The 1.8% increase in average revenue per revenue mile (price)
is a result of slightly improved competitive conditions which
allowed prices to increase modestly during 1997. This price
increase was minimally affected by fuel surcharge revenues which
were relatively the same in 1997, compared to 1996.
Operating Expenses. The following table sets forth the
percentage relationship of operating expenses to operating
revenues for the years ended December 31, 1997 and 1996.
1997 1996
Operating Revenues 100.0% 100.0%
Operating Expenses:
Purchased transportation and
equipment rents 43.7 39.1
Salaries, wages and benefits 24.2 26.7
Fuel and other operating expenses 19.6 21.9
Operating taxes and licenses 4.1 4.8
Insurance and claims 3.2 3.9
Depreciation 1.8 2.3
Other operating expenses 1.3 1.6
Total Operating Expenses 97.9% 100.3%
In 1997, the mix of company-operated versus owner-operator
equipment shifted to a higher dependence on owner-operator
equipment, although the Company was still primarily dependent on
company-operated tractors. Approximately 52% of the Company's
revenue was generated with company-operated equipment in 1997,
as compared to approximately 59% in 1996.
The decreased use of the Company fleet in 1997 resulted in
decreases in salaries, wages and benefits, and fixed costs
(operating taxes and licenses) related to ownership or lease of
revenue equipment. Conversely, higher use of owner-operator
equipment resulted in increases in purchased transportation as a
percentage of revenue. The Company also benefited from lower
fuel prices at the pump during 1997. The national average price
per gallon at the pump declined approximately $0.035 per gallon.
Even with this decrease, the price per gallon at the pump is
still approximately $0.08 per gallon higher than it averaged
during the first half of this decade. Relative to 1996,
management estimates this price decrease lowered operating
expenses by approximately $0.8 million in 1997.
The Company's insurance expense decreased to 3.2% of revenue in
1997 from 3.9% of revenue in 1996. This decrease is primarily
due to better accident experience and slightly lower insurance
premiums. Approximately one third of the Company's insurance
expense represented premium payments in 1997 and 1996. The
remaining two thirds of the expenses are comprised of estimates
for claims and deductible obligations resulting from accidents
and claims.
Depreciation expense decreased in 1997 as compared to 1996 as
the Company owned approximately 40 fewer tractors in 1997 and
replaced some capitalized leases with operating leases.
Other operating expenses decreased to 1.3% of revenue in 1997
from 1.6% in 1996 primarily as a result of reduced
communications expense and reduced legal and professional fees.
Interest Expense. Interest expense increased by approximately
$0.5 million in 1997 as compared to 1996 due to higher average
borrowings over the course of the year.
Provision For Income Taxes. The provision in 1997 was
approximately $0.6 million, or 31% of pretax earnings. The
effective tax rate is lower than the statutory tax rate due to
the utilization of certain post-reorganization tax attributes
which had a full valuation allowance, offset by the impact of
certain non-deductible expenses.
No provision for income taxes was provided in 1996 as a result
of the operating losses incurred. A $1.0 million increase in
the net deferred tax assets was offset by a $1.0 million
increase in valuation allowances.
Liquidity and Capital Resources
The Company used $0.3 million of cash and cash equivalents in
the year ended December 31, 1998, and generated $0.2 million in
the year ended December 31, 1997. As reflected in the
accompanying Consolidated Statements of Cash Flows, in 1998, $3.9
million of cash was generated from operating activities, as
compared to $2.0 million generated in 1997. The $2.6 million,
net, used in investing activities in 1998 was a result of
purchasing equipment at the end of some of its operating leases.
Investing activity in 1997 generated approximately $1.1 million
as a result of equipment disposals. Borrowings under the line of
credit increased by over $3.4 million primarily to fund
principal payments on long term debt, which were $1.8 million
lower than 1997, as a result of more equipment financed under
operating leases.
The Company's day-to-day financing is provided by borrowings
under its bank credit facility. The credit facility consists of
a $5.0 million term loan with a final maturity of December 31,
1999, and a revolving line of credit, with a maximum limit of
$28.0 million, which expires January 1, 2000. Quarterly
principal payments of $312,500 on the term loan are required
until its maturity. The line of credit includes provisions for
the issuance of up to $12.0 million in standby letters of credit
which, as issued, reduce available borrowings under the line of
credit. Borrowings under the line of credit are limited to
amounts determined by a formula tied to the Company's eligible
accounts receivable and inventories, as defined in the credit
facility (the Borrowing Base). Borrowings under the revolving
line of credit totaled $9.3 million at December 31, 1998, and
outstanding letters of credit totaled $5.8 million at that date.
The combination of these two bank credits totaled $15.1 million
and, given the then existing Borrowing Base, left approximately
$8.6 million of borrowing capacity under the revolving line of
credit at December 31, 1998. Borrowing capacity under the
revolving line of credit as of February 26, 1999, was
approximately $6.0 million. The increase in borrowings resulted
primarily from the financing of annual license plates and
permits for the company-operated fleet. The Company's
borrowings are typically higher in the first half of the year,
and decrease throughout the second half of the year.
On February 4, 1999, the Company's bank agreement was amended,
resulting in an increase in borrowing capacity with a $5.0
million capital expenditure line. This line extends credit to
enable the Company to purchase certain designated assets in
connection with acquisitions. This addition expands the amount
of the credit facility to $38.0 million. Borrowing capacity as
of the end of February, 1999, was approximately $11.0 million,
which includes the revolver and capital expenditure lines.
The Company is in compliance with all of the financial
covenants contained in its bank credit facility during the year.
The Company is also in compliance with the amended financial
covenant test contained on the mortgage loan to one of the
operating subsidiaries as of December 31, 1998.
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 1999.
Other Factors
Inflation can be expected to have an impact on most of the
Company's operating costs although the impact of inflation in
recent years has been minimal. Changes in market interest rates
can be expected to impact the Company to the extent that revenue
equipment is added and replaced and because the Company's lease
rates and bank financing are related to market interest rates.
The trucking industry is generally affected by customer
business cycles and by seasonality. Revenues are also affected
by inclement weather and holidays because revenues are directly
related to available working days of shippers. Customers
typically reduce shipments during and after the winter holiday
season. The Company's revenues tend to follow this pattern and
are strongest in the summer months. Generally, the second and
third calendar quarters have higher load bookings than the
fourth and first calendar quarters.
New Accounting Pronouncements
In June, 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income" which establishes standards for reporting
and display of comprehensive income and its components. The
FASB also issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which establishes standards
for reporting information on operating segments. These
statements are effective for fiscal years beginning after
December 15, 1998. At this time, the Company has determined
there is no reporting impact on these statements or its
disclosures.
Year 2000
The Company has assessed, and continues to assess, the
impact of the Year 2000 Issue on its reporting systems and
operations. The Year 2000 Issue exists because many computer
systems and applications currently use two-digit date fields to
designate a year. As the century date occurs, date sensitive
systems will recognize the year 2000 as 1900 or not at all.
This inability to recognize or properly treat the year 2000 may
cause our systems to process critical financial and operational
information incorrectly or may cause the system to discontinue
functioning altogether. One of the more significant Year 2000
issues faced by the Company is from its fully integrated
dispatch and equipment
control systems, which are not Year 2000 compliant. As a result,
the Company is updating and working with the vendors of any
products it is using to install new models and/or modify all of
its applications and computer systems and, in particular, its
dispatch and equipment control system to insure that they will
be Year 2000 compliant. All programs are expected to be fully
tested and problems resolved by June 30, 1999. The Company does
not expect the costs associated with becoming Year 2000
compliant to be material. The Company has incurred cost of
approximately $35,000 to date, and expects future costs to be
less than $15,000 for a total cost of $50,000. These cost are
being charged to operations as incurred. Management has not
developed any contingency plan regarding its dispatch and
equipment control systems 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 on 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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company's earnings are impacted by financial risk
related to volatility in interest rates related to variable debt
instruments. These debt instruments are non-trading in nature
and are used to fund the Company's day-to-day operations. Based
upon the principal amounts outstanding at December 31, 1998, for
those variable rate debt instruments, a market change of 100
basis-points in interest rates would correspond to an
approximately $130,000 impact in interest expense for a one-year
period. This sensitivity analysis does not account for any
change in the borrowings outstanding, which may be reduced
through payments or increased through additional borrowings, and
does not consider the Company's ability to fix the interest rate
on one of the three variable rate debt instruments. This
analysis also does not account for any management actions which
may be taken in response to these changes. The Company has no
material future earnings impact or cash flow expense from changes in
interest rates related to its financing of operating equipment
as all of the Company's equipment financing has fixed rates.
Item 8. Financial Statements and Supplementary Data.
Index to Consolidated Financial Statements
Page
Consolidated Balance Sheets 17
Consolidated Statements of Operations 18
Consolidated Statements of Shareholders' Equity 19
Consolidated Statements of Cash Flows 20
Notes to Consolidated Financial Statements 21
Report of Independent Public Accountants 26
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
None
(3) Exhibits - See Index to Exhibits on pages 15 and 16 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 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
INTRENET, INC.
By: /s/ John P. Delavan
John P. Delavan
President and Chief Executive Officer
Date: March 26, 1999
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
Signature Title Date
/s/ John P. Delavan President, Chief Executive March 26, 1999
John P. Delavan Officer and Director
(Principal Executive Officer)
/s/ Roger T. Burbage Executive Vice-president, March 26, 1999
Roger T. Burbage Chief Financial Officer
Treasurer and Secretary
(Principal Financial and
Accounting Officer)
/s/ Edwin H. Morgens Chairman of the Board and Director March 26, 1999
Edwin H. Morgens
Vice-Chairman of the Board and March 26, 1999
Robert B. Fagenson Director
/s/ Vincent A. Carrino Director March 26, 1999
Vincent A. Carrino
/s/ Ned N. Fleming, III Director March 26, 1999
Ned N. Fleming, III
/s/ Eric C. Jackson Director March 26, 1999
Eric C. Jackson
/s/ Thomas J. Noonan, Jr. Director March 26, 1999
Thomas J. Noonan, Jr.
/s/ Gerald Anthony Ryan Director March 26, 1999
Gerald Anthony Ryan
/s/ Philip Scaturro Director March 26, 1999
Philip Scaturro
INDEX TO EXHIBITS
Page Number of 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 of Form 8-A/A
filed on August 11, 1995, as
Exhibit 2 (b)
10.1 Fourth Amended and Restated Loan Annual Report on Form 10-K for the
Agreement dated as of January 15, year ended December 31, 1995, as
1996, by and among the Registrant, Exhibit 10.1
certain subsidiaries and The
Huntington National Bank
10.2 First Amendment to Fourth Amended Quarterly Report on Form 10-Q for the
and Restated Loan Agreement dated quarter ended June 30, 1996, as
as of March 31, 1996 Exhibit 10.1
10.3 Second Amendment to Fourth Amended Annual Report on Form 10-K for the
and Restated Loan Agreement dated year ended December 31, 1996, as
as of March 7, 1997 Exhibit 10.12
10.4 Third Amendment to Fourth Amended Quarterly Report on Form 10-Q for the
and Restated Loan Agreement dated quarter ended March 31, 1998, as
as of March 31, 1998 Exhibit 10.1
10.5 Fourth Amendment to Fourth Amended 27
and Restated Loan Agreement dated
as of February 4, 1999
10.6* 1992 Non-Qualified Stock Option Plan Annual Report on Form 10-K for the
year ended December 31, 1992, as
Exhibit 10.2
10.7* Stock Option Agreement dated as of Quarterly Report on Form 10-Q for the
June 4, 1996, between the Company quarter ended June 30, 1996, as
and John P. Delavan Exhibit 10.3
10.8* Stock Option Agreement dated as of Annual Report on Form 10-K for the
November 4, 1996, between the Company year ended December 31, 1996, as
and John P. Delavan Exhibit 10.31
10.9* Stock Option Agreement dated as of Quarterly Report onForm 10-Q for
March 10, 1997, between the Company quarter ended March 31, 1997, as
and Roger T. Burbage Exhibit 10.2
10.10*Employment Agreement dated as of Quarterly Report on Form 10-Q for the
June 4, 1996, between the Company quarter ended June 30, 1996, as
and John P. Delavan Exhibit 10.2
10.11*First Amendment to Employment Quarterly Report on Form 10-Q for the
Agreement dated April 4, 1998, quarter ended June 30, 1998, as
between the Company and John P. Exhibit 10.1
Delavan
10.12*Second Ameendment to Employment 42
Agreement dated as of December 29,
1998, between the Company and
John P. Delavan
10.13*Employment Agreement dated as of Quarterly Report on Form 10-Q for the
March 10, 1997, between the Company quarter ended March 31, 1997, as
and Roger T. Burbage Exhibit 10.1
10.14*First Amendment to Employment 43
Agreement dated as of March 8, 1999,
between the Company and Roger T.
Burbage
10.20*1993 Stock Option and Incentive Registration Statement on Form S-8
Plan (Registration No. 33-69882) filed
September 29, 1993, as Exhibit 4E
21 List of Subidiaries of the 44
Registrant
23 Consent of Independent Public 45
Accountants
27 Financial Data Schdeule 46
______________________________
* The indicated exhibit is a management contract, compensatory
plan or arrangement required to be filed by Item 601 of
Regulation S-K.
<TABLE>
INTRENET, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
Years Ended December 31, 1998 and 1997
(In Thousands of Dollars)
<CAPTION>
Assets 1998 1997
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 271 $ 598
Receivables, principally freight revenue less
allowance for doubtful accounts of $1,537 in 1998
and $1,110 in 1997 33,233 30,474
Prepaid expenses and other 5,402 4,697
Total current assets 38,906 35,769
Property and equipment, at cost, less accumulated
depreciation of $20,810 in 1998 and $16,117 in 1997 28,833 30,248
Reorganization value in excess of amounts allocated
to identifiable assets, net of accumulated amortization
of $5,581 in 1998 and $4,998 in 1997 4,967 5,889
Deferred income taxes, net 2,886 2,723
Other assets 2,208 1,335
Total assets $ 77,800 $ 75,964
Liabilities and Shareholders' Equity
Current liabilities:
Current debt and capital lease obligations $ 5,789 $ 5,167
Accounts payable and cash overdrafts 9,439 7,772
Current accrued claim liabilities 7,878 8,829
Other accrued expenses 7,418 7,525
Total current liabilities 30,524 29,293
Long-term debt and capital lease obligations 20,105 22,401
Long-term accrued claim liabilities 2,800 2,800
Total liabilities 53,429 54,494
Shareholders' equity:
Common stock, without par value; 20,000,000
shares authorized; 13,662,066 and 13,548,138 shares
issued and outstanding at December 31, respectively 16,856 16,851
Retained earnings since January 1, 1991 7,515 4,619
Total shareholders' equity 24,371 21,470
Total liabilities and shareholders' equity $ 77,800 $ 75,964
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
INTRENET, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1998, 1997, and 1996
(In Thousands of Dollars, Except Shares and Per Share Data)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Operating revenues $ 262,722 $ 247,888 $ 224,613
Operating expenses:
Purchased transportation
and equipment rents 118,681 108,292 87,834
Salaries, wages, and benefits 63,940 59,943 60,017
Fuel and other operating expenses 47,936 48,550 49,251
Operating taxes and licenses 10,077 10,045 10,670
Insurance and claims 8,089 7,987 8,812
Depreciation 3,949 4,526 5,096
Other operating expenses 3,657 3,316 3,591
256,329 242,659 225,271
Operating Income (loss) 6,393 5,229 (658)
Interest expense (2,554) (2,908) (2,397)
Other expense, net (420) (420) (420)
Earnings (loss) before income taxes and
extraordinary items 3,419 1,901 (3,475)
Provision for income taxes (523) (580) -
Net earnings (loss) $ 2,896 $ 1,321 $ (3,475)
Earnings (loss) per common and common
equivalent share
Basic $ 0.21 $ 0.10 $ (0.26)
Diluted $ 0.21 $ 0.10 $ (0.26)
Weighted average shares outstanding during period 13,550,594 13,476,861 13,258,351
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
INTRENET, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1998, 1997, and 1996
(In Thousands of Dollars)
<CAPTION>
Retained Shareholders'
Common Stock Earnings Equity
Shares Dollars
<S> <C> <C> <C> <C>
Balance, December 31, 1995 13,197,728 $ 16,245 $ 6,773 $ 23,018
Exercise of stock options 229,610 349 - 349
Cancellation of shares (15,200) - - -
Net loss for 1996 - - (3,475) (3,475)
Balance, December 31, 1996 13,412,138 16,594 3,298 19,892
Exercise of stock options 136,000 257 - 257
Net income for 1997 - - 1,321 1,321
Balance, December 31, 1997 13,548,138 16,851 4,619 21,470
Exercise of stock options 2,500 5 - 5
Exercise of Warrants 111,428 0 - 0
Net income for 1998 - - 2,896 2,896
Balance, December 31, 1998 13,662,066 $ 16,856 $ 7,515 $ 24,371
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
INTRENET, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1998, 1997, and 1996
(In Thousands of Dollars)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 2,896 $ 1,321 $ (3,475)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Deferred income taxes 523 580 -
Depreciation and amortization 4,392 4,946 5,516
Provision for doubtful accounts 468 397 478
Changes in assets and liabilities, net:
Receivables (3,227) (5,537) (4,841)
Prepaid expenses and others (871) (822) 783
Accounts payable and accrued expenses (282) 1,155 3,225
Net cash provided by operating activities 3,899 2,040 1,686
Cash flows from financing activities:
Borrowings in line of credit, net 2,134 2,459 1,293
Principal payments on long-term debt (3,809) (5,616) (6,923)
Proceeds from exercise of stock options 5 193 349
Net cash used in financing activities (1,670) (2,964) (5,281)
Cash flows from investing activities:
Additions to property and equipment (2,883) (1,179) (1,444)
Disposals of property and equipment 327 2,291 5,278
Net cash provided by (used in) investing activities (2,556) 1,112 3,834
Net increase (decrease) in cash and cash equivalents (327) 188 239
Cash and cash equivalents:
Beginning of period 598 410 171
End of period $ 271 $ 598 $ 410
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
INTRENET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997, and 1996
(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, 1998,
were Roadrunner Trucking, Inc. (RRT), Eck Miller Transportation
Corporation (EMT), Advanced Distribution System, Inc. (ADS), and
Roadrunner Distribution Services, Inc. (RDS). Also included is
the Company's intermodal broker and logistics manager INET
Logistics, Inc. (INL). All significant intercompany
transactions are eliminated in consolidation. Through its
subsidiaries, the Company provides general and specialized
regional truckload carrier, brokerage and logistics management
services throughout North America.
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. The Company has determined that the cumulative
effect of changing to revenue recognition when the freight is
delivered is immaterial and the effect on the annual operating
results is negligible.
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.
Accounts Receivable
Accounts receivable consist principally of freight revenue
less allowance for doubtful accounts. Provision expense for
doubtful accounts were $468,000, $397,000, and $478,000, in
1998, 1997, and 1996, respectively. Allowances for doubtful
accounts were $1,537,000, $1,110,000, and $770,000, in 1998,
1997, and 1996, respectively.
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
reversal of valuation allowance reserves established against
pre-reorganization net operating loss carryforwards (see Note 5)
are reported as reductions of the Reorganization Value, and thus
reduce its effective life.
Debt Issuance Costs and Bank Fees
Debt issuance costs and bank fees are amortized over the
period of the related debt agreements.
Accrued Claim Liabilities
The Company maintains insurance coverage for liability,
cargo and workers' compensation risks, among others, which have
deductible obligations ranging to $250,000 per occurrence.
Provision is made in the Company's financial statements for
these deductible obligations at the time the incidents occur,
and for claims incurred but not reported. Claim deductible
obligations which remain unpaid at the balance sheet date are
reflected in the financial statement caption "Accrued Claim
Liabilities" in the accompanying consolidated financial
statements. Current Accrued Claim Liabilities are claims
estimated to be paid in the twelve month period subsequent to
the balance sheet date, while Long-Term Accrued Claim
Liabilities are claims estimated to be paid thereafter.
Income Taxes
The Company and its subsidiaries file a consolidated
Federal income tax return. The Company recognizes income taxes
under the liability method of accounting for income taxes. The
liability method recognizes tax assets and liabilities for
future taxable income or deductions resulting from differences
in the tax and financial reporting basis of assets and
liabilities reflected in the balance sheet and the expected tax
impact of carryforwards for tax purposes.
Earnings (Loss) Per Share
Earnings (loss) per common and common equivalent share have
been computed using basic and diluted weighted average common
shares outstanding during the period.
In February, 1997, the FASB issued SFAS No. 128, "Earnings
Per Share". The new Standard simplifies the computation of
earnings per share (EPS), and requires the presentation of two
new amounts, basic and diluted earnings per share. During 1997,
the Company adopted SFAS 128 and restated its computation of EPS
for the periods 1997 and 1996.
Credit Risk
Financial investments that subject the Company to
concentrations of credit risk consist primarily of trade
accounts receivable. Concentrations of credit risk with respect
to customer receivables are limited due to the Company's diverse
customer base, with no one customer, industry, or geographic
region comprising a large percentage of customer receivables or
revenues.
Fair Values of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No.
107, "Disclosures About Fair Value of Financial Instruments",
requires disclosure of fair value information for certain
financial instruments. The carrying amounts for trade
receivables and payables are considered to be their fair value.
The differences between the carrying amounts and the estimated
fair values of the Company's other financial instruments as of
December 31, 1998, and 1997, were not material.
Statements of Cash Flows
Cash equivalents consist of highly liquid investments such
as certificates of deposit or money market funds with original
maturities of three months or less.
Cash payments for interest were $2.6 million, $2.9 million,
and $2.4 million 1998, 1997, and 1996, respectively. Cash
payments for Federal alternative minimum income taxes were $0.2
million in 1998 and $0.1 million in 1997. No Federal tax
payments were made in 1996.
Capital lease obligations of $15.2 million were incurred
in 1996, primarily for revenue equipment. No capital lease
obligations were incurred in 1998 and 1997 since new revenue
equipment was financed by operating leases.
Accounting for Stock Options
The Company currently accounts for its employee stock
option plans using APB Opinion No. 25, Accounting for Stock
Issued to Employees, which results in no charge to earnings when
issued options are granted at fair market value. During 1995,
the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS 123), which considers the stock
options as compensation expense to the Company, based on their
fair value at the date of grant. The Company has elected to
follow APB No. 25 in accounting for its stock options and,
accordingly, no compensation cost has been recognized for stock
options in the consolidated financial statements.
(2) Bank Credit Facility
The Company has a $33.0 million credit facility consisting
of a $28.0 million revolving line of credit which expires
January 1, 2000, and a $5.0 million term loan with a final
maturity of December 31, 1999. In March 1998, the credit
facility was amended to extend the revolving line of credit's
maturity to January 1, 2000, and lower the interest rate. The
line of credit includes provisions for the issuance of up to
$12.0 million in standby letters of credit which, as issued,
reduce available borrowings under the line of credit. Borrowings
under the line of credit are limited to amounts determined by a
formula tied to the Company's eligible accounts receivable and
inventories, as defined in the agreement. Borrowings under the
revolving line of credit totaled $9.3 million at December 31,
1998, and outstanding letters of credit totaled $5.8 million.
The combination of these two bank credits totaled $15.1 million
and, given the then existing borrowing base, left approximately
$8.6 million of borrowing capacity under the revolving line of
credit at December 31, 1998.
Interest on the credit line facility is currently payable
at a variable rate of 225 basis points over the daily LIBOR
rate, or 7.314% at December 31, 1998. Quarterly principal
payments of $312,500 on the $5.0 million term loan commenced in
April, 1996. The bank agreement requires the Company to meet
certain minimum net worth, debt to net worth, current ratio and
fixed charge ratio requirements.
On February 4, 1999, the Company's bank agreement was amended,
resulting in an increase in borrowing capacity with a $5.0
million capital expenditure line. This line extends credit to
enable the Company to purchase certain designated assets in
connection with acquisitions. This addition expands the credit
facility to $38.0 million.
The Company is in compliance with all of its financial
covenants contained in its bank credit facility during the year.
The Company is in compliance with the amended financial
covenant test contained on the mortgage loan to one of the
operating subsidiaries as of 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, 1998 and 1997 was:
1998 1997
Bank term loan, interest at a combination
of prime plus 0.5% and 250 basis
points over LIBOR $ 1,563 $ 2,813
Bank revolving line of credit, interest
at 225 basis points over daily LIBOR 9,323 5,939
Real estate mortgage obligation, variable
interest rate at 2.45% over commercial
paper, currently 7.95%, option to fix
interest rate at 2.50% over ten year
Treasury rate, maturing in 2007 1,903 2,048
Obligations collateralized by equipment,
maturing through 2000, interest rates
ranging from 6.0% to 10.2% 401 386
Capital lease obligations collateralized
by equipment, maturing through 2003,
interest rates ranging from 6.8% to 11.5% 12,704 16,382
Total 25,894 27,568
Less current maturities (5,789) (5,167)
Long-term debt $20,105 $22,401
Maturities of long-term debt, excluding capital lease
obligations, in the coming five years are $1,720; $9,493; $185;
$200; $215 in 1999, 2000, 2001, 2002, and 2003, respectively.
Future minimum lease payments under capital and
non-cancelable operating lease agreements at December 31, 1998,
were as follows:
Capital Operating
Leases Leases
1999 $ 4,873 $16,071
2000 2,711 13,135
2001 4,080 8,722
2002 860 4,532
2003 2,394 269
Thereafter - -
Future minimum lease payments 14,918 $42,729
Amounts representing interest (2,214)
Principal amount $12,704
Total rental expense under non-cancelable operating leases
was $17,480, $15,811, and $17,005, in 1998, 1997, and 1996,
respectively. The Company presently intends to lease
approximately 440 tractors ($32.9 million) and approximately
300 trailers ($3.7 million) under operating leases in 1999.
Purchased transportation and equipment rent expense
includes payments to owner-operators of equipment under various
short-term lease arrangements.
(4) Litigation and Contingencies
On June 13, 1997, the Company received notice from the Central
States Southeast and Southwest Areas Pension Fund (the "Fund")
of a claim pursuant to the Employee Retirement Income Security
Act of 1974, as amended by the Multi-employer Pension Plan
Amendments Act of 1980 ("MPPAA"). MPPAA provides that, if an
employer withdraws from participation in a multi-employer
pension plan, such as the Fund, the employer and members of the
employer's "controlled group" of businesses are jointly and
severally liable for a portion of the plan's underfunding. The
claim is based on the withdrawal of R-W Service System, Inc.
("RW") from the Fund in 1992. The Company's records indicate
that RW was an indirect subsidiary of the Company's predecessor,
Circle Express, Inc., from March 1985 through April 1988, when
it and certain other subsidiaries were sold. The Fund currently
claims that RW's withdrawal liability is approximately $3.7
million plus accrued interest in the amount of approximately
$1.7 million. Based on its investigation to date, and, after
consultation with counsel, management believes that the Company
is not liable to the Fund for any of RW's withdrawal liability.
The Company has not recorded any liability related to this
litigation. The Company has filed a formal request for review
of the claim as provided by the MPPAA and the Fund rejected that
request on January 28, 1998. The Company is in the process of
seeking resolution of the claim in binding arbitration. The
Company is obligated to make interim payments to the Fund until
the issue of liability is resolved. The interim payment
obligation is currently approximately $88,500 per month. The
Company has made payments to the Fund that total approximately
$1,588,000 as of December 31, 1998, which are included in other
assets on the Company's balance sheet. There can be no
assurance that either the need to make interim payments to the
Fund or the ultimate resolution of this matter will not have a
material adverse effect on the Company's liquidity, results of
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 RDS 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 or of which
any of their property is the subject, other than routine
litigation incidental to its business, primarily involving
claims for personal injury and property damage incurred in the
transportation of freight. The Company maintains insurance
which covers liability resulting from such transportation
related claims in amounts customary for the industry and which
management believes to be adequate.
(5) Income Taxes
The provision for income taxes for the years ended December
31, 1998, 1997, and 1996 was as follows:
1998 1997 1996
Current $ - $ - $ -
Deferred 523 580 -
Total Provision $ 523 $ 580 $ -
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:
1998 1997 1996
Taxes at statutory rate $ 1,163 $ 646 $(1,182)
Increase (decrease)
resulting from:
Non-deductible amortization 143 143 143
Provision for (release of) valuation allowance
for net deferred tax assets (564) (345) 1,028
Other, net (219) 136 11
Provision for Income Taxes $ 523 $ 580 $ -
The tax effects of temporary differences that give rise to
significant portions of deferred tax assets and deferred tax
liabilities at December 31, 1998 and 1997 are as follows:
1998 1997
Deferred Tax Assets
Insruance claim liabilities $ 4,120 $ 4,263
Reserve for doubtful accounts 426 253
Other 535 419
5,081 4,935
Deferred Tax Liabilities
Property differences, primarily depreciation (2,210) (1,857)
Other (129) (127)
(2,339) (1,984)
Net Temporary Differences 2,742 2,951
Carryforwards -
Pre-reorganization, limited, net operating
loss and other tax carryforwards
(Expiring 2004-2006) 3,327 3,822
Post-reorganization net operating loss and
other tax carryforwars (Expiring 2006-2010) 507 1,075
Total Carryforwards 3,834 4,897
Net Deferred Tax Assets 6,576 7,848
Valuation Allowance (3,690) (5,125)
Recorded Net Deferred Tax Assets $ 2,886 $ 2,723
Net changes to the valuation allowance in 1998 and 1997, were as
follows:
Valuation allowance, beginning of year $(5,125) $(5,912)
Release of allowance held against
pre-reorganization deferred tax assets
against Reorganization value in excess
amounts allocated to identifiable assets 779 442
Release of allowance held against
post-reorganization deferred tax assets
against provision for income taxes 656 345
Provision of valuation allowance
for net deferred tax assets - -
Valuation allowance, end of year $(3,690) $(5,125)
While management is optimistic that all net deferred tax
assets will be realized, such realization is dependent upon
future taxable earnings. The Company's carryforwards expire at
specific future dates, and utilization of certain carryforwards
is limited to specific amounts each year. Accordingly, the
Company has recorded a valuation allowance against a portion of
these net deferred tax assets.
Benefits from the reversal of the valuation allowance
reserves established against pre-reorganization net deferred tax
assets are reported as a reduction of Reorganization Value in
Excess of Amounts Allocated to Identifiable Assets. Conversely,
the reversal of valuation allowance reserves established against
the post-reorganization net deferred tax assets is recognized
as a reduction of income tax expense.
(6) Stock Options and Employee Compensation
In 1992, the Company adopted the 1992 Non-Qualified Stock
Option Plan, (the 1992 Option Plan), which allowed the Company
to grant options to purchase up to 590,000 shares of Common
Stock to employees and independent contractors of the Company
and its operating subsidiaries. All of the options were granted
under the 1992 Option Plan. At December 31, 1998, there were
35,000 options outstanding and unexercised under the 1992 Option
Plan with an exercise price of $1.50 and an expiration date of
August, 1999.
In 1993, the Company adopted the 1993 Stock Option and
Incentive Plan (the 1993 Option Plan). The 1993 Option Plan
allows the Company to grant options to purchase up to 1,000,000
shares of Common Stock to officers and key employees of the
Company and its operating subsidiaries. Options issued to date
under the 1993 Option Plan have an exercise price equal to
market value on the date of grant, and are generally exercisable
for a ten year period.
The Company accounts for both option plans using APB
Opinion No. 25, Accounting for Stock Issued to Employees, under
which no compensation expense is recognized for options issued
at or above market price on the date of grant. Had compensation
cost been determined consistent with SFAS No. 123, Accounting
for Stock-Based Compensation, the Company's net income (loss)
would have been reduced to $2,694,243, $888,310, and
($3,721,812), for 1998, 1997, and 1996, respectively (earnings
per share would have been reduced to $0.20, $0.07, and ($0.28)
for 1998, 1997, and 1996, respectively).
The activity and weighted average prices for options in
the Company's 1992 and 1993 Option Plans in 1998, 1997, and 1996
were as follows:
# of Weighted Avg.
Shares Exercise Price
Balance at December 31, 1995 972,000 $2.50
Granted 400,000 $2.03
Exercised (75,000) $1.00
Canceled (410,500) $2.77
Balance at December 31, 1996 886,500 $2.29
Granted 258,000 $2.10
Exercised (136,000) $1.42
Canceled (177,166) $3.01
Balance at December 31, 1997 831,334 $2.22
Granted 25,000 $2.38
Exercised (2,500) $2.06
Canceled (59,501) $2.39
Balance at December 31, 1998 794,333 $2.22
Weighted avg. remaining contractual life 6.5 yrs
Exercisable at December 31, 1998 702,666 $2.23
Using the Black-Scholes option valuation model, the estimated
fair values of options granted during 1998, 1997, and 1996 were
$1.77, $1.60, and $1.53 per share, respectively. Principal
weighted-average assumptions used in applying the Black-Scholes
model were as follows:
1998 1997 1996
Risk-free interest rate 4.7% 6.5% 6.5%
Expected volatility 62.2% 64.9% 66.5%
Expected terms 10yrs 10yrs 10yrs
All employees with at least one year's experience with
the Company may participate in the Company's 401(k) plan.
Company matching expense for the plan was $179,000, $181,000,
and $180,000 in 1998, 1997, and 1996, respectively.
(7) Property and Equipment
Property and equipment, substantially all of which is
pledged as security under the bank credit facility (see Note 2),
other indebtedness or capital leases, at December 31, 1998 and
1997, follows (in thousands of dollars):
1998 1997
Land $ 1,532 $ 1,532
Buildings and leasehold improvements 7,358 6,605
Revenue equipment 9,188 7,596
Revenue equipment under capital leases 23,850 24,781
Other property 7,715 5,851
49,643 46,365
Less accumulated depreciation (20,810) (16,117)
$28,833 $30,248
(8) Prepaid and Accrued Expenses
An analysis of prepaid and accrued expenses at December 31,
1998 and 1997, follows (in thousands of dollars):
1998 1997
Prepaid expenses:
Insurance $ 473 $ 418
Shop and truck supplies 2,287 2,081
Other 2,642 2,198
$ 5,402 $ 4,697
Accrued Expenses:
Salaries and wages $ 2,979 $ 2,593
Fuel and mileage taxes 759 573
Equipment leases 715 541
Other 2,965 3,818
$ 7,418 $ 7,525
(9) Transactions with Affiliated Parties
In 1998, 1997, and 1996, the Company leased approximately
206, 144, and 307 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 were $502,447, $466,000 and $522,000 in 1998,
1997 and 1996, respectively.
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, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended
December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements 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, 1998, and 1997, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
February 16, 1999.
FOURTH AMENDMENT TO FOURTH AMENDED AND RESTATED LOAN AGREEMENT
THIS FOURTH AMENDMENT (this "Amendment") to the Fourth Amended
and Restated Loan Agreement is entered into as of the 4 day of
February, 1999, by and between The Huntington National Bank (the
"Bank") as lender, and Intrenet, Inc. (the "Borrower"), and its
wholly owned subsidiaries Advanced Distribution System, Inc.,
Eck Miller Transportation Corporation, INET Logistics, Inc.,
Mid-Western Transport, Inc., Roadrunner Enterprises, Inc.,
Roadrunner Trucking, Inc., Roadrunner Distribution Services,
Inc. and Roadrunner International Services, Inc. (collectively
the "Subsidiaries") as borrowers. The Borrower and the
Subsidiaries are herein collectively referred to as the
"Companies" and separately as a "Company").
RECITALS:
A. On or about January 15, 1996, the Companies (with the
exception of INET Logistics, Inc.) and the Bank executed a
certain Fourth Amended and Restated Loan Agreement that was
amended by a certain First Amendment to Fourth Amended and
Restated Loan Agreement dated as of March 31, 1996, by a certain
Second Amendment to Fourth Amended and Restated Loan Agreement
(pursuant to which INET Logistics became obligated under the
terms of the 1996 Loan Agreement) dated as of March 7, 1997, and
by a certain Third Amendment to Fourth Amended and Restated Loan
Agreement dated as of March 31, 1998 (collectively, the "1996
Loan Agreement"), setting forth the terms of certain extensions
of credit to the Companies; and
B. In connection with the 1996 Loan Agreement and predecessor
documents thereto, the Companies executed and delivered to the
Bank certain other loan documents, promissory notes, amendments
to open-end mortgages, assignment of rents and security
agreements, consents, assignments, security agreements,
agreements, instruments and financing statements in connection
with the indebtedness referred to in the 1996 Loan Agreement
(all of the foregoing, together with the 1996 Loan Agreement,
are hereinafter collectively referred to as the "1996 Loan
Documents") (the 1996 Loan Documents together with the 1988 Loan
Documents, the 1989 Loan Documents, the 1991 Loan Documents and
the 1993 Loan Documents (as those terms are defined in the 1996
Loan Agreement) are hereinafter collectively referred to as the
"Loan Documents"); and
C. The Companies have requested that the Bank amend and modify
terms in the 1996 Loan Agreement to extend additional credit in
the nature of a capital expenditure facility, to amend one of
the financial covenants and to extend the terms of warrants and
registration rights held by the Bank, and the Bank is willing to
do so upon the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants,
agreements and promises contained herein, the receipt and
sufficiency of which are hereby acknowledged, and intending to
be legally bound, the parties hereto for themselves and their
successors and assigns do hereby agree, represent and warrant as
follows:
1. Definitions. All capitalized terms not otherwise defined
herein shall have the meanings ascribed to them in the 1996 Loan
Agreement.
2. Section 1, "Amount of Loan," of the 1996 Loan Agreement is
hereby amended to recite in its entirety as follows:
SECTION 1. AMOUNT OF LOAN.
The Bank agrees to extend credit to the Companies up to the
aggregate sum of $38,000,000.00 in original principal amount
(herein collectively referred to as the "Loan"), subject to the
terms and conditions of this Agreement and in reliance upon the
representations and warranties contained herein. The Loan shall
be comprised of the credit facilities described in paragraphs
1.1, 1.2, 1.2.1 and 1.3 below.
3. A new Section 1.2.1 entitled "The Capex Loan," shall be
added to the 1996 Loan Agreement and shall recite in its
entirety as follows:
1.2.1 The Capex Loan.
The Bank, subject to the terms and conditions hereof, will
extend credit and advance funds to the Companies in the form of
time notes up to the aggregate original principal sum
outstanding at any time of $5,000,000.00 (the "Capex Loan") to
enable any of the Companies to purchase certain designated
trucks, tractors and trailers (the "Eligible Trucks and
Trailers") in connection with the acquisition by any Company,
which has been approved prior thereto in writing by the Bank.
The term "Eligible Trucks and Trailers" means that portion of
any Company's equipment of trucks, tractors and trailers that
the Bank determines from time to time based upon credit
policies, market conditions, the Company's business and other
matters is eligible. For such purpose, no trucks, tractors or
trailers shall be Eligible Trucks or Trailers unless, at a
minimum, (a) such item of equipment is owned solely by the
Company, (b) the Bank has a first and exclusive perfected
security interest with respect to such item of equipment, and
(c) the Bank is lender loss payee with respect to such
equipment. Each draw under the Capex Loan shall be evidenced by
a promissory note or notes, which shall be in the form of
Exhibit B-1 attached to a certain Fourth Amendment to Fourth
Amended and Restated Loan Agreement, or by one or more notes
subsequently executed in substitution therefor, interest due on
the principal sum thereof shall be due and payable monthly and
the principal sum thereof shall be due and payable not later
than six (6) months from the date of any such advance, provided,
however, no note shall have a maturity date which is later than
the Capex Loan Maturity Date
4. New Sections 1.2.2 and 1.2.3 entitled "Conditions to Draws
on the Capex Loan," and "Terms of Capex Loan," shall be added to
the 1996 Loan Agreement and shall recite in its entirety as
follows:
1.2.2 Conditions to Draws on the Capex Loan.
Prior to any advances on the Capex Loan, any Company
requesting an advance under the Capex Loan shall have submitted
to the Bank an invoice, bill of sale or other evidence
acceptable to the Bank of the purchase price of the item or
items being purchased with the proceeds of the Capex Loan,
evidence of delivery of such item or items, and such other
documents or communications as may be acceptable to the Bank in
its sole and absolute discretion. Each such draw under the
Capex Loan shall be in the minimum amount of $500,000.00, or in
whole multiples of $100,000.00 in excess thereof. In addition,
the amount of any draw under the Capex Loan shall not exceed the
lesser of (i) 80% of the "hard costs" of the item or items being
purchased, and (ii) 80% of the fair market value of the Eligible
Trucks and Trailers being purchased as determined by the Bank
(A) with reference to commercially available means or (B) by an
appraiser satisfactory to the Bank. "Hard costs" shall mean the
invoice cost, excluding sales tax or other taxes, shipping,
packaging, freight, and other similar costs.
1.2.3 Terms of Capex Loan.
All principal, interest, and other fees outstanding on the
Capex Loan shall be due and payable no later than the Capex Loan
Maturity Date. "Capex Loan Maturity Date" shall mean with
respect to any advances under the Capex Loan, December 31, 1999.
The Borrower may elect in the same manner as Section 2.4 hereof
to have interest accrue on the Capex Loan at (a) Daily LIBOR
plus the Daily LIBOR Margin or (b) the Prime Commercial Rate.
5. Section 2.2, "Interest Rate After Default," of the 1996 Loan
Agreement is hereby amended to recite in its entirety as follows:
2.2 Interest Rate After Default.
If the Companies fail to make any payment of interest or
principal or other payment due on any note or letter of credit
reimbursement agreement executed in connection with this
Agreement on or before five (5) business days after the date
such payment is due, or if the Companies shall fail to make any
payment required by Section 6.1 or 6.2 of this Agreement on or
before thirty (30) business days after the date such payment is
due, or if any other Event of Default occurs hereunder and is
not cured or waived with 120 days after the date of such Event
of Default, or if the Bank shall declare the entire principal
and all interest accrued on all notes and any other obligations
outstanding pursuant to this Agreement to be due and payable,
then interest shall thereafter accrue on each outstanding
principal balance of the Loan and on any unreimbursed draws
under the Letters of Credit at a rate equal to three and
one-half percentage points (3-1/2%) in excess of the Prime
Commercial Rate of the Bank.
6. Section 2.3, "Daily LIBOR," of the 1996 Loan Agreement is
hereby amended and shall recite in its entirety as follows:
2.3. Daily LIBOR.
The Companies may from time to time prior to the Revolving
Loan Maturity Date or the Capex Loan Maturity Date, as the case
may be, elect to have interest accrue on all or part of the
outstanding principal balance of the Revolving Loan or the Capex
Loan at a rate of interest equal to the Daily LIBOR, plus the
applicable Daily LIBOR Margin.
"Daily LIBOR" shall mean the Eurodollar Rate for Interest
Periods of 30 days, provided, however, subject to any maximum or
minimum interest rate limitation specified herein or by
applicable law, Daily LIBOR shall change automatically without
notice to the Borrower immediately on each Eurodollar business
day with each change in Daily LIBOR or the Eurodollar Reserve
Percentage, as applicable, with any change thereto effective as
of the opening of business on such Eurodollar business day.
"Daily LIBOR Advance" shall mean any amount borrowed as part
of the Revolving Loan or the Capex Loan, as the case may be,
that bears interest at a rate calculated with reference to the
Daily LIBOR.
"Daily LIBOR Margin" shall mean 250 basis points (2.50%),
subject to the provisions of Section 2.11 set forth below.
Subject to any maximum or minimum interest rate limitation
specified herein or by applicable law, the Daily LIBOR shall
change automatically without notice to the Companies immediately
on each Eurodollar business day with each change in the Daily
LIBOR or the Eurodollar Reserve Percentage, as applicable, with
any change thereto effective as of the opening of business on
such Eurodollar business day.
7. Section 2.5, entitled "Interest Calculation and Interest
Payment Dates," is hereby amended and shall recite in its
entirety as follows:
2.5. Interest Calculation and Interest Payment Dates.
"Interest Period" shall mean:
(a) With respect to any Eurodollar Advance, an initial period
commencing, as the case may be, on the day such an Advance shall
be made by the Bank, or on the day of conversion of any then
outstanding advance to an advance of such type, and ending on
the date one (1), three (3) or four (4) months thereafter, all
as the Companies may elect pursuant to this Agreement; provided,
that (a) any Interest Period with respect to a Eurodollar
Advance that shall commence on the last Eurodollar business day
of the calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent
calendar month) shall end on the last Eurodollar business day of
the appropriate subsequent calendar month; and (b) each Interest
Period with respect to a Eurodollar Advance that would otherwise
end on a day which is not a Eurodollar business day shall end on
the next succeeding Eurodollar business day or, if such next
succeeding Eurodollar business day falls in the next succeeding
calendar month, on the next preceding Eurodollar business day.
(b) With respect to a Prime Rate Advance or Daily LIBOR
Advance, an initial period commencing, as the case may be, on
the day such an advance shall be made by the Bank, or on the day
of conversion of any then outstanding advance to an advance of
such type, and ending on the last day of each month and on the
day of conversion to an advance of a different type.
Notwithstanding the provisions of (a) and (b) above, no
Interest Period shall be permitted which would end after the
Revolving Loan Maturity Date (with respect to an advance under
the Revolving Loan), the Term Loan Maturity Date (with respect
to an advance under the Term Loan) or the Capex Loan Maturity
Date (with respect to an advance under the Capex Loan).
Interest shall be calculated on a 360 day year basis and shall
be based on the actual number of days which elapse during the
interest calculation period.
Subject to the prior payment thereof pursuant to the terms
hereof, all interest accruing on the Revolving Loan, the Term
Loan and the Capex Loan shall be due and payable on each
Revolving Loan Interest Payment Date, Term Loan Interest Payment
Date or Capex Loan Interest Payment Date, as the case may be.
"Revolving Loan Interest Payment Dates" shall mean the last
day of each Interest Period.
"Term Loan Interest Payment Dates" shall mean:
(a) the last day of each Interest Period in the case of a
LIBOR Advance; and
(b) in the case of a Prime Rate Advance, the first day of
each calendar quarter and on the date of conversion from a Prime
Rate Advance to a LIBOR Advance.
"Capex Loan Interest Payment Dates" shall mean the last day
of each Interest Period.
8. Section 4, "Prepayment," of the 1996 Loan Agreement is
hereby amended to recite in its entirety as follows:
SECTION 4. PREPAYMENT.
Subject to the terms and conditions of this Agreement, the
Companies shall have the right to prepay at any time and from
time to time before maturity any amount or amounts due to the
Bank pursuant to this Agreement or to any notes or agreements
executed pursuant hereto or to seek cancellation of the Letters
of Credit; provided, that if the Companies prepay the Revolving
Loan, the Term Loan and the Capex Loan in full prior to the
Revolving Loan Termination Date, the Companies shall jointly and
severally pay to the Bank a prepayment fee equal to $200,000.00;
provided, however, that no such prepayment fee shall be due if
the Revolving Loan, the Term Loan and the Capex Loan are prepaid
in full solely as a result of the refinancing or restructuring
of such obligations by the Bank. If the Bank, in its sole and
absolute discretion, determines not to renew or extend the
maturity of the Revolving Loan, then the Term Loan and the Capex
Loan shall be due and payable at the maturity of the Revolving
Loan.
9. Subsection 14.1 (a) (1) of Section 14.1, "Notices," of the
1996 Loan Agreement is hereby amended to recite as follows:
(1) if to the Bank, at the following address, or at such other
address as may have been furnished in writing to the Companies
by the Bank:
The Huntington National Bank
105 West Fourth Street
Suite 400
Cincinnati, Ohio 45202
Attn: Leonard J. Amoroso, Vice President
The remainder of Section 14.1 of the 1996 Loan Agreement shall
remain as originally written.
10. Conditions of Effectiveness. This Amendment shall become
effective as of February 4, 1999, upon satisfaction of all of
the following conditions precedent:
(a) The Bank shall have received two duly executed copies of
this Amendment and such other certificates, instruments,
documents, agreements, and opinions of counsel as may be
required by the Bank, each of which shall be in form and
substance satisfactory to the Bank and its counsel;
(b) The representations contained in paragraph 11 below shall
be true and accurate.
11. Representations. Each of the Companies represents and
warrants that after giving effect to this Amendment (a) each and
every one of the representations and warranties made by or on
behalf of each of the Companies in the 1996 Loan Agreement or
the Loan Documents is true and correct in all respects on and as
of the date hereof, except to the extent that any of such
representations and warranties related, by the expressed terms
thereof, solely to a date prior hereto; (b) each of the
Companies has duly and properly performed, complied with and
observed each of its covenants, agreements and obligations
contained in the 1996 Loan Agreement and the Loan Documents; and
(c) no event has occurred or is continuing, and no condition
exists which would constitute an Event of Default.
12. Amendment to 1996 Loan Agreement. (a) Upon the
effectiveness of this Amendment, each reference in the 1996 Loan
Agreement to "Fourth Amended and Restated Loan Agreement," "Loan
and Security Agreement," "Loan Agreement," "Agreement," the
prefix "herein," "hereof," or words of similar import, and each
reference in the Loan Documents to the 1996 Loan Agreement,
shall mean and be a reference to the 1996 Loan Agreement as
amended hereby. (b) Except as modified herein, all of the
representations, warranties, terms, covenants and conditions of
the 1996 Loan Agreement, the Loan Documents and all other
agreements executed in connection therewith shall remain as
written originally and in full force and effect in accordance
with their respective terms, and nothing herein shall affect,
modify, limit or impair any of the rights and powers which the
Bank may have thereunder. The amendment set forth herein shall
be limited precisely as provided for herein, and shall not be
deemed to be a waiver of, amendment of, consent to or
modification of any of the Bank's rights under or of any other
term or provisions of the 1996 Loan Agreement, any Loan
Document, or other agreement executed in connection therewith,
or of any term or provision of any other instrument referred to
therein or herein or of any transaction or future action on the
part of the Companies which would require the consent of the
Bank, including, without limitation, waivers of Events of
Default which may exist after giving effect hereto. Each of the
Companies ratifies and confirms each term, provision, condition
and covenant set forth in the 1996 Loan Agreement and the Loan
Documents and acknowledges that the agreement set forth therein
continue to be legal, valid and binding agreements, and
enforceable in accordance with their respective terms.
13. Authority. Each of the Companies hereby represents and
warrants to the Bank that as to such Company (a) such Company
has legal power and authority to execute and deliver the within
Amendment; (b) the officer executing the within Amendment on
behalf of such Company has been duly authorized to execute and
deliver the same and bind such Company with respect to the
provisions provided for herein; (c) the execution and delivery
hereof by such Company and the performance and observance by
such Company of the provisions hereof do not violate or conflict
with the articles of incorporation, regulations or by-laws of
such Company or any law applicable to such Company or result in
the breach of any provision of or constitute a default under any
agreement, instrument or document binding upon or enforceable
against such Company; and (d) this Amendment constitutes a valid
and legally binding obligation upon such Company in every
respect.
14. Counterparts. This Amendment may be executed in two or
more counterparts, each of which, when so executed and
delivered, shall be an original, but all of which together shall
constitute one and the same document. Separate counterparts may
be executed with the same effect as if all parties had executed
the same counterparts.
15. Governing Law. This Amendment shall be governed by and
construed in accordance with the law of the State of Ohio.
IN WITNESS WHEREOF, each of the Companies and the Bank have
hereunto set their hands as of the date first set forth above.
THE BORROWER:
INTRENET, INC.
By: /s/ Roger T. Burbage
Its: Executive Vice-President
THE SUBSIDIARIES:
ADVANCED DISTRIBUTION SYSTEM, INC.
By: /s/ Roger T. Burbage
Its: Vice-President
ECK MILLER TRANSPORTATION CORPORATION
By: /s/ Roger T. Burbage
Its: Vice-President
INET LOGISTICS, INC.
By: /s/ Roger T. Burbage
Its: Vice-President
MID-WESTERN TRANSPORT, INC.
By: /s/ Roger T. Burbage
Its: Vice-President
ROADRUNNER ENTERPRISES, INC.
By: /s/ Roger T. Burbage
Its: Vice-President
ROADRUNNER TRUCKING, INC.
By: /s/ Roger T. Burbage
Its: Vice-President
ROADRUNNER DISTRIBUTION SERVICES, INC.
By: /s/ Roger T. Burbage
Its: Vice-President
ROADRUNNER INTERNATIONAL SERVICES, INC.
By: /s/ Roger T. Burbage
Its: Vice-President
THE BANK:
THE HUNTINGTON NATIONAL BANK
By: /s/ Leonard J. Amoroso
Its: Vice-President
THE HUNTINGTON NATIONAL BANK
CAPEX NOTE
$___________________ _________________, Ohio
___________, 199___
FOR VALUE RECEIVED, the undersigned, jointly and severally,
promise to pay to the order of THE HUNTINGTON NATIONAL BANK
(hereinafter called the "Bank," which term shall include any
holder hereof), at such place as the Bank may designate or, in
the absence of such designation, at any of the Bank's offices,
the sum of _____________________ Dollars ($_________)
(hereinafter called the "Principal Sum"), together with interest
as set forth in the Loan Agreement (as defined below). The
undersigned promise to pay the Principal Sum and the interest
thereon at the time and in the manner hereinafter provided in
this note (this "Note").
This Note is executed and the advances contemplated hereunder
are to be made pursuant to a certain Fourth Amended and Restated
Loan Agreement by and between the undersigned and the Bank dated
January 15, 1996, as amended, restated, modified or otherwise
supplemented from time to time, including without limitation a
certain First Amendment to Fourth Amended and Restated Loan
Agreement dated as of March 31, 1996, a certain Second
Amendment to Fourth Amended and Restated Loan Agreement dated as
of March 7, 1997, a certain Third Amendment to Fourth Amended
and Restated Loan Agreement dated as of March 31, 1998, and a
certain Fourth Amendment to Fourth Amended and Restated Loan
Agreement dated as of February 4, 1999 (herein collectively the
"Loan Agreement"), to which reference is hereby made for a more
complete statement of the terms and conditions contained
therein. Terms defined in the Loan Agreement and not otherwise
defined herein are used herein with the meanings ascribed to
such terms in the Loan Agreement.
INTEREST
Interest will accrue on the unpaid balance of the Principal Sum
at the rate set forth in Loan Agreement. In addition, upon the
occurrence of an Event of Default, interest will accrue on the
unpaid balance of the Principal Sum of the default rate set
forth in Section 2.2 of the Loan Agreement.
All interest shall be calculated on the basis of a 360 day year
for the actual number of days the Principal Sum or any part
thereof remains unpaid.
MANNER OF PAYMENT
The Principal Sum shall be payable on __________ and accrued
interest shall be due and payable monthly beginning on
________________, 199__, and continuing on the _____ day of each
month thereafter, and at maturity, whether by demand,
acceleration or otherwise.
LATE CHARGE
Any installment or other payment not made within 10 days of the
date such payment or installment is due shall be subject to a
late charge equal to 5% of the amount of the installment or
payment.
SECURITY
This Note is secured by the security interests, assignments,
and mortgages granted and/or referenced in the Loan Agreement.
DEFAULT
Upon the occurrence of any of the following events:
(a) the undersigned fail to make any payment of interest or of
the Principal Sum on or before the date such payment is due;
(b) an "Event of Default" under the Loan Agreement shall have
occurred;
then the Bank may, at its option, without notice or demand,
accelerate the maturity of the obligations evidenced hereby,
which obligations shall become immediately due and payable. In
the event the Bank shall institute any action for the
enforcement or collection of the obligations evidenced hereby,
the undersigned agree to pay all costs and expenses of such
action, including reasonable attorneys' fees, to the extent
permitted by law.
GENERAL PROVISIONS
Each of the parties executing this Note, and any indorser,
surety, or guarantor, hereby jointly and severally waive
presentment, notice of dishonor, protest, notice of protest, and
diligence in bringing suit against any party hereto, waive the
defenses of impairment of collateral for the obligation
evidenced hereby, impairment of a person against whom the Bank
has any right of recourse, and any defenses of any accommodation
maker and consent that without discharging any of them, the time
of payment and any other provision of this promissory note may
be extended or modified an unlimited number of times before or
after maturity without notice to the undersigned. Each of the
undersigned jointly and severally agrees that it will pay the
obligations evidenced hereby, irrespective of any action or lack
of action on the Bank's part in connection with the acquisition,
perfection, possession, enforcement, disposition, or
modification of all the obligations evidenced hereby or any and
all security therefor, and no omission or delay on the Bank's
part in exercising any right against, or taking any action to
collect from or pursue the Bank's remedies against any party
hereto will release, discharge, or modify the duties of the
undersigned, or any of them, to make payments hereunder. Each
of the undersigned agrees that the Bank, without notice to or
further consent from the undersigned, may release or modify any
collateral, security, document or other guaranties now held or
hereafter acquired, or substitute other collateral, security or
other guaranties, and no such action will release, discharge or
modify the duties of the undersigned, or any of them, hereunder.
Each of the undersigned agrees that the Bank will not be
required to pursue or exhaust any of its rights or remedies
against the undersigned, or any of them, or any guarantors of
the obligations evidenced hereby with respect to the payment of
any said obligations, or to pursue, exhaust or preserve any of
the Bank's rights or remedies with respect to any collateral,
security or other guaranties given to secure said obligations.
Each of the undersigned waives any claim or other right which it
might now have or hereafter acquire against any other person or
entity that is primarily or contingently liable on the
obligations that arise from the existence or performance of each
of the obligations of the undersigned under this Note,
including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution, indemnification, or
any right to participate in any claim or remedy of the Bank or
any collateral security which the Bank now has or hereafter
acquires, whether such claim, remedy or right arises in equity,
under contract or statute, at common law, or otherwise.
The obligations evidenced hereby may from time to time be
evidenced by another note or notes given in substitution,
renewal or extension hereof. Any security interest or mortgage
which secures the obligations evidenced hereby shall remain in
full force and effect notwithstanding any such substitution,
renewal, or extension.
The captions used herein are for references only and shall not
be deemed a part of this Note. If any of the terms or
provisions of this Note shall be deemed unenforceable, the
enforceability of the remaining terms and provisions shall not
be affected. This Note shall be governed by and construed in
accordance with the law of the State of Ohio.
WAIVER OF RIGHT TO TRIAL BY JURY
EACH OF THE UNDERSIGNED HEREBY EXPRESSLY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
(1) ARISING UNDER THIS NOTE OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (2)
IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF THE UNDERSIGNED OR THE BANK, OR ANY OF THEM, WITH
RESPECT TO THIS NOTE OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE
TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE; AND EACH OF THE UNDERSIGNED HEREBY AGREES
AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT
THE UNDERSIGNED, OR ANY OF THEM, OR THE BANK MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF EACH OF THE UNDERSIGNED TO
THE WAIVER OF THE RIGHT OF THE UNDERSIGNED TO TRIAL BY JURY.
WARRANT OF ATTORNEY
Each of the undersigned authorizes any attorney at law to
appear in any Court of Record in the State of Ohio or in any
state or territory of the United States after the above
indebtedness becomes due, whether by acceleration or otherwise,
to waive the issuing and service of process, and to confess
judgment against any one or more of the undersigned in favor of
the Bank for the amount then appearing due together with costs
of suit, and thereupon to waive all errors and all rights of
appeal and stays of execution. No such judgment or judgments
against less than all of the undersigned shall be a bar to a
subsequent judgment or judgments against any one or more of the
undersigned against whom judgment has not been obtained hereon,
this being a joint and several warrant of attorney to confess
judgment.
Borrower:
INTRENET, INC.
By:
Its:
ADVANCED DISTRIBUTION SYSTEM, INC.
By:
Its:
ECK MILLER TRANSPORTATION CORPORATION
By:
Its:
INET LOGISTICS, INC.
By:
Its:
MID-WESTERN TRANSPORT, INC.
By:
Its:
ROADRUNNER ENTERPRISES, INC.
By:
Its:
ROADRUNNER TRUCKING, INC.
By:
Its:
ROADRUNNER DISTRIBUTION SERVICES, INC.
By:
Its:
ROADRUNNER INTERNATIONAL SERVICES, INC.
By:
Its:
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
This Second Amendment to Employment Agreement ("Amendment)" is
made and dated as of December 29, 1998, by and between INTRENET,
INC., an Indiana corporation ("Employer"), and JOHN DELAVAN
("Employee"),
WITNESSETH
NOW, THEREFORE, the Employer and Employee agree as follows:
1. The Base Compensation of the Employee as defined in
Paragraph 4 of the Original Agreement and Item 2 of the First
Amendment to Employment Agreement shall be amended to $220,000
per annum, payable at regular intervals in accordance with the
Employer's normal payroll practices now or hereafter in effect.
2. Except as set forth in this Amendment, the Prior Agreement
shall continue in effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to
be executed and delivered as of the day and year first set forth
above.
INTRENET, INC.
By /s/ Edwin H. Morgens
Edwin H. Morgens,
Chairman of the Board, Employer
By /s/ John P. Delavan
John P. Delavan, Employee
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement ("Amendment)" is
made and dated as of March 8, 1999, by and between INTRENET,
INC., an Indiana corporation ("Employer"), and ROGER T. BURBAGE
("Employee"),
WITNESSETH
WHEREAS, Employee is currently serving as the Chief Financial
Officer of Employer pursuant to an Employment Agreement dated as
of March 10, 1997 (the "Prior Agreement").
WHEREAS, Employee desires to be assured of certain compensation
and other benefits for his continued services to Employer.
WHEREAS, the parties have agreed to amend the Prior Agreement
on the terms and conditions set forth in this Amendment.
NOW, THEREFORE, in consideration of the premises, the mutual
covenants and undertakings contained herein, Employer and
Employee agree as follows:
1. The Term of the agreement for Employee's employment as
defined in Paragraph 3 of the Prior Agreement shall continue
through March 31, 2001.
2. The Base Compensation of the Employee as defined in
Paragraph 4 of the Prior Agreement shall be $185,000 per annum,
payable at regular intervals in accordance with the Employer's
normal payroll practices now or hereafter in effect.
3. Except as set forth in this Amendment, the Prior Agreement
shall continue in effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to
be executed and delivered as of the day and year first set forth
above.
INTRENET, INC.
By /s/ John P. Delavan
John P. Delavan, President & CEO
By /s/ Roger T. Burbage
Roger T. Burbage, Employee
SUBSIDIARIES OF THE REGISTRANT
Intrenet, Inc.
December 31, 1998
Advanced Distribution System, Inc., a Florida corporation
Eck Miller Transportation Corporation, an Indiana corporation
Mid-Western Transport, Inc., an Indiana corporation
Roadrunner Enterprises, Inc., an Indiana corporation
INET Logistics, Inc., an Indiana corporation
CONSENT OF INDEPENDENT PUBLIC ACCOUNTS
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K, into
the Company's previously filed Registration Statement File No.
33-69882.
Indianapolis, Indiana, ARTHUR ANDERSEN LLP
March 26, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000778161
<NAME> INTRENET, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 271
<SECURITIES> 0
<RECEIVABLES> 34,770
<ALLOWANCES> (1,537)
<INVENTORY> 0
<CURRENT-ASSETS> 38,906
<PP&E> 49,643
<DEPRECIATION> (20,810)
<TOTAL-ASSETS> 77,800
<CURRENT-LIABILITIES> 30,524
<BONDS> 20,105
0
0
<COMMON> 16,856
<OTHER-SE> 7,515
<TOTAL-LIABILITY-AND-EQUITY> 77,800
<SALES> 0
<TOTAL-REVENUES> 262,722
<CGS> 0
<TOTAL-COSTS> 256,329
<OTHER-EXPENSES> 420
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,554
<INCOME-PRETAX> 3,419
<INCOME-TAX> 523
<INCOME-CONTINUING> 2,896
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,896
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
