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.
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.
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.
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.
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
First Quarter 4.375 2.875 Second Quarter 4.750 3.313 Third Quarter 4.625 2.000 Fourth Quarter 3.438 2.125
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.
Item 6. Selected Financial Data.
Item 7.
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.
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.
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.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.
	Not Applicable.
PART III
Item 10.
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.
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.
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.
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.
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.
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.