<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(As filed via EDGAR on August 21, 2000)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934
For the quarterly period ended JUNE 30, 2000
-------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934
For the transition period from to
---------- ----------
Commission file number 0-14060
-------
INTRENET, INC.
--------------
(Exact name of registrant as specified in its charter)
INDIANA 35-1597565
------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No)
incorporation or organization)
400 TECHNECENTER DRIVE, SUITE 200, MILFORD, OHIO 45150
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (513) 576-6666
------------------
Not Applicable
---------------------------------------------------
Former name, former address and formal fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, without par value, 15,037,066 shares issued and
outstanding at August 2, 2000.
<PAGE> 2
INTRENET, INC.
--------------
FORM 10-Q
---------
JUNE 30, 2000
-------------
INDEX
-----
PAGE
----
Part 1 - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
June 30, 2000 and December 31, 1999 .........................3
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 2000 and 1999 ....4
Condensed Consolidated Statement of Shareholders' Equity
Six Months Ended June 30, 2000 ..............................5
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2000 and 1999 .....................6
Notes to Condensed Consolidated Financial Statements ........7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk .14
Part II - Other Information:
Item 1. Legal Proceedings ..........................................15
Item 2. Changes in Securities ......................................15
Item 3. Defaults Upon Senior Securities ............................15
Item 4. Submission of Matters to a Vote of Security Holders ........15
Item 5. Other Information ..........................................15
Item 6. Exhibits and Reports on Form 8-K ...........................15
2
<PAGE> 3
INTRENET, INC. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
(In Thousands of Dollars)
<TABLE>
<CAPTION>
2000
Assets UNAUDITED 1999
------ --------- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 806 $ 782
Receivables, principally freight revenue less
allowance for doubtful accounts of $1,883 in 2000
and $1,816 in 1999 40,000 38,078
Prepaid expenses and other 7,671 6,293
------- -------
Total current assets 48,477 45,153
Property and equipment, at cost, less accumulated
depreciation 20,104 24,080
Reorganization value in excess of amounts allocated
to identifiable assets, net of accumulated amortization 4,211 4,441
Deferred income taxes, net 2,886 2,886
Other assets 215 281
------- -------
Total assets $75,893 $76,841
======= =======
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current debt and capital lease obligations (See Note 4) $29,036 $ 4,858
Accounts payable and cash overdrafts 10,288 8,304
Current accrued claim liabilities 6,828 8,159
Other accrued expenses 5,952 7,612
------- -------
Total current liabilities 52,104 28,933
Long-term debt and capital lease obligations 868 25,208
Long-term accrued claim liabilities 2,800 2,800
------- -------
Total liabilities 55,772 56,941
Shareholders' equity:
Common stock, without par value; 20,000,000
shares authorized; 15,037 and 13,844 shares
issued and outstanding, respectively 19,639 17,224
Retained earnings since January 1, 1991 482 2,676
------- -------
Total shareholders' equity 20,121 19,900
------- -------
Total liabilities and shareholders' equity $75,893 $76,841
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE> 4
INTRENET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
(In Thousands of Dollars, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30
-------------------------- --------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues $ 71,930 $ 72,171 $ 143,234 $ 138,486
Operating expenses:
Purchased transportation
and equipment rents 33,656 33,763 66,667 64,096
Salaries, wages, and benefits 17,255 18,215 34,897 35,105
Fuel and other operating expenses 14,400 12,982 28,836 24,712
Operating taxes and licenses 2,498 2,595 4,992 5,119
Insurance and claims 1,693 2,252 3,364 4,008
Depreciation 945 986 1,872 1,968
Other operating expenses 1,632 1,174 3,219 2,178
----------- ----------- ----------- -----------
$ 72,079 $ 71,967 $ 143,847 $ 137,186
----------- ----------- ----------- -----------
Operating income (loss) (149) 204 (613) 1,300
Interest expense (734) (622) (1,361) (1,241)
Contingent liability special charge (2,207) (2,207)
Other expense, net (105) (105) (210) (210)
----------- ----------- ----------- -----------
Loss before income taxes (988) (2,730) (2,184) (2,358)
Provision for income taxes 5 48 (10) (92)
----------- ----------- ----------- -----------
Net loss $ (983) $ (2,682) $ (2,194) $ (2,450)
=========== =========== =========== ===========
Loss per common and common
equivalent share
Basic $ (0.07) $ (0.20) $ (0.15) $ (0.18)
=========== =========== =========== ===========
Diluted $ (0.07) $ (0.20) $ (0.15) $ (0.18)
=========== =========== =========== ===========
Weighted average shares outstanding during period 15,037,066 13,674,066 14,574,121 13,671,668
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE> 5
INTRENET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(Unaudited)
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Retained Shareholders'
Common Stock Earnings Equity
----------------------- ---------- -------------
Shares Dollars
---------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1999 13,844,066 $ 17,224 $ 2,676 $ 19,900
Exercise of stock options 43,000 110 0 110
Private Issuance of Stock 1,150,000 2,300 0 2,300
Other 0 5 0 5
Net loss 0 0 (2,194) (2,194)
---------- ---------- ---------- ----------
Balance, June 30, 2000 15,037,066 $ 19,639 $ 482 $ 20,121
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE> 6
INTRENET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
(In Thousands of Dollars)
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,194) $(2,450)
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 2,065 2,192
Provision for doubtful accounts 365 228
Contingent liability charge 0 2,118
Changes in assets and liabilities, net:
Receivables (2,287) (5,656)
Prepaid expenses (1,378) (700)
Accounts payable and accrued expenses (941) (172)
------- -------
Net cash used in operating activities (4,370) (4,440)
------- -------
Cash flows from investing activities:
Additions to property and equipment (229) (1,056)
Disposals of property and equipment 2,350 1,485
------- -------
Net cash provided by investing activities 2,121 429
------- -------
Cash flows from financing activities:
Net borrowings on line of
credit, net 96 5,913
Payments on capital leases (1,338) (1,858)
Proceeds from subordinated debt 1,100 0
Proceeds from exercise of stock options 115 25
Proceeds from private offering 2,300 0
------- -------
Net cash provided by financing activities 2,273 4,080
Net increase in cash and cash equivalents 24 69
Cash and cash equivalents:
Beginning of period 782 271
------- -------
End of period $ 806 $ 340
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
6
<PAGE> 7
INTRENET, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(Unaudited)
(1) Unaudited Condensed Consolidated Financial Statements
----------------------------------------------------------
The accompanying unaudited Condensed Consolidated Financial Statements
include the accounts of Intrenet, Inc. and all of its subsidiaries
(collectively, the "Company"). Truckload carrier subsidiaries at June 30, 2000,
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 broker and logistics
manager, INET Logistics, Inc. (INL). All significant intercompany transactions
are eliminated in consolidation. Through its subsidiaries, the Company provides
general and specialized truckload carrier, brokerage and logistics management
services throughout the United States.
The condensed consolidated financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). In management's opinion, these financial statements include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the results of operations for the interim periods
presented. Pursuant to SEC rules and regulations, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted from these statements unless significant changes have taken place since
the end of the most recent fiscal year. For this reason, the accompanying
Consolidated Financial Statements and Notes thereto should be read in
conjunction with the financial statements and notes for the year ended December
31, 1999, included in the Company's 1999 Annual Report on Form 10-K.
The results for the three month and six month periods ended June 30,
2000, are not necessarily indicative of the results to be expected for the
entire year.
(2) Revenue Recognition
------------------------
Operating revenues are recognized when the freight is picked up. Related
transportation expenses including driver wages, purchased transportation, fuel
and fuel taxes, agent commissions, and insurance premiums are accrued when the
revenue is recognized.
In 1991, the Emerging Issues Task Force (EITF) released Issue 91-9,
"Revenue and Expense Recognition for Freight Services in Process". The EITF
reached the conclusion that the preferable method for recognizing revenue and
expense was either (1) recognition of both revenue and direct cost when the
shipment is completed, or (2) allocation of revenue between reporting periods
based on relative transit time in each reporting period and recognize expenses
as incurred. The Company has determined that the cumulative effect of changing
from their current method of revenue recognition to one of the preferable
methods described above is not material to the results of operations or
financial condition of the Company. However, the Company will change its revenue
recognition policy to one of the preferable methods in the fourth quarter of the
year ending December 31, 2000 as provided for by SEC Staff Accounting Bulletin
No. 101. "Revenue Recognition", as amended.
(3) Income Taxes
-----------------
Income taxes in interim periods are generally provided on the basis of
the estimated effective tax rate for the year. While management believes it is
more likely than not 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.
7
<PAGE> 8
(4) Bank Credit Agreement
--------------------------
On February 4, 2000, the Company signed a new bank credit agreement,
which consists of a $32 million revolving line of credit, a $3.5 million term
loan and a $2.5 million capital expenditure loan, all with a final maturity date
of January 1, 2002. The applicable interest rate on borrowings under all
facilities is based upon a financial performance matrix, which has a maximum
level of 225 basis points over the daily LIBOR rate. Borrowings under the line
of credit are limited to amounts determined by a formula tied to the Company's
accounts receivable, as defined in the agreement. The line of credit also
includes provisions for the issuance of $15 million in standby letters of
credit, which as issued, reduce the amount available for borrowings. The term
loan requires quarterly principal payments of approximately $290,000. The
availability of the capital expenditure loan is limited based upon the
achievement of certain financial covenants and there are presently no
outstanding borrowings under such loan. The bank credit facility is secured by
substantially all of the Company's accounts receivable, property and equipment,
and contains, among other provisions, financial covenants which require the
Company to achieve a minimum level of net worth and specified ratios of fixed
charges, current ratio and of debt to earnings before interest, taxes,
depreciation and amortization (EBITDA). The minimum financial covenant targets
increase periodically throughout 2000 and compliance is required to be measured
on a monthly basis.
On April 13, 2000 the Company signed an amendment to the February 4,
2000, bank credit agreement. Under the terms of the amendment, the financial
covenants discussed above have been modified to more closely reflect the
Company's current operating performance, the interest rate on the revolving line
of credit has been increased from LIBOR plus 225 basis points to LIBOR plus 300
basis points, and the interest rate applied to issue standby letters of credit
has been increased from 1% to 1-3/8%. The amendment also requires the Company to
maintain an available borrowing capacity under the revolving credit agreement of
at least $2 million.
At June 30, 2000, the Company was not in compliance with the debt to
EBITDA covenant and on several occasions since May 2000 failed to maintain
borrowing capacity equal to or greater than $2 million. These covenant
violations have continued as of July 31, 2000 and are expected to continue for
the remainder of 2000. As a result of these covenant violations, the terms of
the bank credit agreement give the bank the right to demand payment of all
outstanding debt under the revolving line of credit and the term loan, which
totaled approximately $18.6 million at June 30, 2000. In addition, certain
capital lease obligations and a real estate mortgage obligation contain cross
default provisions with the bank credit agreement. Accordingly, all of such debt
has been classified as a current liability at June 30, 2000.
The Company has informed the bank that it is vigorously pursuing
replacement financing and has received proposals for such replacement financing
from several financial institutions. In addition, the Company has received a
commitment letter from one financial institution, which is undergoing evaluation
by management. In consideration of the Company's efforts to secure replacement
financing, the bank has granted a waiver of the EBITDA covenant violation
discussed above through the period ending and including October 15, 2000. While
the Company believes that it will be able to enter into a replacement financing
agreement with another lender that will provide sufficient funding for future
operations, there are no assurances that it will be successful in obtaining such
financing, or that such financing can be obtained by October 15, 2000. There can
also be no assurance that the bank will continue to refrain from demanding
payment of its outstanding debt before replacement financing is obtained. The
accompanying financial statements do not include any adjustments relating to the
recoverability of asset carrying amounts that might result from the outcome of
this uncertainty.
Although the accompanying unaudited financial statements as of and for
the three and six months ended June 30, 2000 have not been audited, the Company
has been advised by its independent public accountants that if the conditions
described above continue to exist at the completion of their audit of the
financial statements for the year ended December 31, 2000, their report on those
financial statements would include an explanatory fourth paragraph due to
substantial doubt about the Company's ability to continue as a going concern.
8
<PAGE> 9
(5) Equity Infusion
--------------------
On January 14, 2000, a group consisting of an officer of the Company and
directors of the Company made $2.3 million in subordinated loans to the Company.
The infusion of at least $2.0 million of cash was a condition precedent to the
February 4, 2000 bank agreement. On March 13, 2000, the Company repaid the loans
in full with the proceeds of a private offering of 1,150,000 shares of the
Company's common stock. The same persons who made the subordinated loans to the
Company purchased the stock at $2.00 per share.
On June 6, 2000 an officer of the Company and directors of the Company
made $1.1 million of subordinated loans to the Company.
(6) Contingent Liabilities
---------------------------
The Company's subsidiary, RDS, is a defendant in a 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 filed an appeal to the 8th Circuit Court of Appeals in El
Paso, Texas, and on July 29, 1999, the 8th Circuit Court of Appeals in El Paso
issued a favorable ruling for RDS, reversing the default judgment and remanding
the case for trial. Management believes that 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.
(7) Transactions with Affiliated Parties
-----------------------------------------
The Company leases tractors from unaffiliated leasing companies that
purchase the trucks from a dealership affiliated with a member of the Company's
Board of Directors. The lessors pay a selling commission to the dealership. The
terms of the leases are the result of negotiations between the Company and the
lessor. The Company believes the involvement of the selling dealership has not
resulted in lease terms that are more or less favorable to the Company than
would otherwise be available to it. During the last three years, the Company has
leased an average of 185 tractors a year that were purchased from the
dealership, and has also leased 208 trailers in 2000. The Company also purchased
maintenance parts and services from the dealership from time to time. Total
payments to the dealership for these services have averaged approximately
$543,000 per year for the last three years.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Introduction
------------
The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto appearing elsewhere in this
report. Certain statements made in this report relating to trends in the
Company's business, as well as other statements including words such as
"believe", "expect", "estimate", "anticipate", and similar expressions,
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. The matters referred to in these
forward looking statements that could be affected by the 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.
The Company reported a net loss of $983,000 on revenues of $71.9 million in the
three months and a net loss of $2,194,000 on revenues of $143.2 million in the
six months ended June 30, 2000. This compares with a net loss of $2,682,000 on
revenues of $72.2 million and a net loss of $2,450,000 on revenues of $138.5
million in the comparable periods of 1999, respectively. The Company's revenue
during the second quarter was equivalent to that reported in 1999; however, for
the six months ended June 30, 2000 all of its four carrier subsidiaries (ADS,
EMT, RRT, and RDS) reported revenue improvements. The Company's operating margin
has deteriorated principally as a result of higher fuel costs and because during
the second quarter of 2000 fewer owner-operators were willing to haul loads due
to such higher fuel costs. The average cost of diesel fuel in the second quarter
of 2000 was approximately 30% higher than the second quarter of 1999 and 38%
higher for the six month period. While the cost of fuel increased rapidly,
primarily during the first quarter of 2000, pricing to customers was not readily
adjustable due to contractual restrictions, the competitive environment, and the
logistics of achieving price increases throughout a large customer base.
However, management has increased prices, principally by the pass through of
fuel surcharges, and continues to pursue rate increases. In addition, the
Company has instituted cost reduction programs in the areas of fuel purchasing,
insurance costs, and general and administrative overhead. Management expects
improved operating results during the second half of the year.
A discussion of the impact of the above and other factors on the results of
operations in the three months ended June 30, 2000, as compared to the
comparable period of 1999 follows.
2000 COMPARED TO 1999
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
-------------------------- % ------------------------ %
Key Operating Statistics 2000 1999 Change 2000 1999 Change
------------------------ ---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues ($millions) $71.9 $72.2 (.1) $143.2 $138.5 3.4
Average Number of Tractors 2,347 2,349 (.1) 2,363 2,330 6.3
Total Loads (000's) 89.1 96.5 (7.7) 179.1 188.5 (5.0)
Revenue Miles (millions) 43.3 44.6 (2.9) 86.4 85.8 .7
Average Revenue per
Revenue Mile* $1.46 $1.40 4.3 $ 1.46 $ 1.39 5.0
</TABLE>
* Excluding brokerage revenue
10
<PAGE> 11
OPERATING REVENUES
------------------
Operating revenues for the three months and six months ended June 30,
2000, totaled $71.9 million and $143.2 million, respectively, as compared to
$72.1 million and $138.5 million for the same periods in 1999. Company-owned
tractor revenues increased by $150,000 or less than 1% during the second quarter
and by $1.7 million or 2.5% in the six months ended June 30, 2000. Revenues
generated by owner-operators increased over $800,000 or 3% in the second quarter
and over $5,100,000 or 10.2% during the six months ended June 30, 2000.
Brokerage revenue decreased by $1.2 million or 12.4% during the second quarter,
and by $2.1 million or 10.2% for the six months ended June 30, 2000; the
decrease is primarily due to the closing of one of INET Logistics, Inc.'s
locations in the second quarter of 1999. The overall increase in revenue of $4.7
million for the six month period ended June 30, 2000 compared to the six month
period ended June 30, 1999 is comprised of price increases and fuel surcharges
of $5.6 million and additional volume from Company-owned tractors and
owner-operators amounting to approximately $1.2 million offset by the decrease
in brokered revenues of $2.1 million previously mentioned. Approximately 49.3
percent of the Company's revenues were generated by Company-operated equipment,
and 38.5 percent by owner-operator equipment in the six months ended June 30,
2000. This compares to 49.8 percent and 36.1 percent, respectively, in the 1999
period. The remaining revenues were from freight brokered to other carriers
("brokered freight").
The Company experienced a 5.0 percent improvement in average revenue per
revenue mile in the first six months of 2000, as compared to 1999. This increase
is principally the result of fuel surcharges passed on to customers.
OPERATING EXPENSES
------------------
The following table sets forth the percentage relationship of operating
expenses to operating revenues for the three months and six months ended June
30, 2000.
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues 100% 100% 100% 100%
Operating expenses:
Purchased transportation
And equipment rents 46.8 46.8 46.5 46.3
Salaries, wages and benefits 24.0 25.2 24.4 25.4
Fuel and other operating expenses 20.0 18.0 20.1 17.8
Operating taxes and licenses 3.5 3.6 3.5 3.7
Insurance and claims 2.4 3.1 2.4 2.9
Depreciation 1.3 1.4 1.3 1.4
Other operating expenses 2.3 1.6 2.3 1.6
--- ---
Total operating expenses 100.3 99.7% 100.5 99.1%
===== ===== ===== =====
</TABLE>
Purchased transportation and equipment rents remained equivalent for the
three and six months ended June 30, 2000 compared to the same periods in 1999
since the Company's revenue components remained in relative balance in both
years and because the Company continues to utilize operating leases as its
principal means of financing its tractors and trailers. Salaries, wages and
benefits decreased as a percentage of revenue due to a general and
administrative staff reduction in April 2000. The cost of fuel and other
operating expenses increased by 2.0% for the three months and 2.3% for the six
months ended June 30, 2000 compared to the same periods in 1999. The average
price per gallon of diesel fuel for the three and six months ended June 30, 2000
was approximately 32 cents and 38 cents higher respectively than the same
periods in 1999, although company-owned tractors used over 212,000 less gallons
in 2000 as a result of traveling fewer miles. Other operating expenses increased
by .7% for the three and six months ended June 30, 2000 due to the installation
in all Company tractors of satellite communications and the associated cost,
together with an increase in losses on sales of equipment.
11
<PAGE> 12
INTEREST EXPENSE
----------------
Non bank interest expense decreased in 2000, as a result of the
approaching maturity of capital lease obligations and the replacement equipment
financed with operating leases. Interest expense on bank borrowings was
approximately $277,000 higher in 2000 due to higher interest rates and higher
average borrowings compared to 1999.
SPECIAL CHARGE
--------------
During the second quarter of 1999, the Company charged the income
statement $2.2 million representing the amount of the Company's offer to settle
a pending claim asserted by the Central States Southeast and Southwest Areas
Pension Fund (the "Fund"). As of June 30, 1999, the Company had made interim
payments to the Fund that totaled approximately $2.1 million. The claim was
settled in September 1999.
PROVISION FOR INCOME TAXES
--------------------------
Income taxes in interim periods are generally provided on the basis of
the estimated effective tax rate for the year.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company generated cash of $24,000 in the six months ended June 30,
2000 compared to $69,000 during the same period in 1999. As reflected in the
accompanying Consolidated Statements of Cash Flows approximately $4.4 million of
cash was used in operating activities primarily by increased accounts
receivable, cash used to purchase plates and permits for the Company's fleet,
and cash used to decrease accounts payable and accrued expenses offset by
depreciation. Net cash of $2.1 million was generated from investing activities,
primarily from the net disposal of equipment. Net cash of $2.3 million was
generated through financing activities including $2.3 million generated by
proceeds from a private offering of the Company's common shares, $1.1 million
from proceeds from subordinated debt, offset by reduction in capital leases.
On January 14, 2000, a group consisting of an officer of the Company and
directors of the Company made $2.3 million in subordinated loans to the Company.
The infusion of at least $2.0 million of cash was a condition precedent to the
February 4, 2000 bank agreement. On March 13, 2000, the Company repaid the loans
in full with the proceeds of a private offering of 1,150,000 shares of the
Company's common stock. The same persons who made the subordinated loans to the
Company purchased the stock at $2.00 per share. On June 6, 2000 an officer of
the Company and directors of the Company made $1.1 million of subordinated loans
to the Company.
On February 4, 2000, the Company signed a new bank credit agreement,
which consists of a $32 million revolving line of credit, a $3.5 million term
loan and a $2.5 million capital expenditure loan, all with a final maturity date
of January 1, 2002. The applicable interest rate on borrowings under all
facilities is based upon a financial performance matrix, which has a maximum
level of 225 basis points over the daily LIBOR rate. Borrowings under the line
of credit are limited to amounts determined by a formula tied to the Company's
accounts receivable, as defined in the agreement. The line of credit also
includes provisions for the issuance of $15 million in standby letters of
credit, which as issued, reduce the amount available for borrowing. The term
loan requires quarterly principal payments of approximately $290,000. The
availability of the capital expenditure loan is limited based upon the
achievement of certain financial covenants and there are presently no
outstanding borrowings under such loan. The bank credit facility is secured by
substantially all of the Company's accounts receivable, property and equipment.
The bank credit agreement signed on February 4, 2000 contained, among
other provisions, financial covenants which require the Company to achieve a
minimum level of net worth and specified ratios of fixed charges, current ratio
and of debt to earnings before interest, taxes, depreciation and amortization
(EBITDA). The minimum financial covenant targets increase periodically
throughout 2000 and compliance is required to be measured on a monthly basis.
During the three months ended March 31, 2000, the Company continued to
experience the effects of rising diesel fuel prices and a shortage of qualified
drivers available to operate equipment. In consideration of these factors,
effective April 13, 2000 the Company signed an amendment to the February 4,
2000, bank credit agreement. Under the terms of the amendment, the financial
covenants discussed above have been modified to more closely reflect the
Company's current operating performance, the interest rate on the revolving line
of credit has been increased from LIBOR plus 225 basis points to LIBOR plus 300
basis points, and the interest rate applied
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<PAGE> 13
to issued standby letters of credit has been increased from 1% to 1-3/8%. The
amendment also requires the Company to maintain an available borrowing capacity
under the revolving credit agreement of at least $2 million.
At June 30, 2000, the Company was not in compliance with the debt to
EBITDA covenant and on several occasions since May 2000 failed to maintain
borrowing capacity equal to or greater than $2 million. These covenant
violations have continued as of July 31, 2000 and are expected to continue for
the remainder of 2000. As a result of these covenant violations, the terms of
the bank credit agreement give the bank the right to demand payment of all
outstanding debt under the revolving line of credit and the term loan, which
totaled approximately $18.6 million at June 30, 2000. In addition, certain
capital lease obligations and a real estate mortgage obligation contain cross
default provisions with the bank credit agreement. Accordingly, all of such debt
has been classified as a current liability at June 30, 2000.
The Company has informed the bank that it is vigorously pursuing
replacement financing and has received proposals for such replacement financing
from several financial institutions. In addition, the Company has received a
commitment letter from one financial institution, which is undergoing evaluation
by management. In consideration of the Company's efforts to secure replacement
financing, the bank has granted a waiver of the EBITDA covenant violation
discussed above through the period ending and including October 15, 2000. While
the Company believes that it will be able to enter into a replacement financing
agreement with another lender that will provide sufficient funding for future
operations, there are no assurances that it will be successful in obtaining such
financing, or that such financing can be obtained by October 15, 2000. There can
also be no assurance that the bank will continue to refrain from demanding
payment of its outstanding debt before replacement financing is obtained. The
accompanying financial statements do not include any adjustments relating to the
recoverability of asset carrying amounts that might result from the outcome of
this uncertainty.
Although the accompanying unaudited financial statements as of and for
the three and six months ended June 30, 2000 have not been audited, the Company
has been advised by its independent public accountants that if the conditions
described above continue to exist at the completion of their audit of the
financial statements for the year ended December 31, 2000, their report on those
financial statements would include an explanatory fourth paragraph due to
substantial doubt about the Company's ability to continue as a going concern.
As previously discussed, the cost of fuel increased significantly during
the six months ended June 30, 2000 compared to the same period in 1999, with the
average increase approximating $ .38 per gallon. The cost of oil hit a peak on
March 8, 2000 at $34.37 per barrel (New York price), then gradually declined
over a two month period to approximately $27 per barrel. In June, the
Organization of Petroleum Countries (OPEC) agreed to increase production by
700,000 barrels a day and Saudi Arabia announced in July that it would increase
production by 500,000 barrels a day. Despite these production increases, oil
prices have steadily increased since early May and have recently increased to
approximately $32 per barrel. Currently, there are mixed viewpoints regarding
the future production and cost of oil, and accordingly, there are no assurances
that the worldwide supply will remain at current levels or that other factors
will not impact the cost of fuel.
As indicated in the second preceding paragraph the Company believes it
will be successful in acquiring replacement financing. Therefore, the Company
believes that cash generated from operating, financing and investing activities
and cash available to it under a replacement credit facility will be sufficient
to meet the Company's needs during 2000. Available borrowing capacity under the
Company's current bank credit facility at June 30, 2000 approximated $3.1
million.
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<PAGE> 14
ITEM 3. 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 June 30,
2000, for those variable rate debt instruments, a market change of 100
basis-points in interest rates would correspond to an approximately $180,000
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. 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.
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<PAGE> 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments in the pending legal proceedings
described in the Company's 1999 Annual Report on Form 10-k. The Company and its
subsidiaries are subject to routine litigation incidental to business, primarily
claims for personal injury and property damage incurred in the transporting of
freight. The Company maintains insurance which covers liability resulting from
transportation related claims in amounts management believes are prudent and
consistent with accepted industry practices, subject to deductibles for the
first $100,000 to $250,000 of exposure for each incident.
ITEM 2. CHANGES IN SECURITIES
On March 13, 2000 a group of investors including an officer of the
Company, members of the Board of Directors and persons affiliated with directors
of the Company purchased 1,150,000 shares of the Company's common stock at $2.00
per share. The transaction was not registered under the Securities Act of 1933,
as amended, in reliance of the exceptions contained in Section 4(2) relating to
private offerings.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on June 12,
2000. The following individuals were elected as directors for the ensuing year
or until their successors are duly elected and qualified with the following
votes cast for or against. There were no abstentions or broker non-votes.
<TABLE>
<CAPTION>
VOTES FOR VOTES WITHHELD
--------- --------------
<S> <C> <C>
Vincent A. Carrino 13,725,553 37,215
John P. Chandler 13,725,803 36,965
Robert B. Fagenson 13,725,653 37,115
Ned N. Fleming, III 13,725,703 37,065
Eric C. Jackson 13,725,663 37,105
Edwin H. Morgens 13,725,653 37,115
Thomas A. Noonan, Jr. 13,724,311 38,457
Gerald Anthony Ryan 13,724,661 38,107
</TABLE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
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<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTRENET, INC.
----------------------------
(Registrant)
August 21, 2000 /s/ John P. Chandler
--------------- ----------------------------
John P. Chandler,
President and Chief
Executive Officer
/s/ Thomas J. Bell
----------------------------
Thomas J. Bell,
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
16
