FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Year Ended December 31, 1997
Commission File Number - 0-12321
TRANSFINANCIAL HOLDINGS, INC.
State of Incorporation - Delaware
IRS Employer Identification No. - 46-0278762
8245 Nieman Road, Suite 100, Lenexa, Kansas 66214
Telephone Number - (913) 859-0055
Securities Registered Pursuant to Section 12(b) of the Act
Name of Each Exchange
Title of Each Class on Which Registered
TransFinancial Holdings, Inc. Common Stock, American Stock Exchange
par value $0.01 per share,
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates of
TransFinancial Holdings, Inc. as of March 13, 1998, was $52,065,558 based on the
last sale price on the American Stock Exchange on that date.
The number of outstanding shares of the registrant's common stock as of March
13, 1998 was 6,030,937 shares.
DOCUMENTS INCORPORATED BY REFERENCE: The information set forth under Part III,
items 10, 11, 12 and 13 of this Report are incorporated by reference from the
registrant's definitive proxy statement for the 1998 annual meeting of
shareholders.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-K which are not
statements of historical fact constitute forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
including, without limitation, the statements contained herein which are marked
with an asterisk. These statements involve risks and uncertainties which may
cause actual results to differ materially from those in such statements. See
Item 7 "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Forward Looking Statements" for additional information and
factors to be considered concerning forward-looking statements.
PART I
ITEM 1. BUSINESS.
TransFinancial Holdings, Inc., formerly known as Anuhco, Inc.("TFH" or the
"Company"), is headquartered in Lenexa, Kansas, and is a Delaware holding
company formed in April, 1976. TFH operates primarily in two industry segments;
transportation, through its subsidiary Crouse Cartage Company ("Crouse") and
financial services, through Universal Premium Acceptance Corporation and UPAC of
California, Inc. (together "UPAC"). Crouse was acquired by TFH as of September
1, 1991. UPAC was acquired on March 29, 1996 and merged operations with Agency
Premium Resource, Inc. ("APR") which was acquired May 31, 1995. In addition to
its transportation and financial services subsidiaries, TFH owns a controlling
equity interest in Presis, L.L.C. ("Presis"), a start-up venture which owns
rights to a proprietary new technology for particle reduction. TFH acquired its
interest in Presis effective July 31, 1997. Financial information about the
Company's operating industry segments is presented in Note 1 to the Consolidated
Financial Statements.
TRANSPORTATION
Crouse, headquartered in Carroll Iowa, is a regional motor common carrier
of general commodities in less-than-truckload ("LTL") quantities with a 15 state
service area in the north central and midwest portion of the United States.
Crouse also offers motor common carrier service for truckload quantities of
general and perishable commodities throughout the 48 contiguous United States.
LTL Shipments are defined as shipments weighing less than 10,000 pounds.
LTL companies are referred to as regional, inter-regional or national motor
carriers, based upon length of haul. Carriers with average lengths of haul less
than 500 miles are referred to as regional carriers. Carriers with average
lengths of haul between 500 and 1,000 miles are referred to as inter-regional
carriers. National carriers generally operate coast-to-coast and have average
lengths of haul that exceed 1,000 miles.
In the motor carrier business, revenue is a function of volume and pricing
and is frequently described in relations to weight. The Company tracks revenue
per hundredweight (pounds divided by 100) as a measure of pricing or rate
trends. In addition to pricing, the average revenue per hundredweight is also a
function of the weight per shipment, length of haul and commodity mix.
LTL carriers can improve profitability by increasing lane and terminal
density. Increased lane density lowers unit operating costs. Increased
terminal density, by increasing the amount of freight handled at a given
terminal location, improves utilization of fixed assets.
LTL shipments must be handled rapidly and carefully in several coordinated
stages. Shipments are first picked up from customers by local drivers operating
from the Crouse network of 66 service locations, each of which services a
particular territory. The freight is then transported to a terminal, loaded
into intercity trailers, carried by linehaul drivers to the terminal which
services the delivery area, transferred to trucks or trailers and then delivered
to the consignee by local drivers. Much of Crouse's LTL freight is handled
and/or transferred through one of three centrally located "break bulk" terminals
between the origin and destination service areas. LTL operations require
substantial equipment capabilities and an extensive network of terminal
facilities. Accordingly, LTL operations, compared to truckload shipments and
operations, command higher rates per hundredweight shipped and have tended
historically to be less vulnerable to competition from other forms of
transportation such as railroads. 'Crouse's concentrated and efficient
operations typically allow it to provide next day service (delivery on the day
after pickup) for much of the LTL freight it handles.
The following table sets forth certain financial and operating data with
respect to Crouse:
<TABLE>
<CAPTION>
1997(3) 1996(3) 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Revenue (000's).................................. $ 126,062 $107,502 $95,152 $95,772 $76,888
Operating Income (000's)......................... 3,136 2,915 3,970 6,017 3,419
Operating Ratio (Note 1)......................... 97.5% 97.3% 95.8% 93.7% 95.6%
Number of shipments (000's) -
Less-than-truckload.......................... 1,076 952 742 744 620
Truckload ............................... 31 27 32 33 28
Revenue per hundredweight -
Less-than-truckload.......................... $9.25 $8.84 $9.25 $9.38 $9.19
Truckload ............................... 2.09 2.04 2.30 2.19 2.06
Tonnage (000's) -
Less-than-truckload.......................... 570 503 402 398 321
Truckload ............................... 495 461 451 479 433
Intercity miles operated (000's)................. 51,952 44,523 39,424 36,720 32,139
At year end, number of -
Terminals (Note 2).......................... 66 55 54 53 48
Tractors and trucks......................... 631 585 527 504 483
Trailers ............................... 1,417 1,194 1,004 948 869
Employees ............................... 1,287 1,113 945 965 806
<FN>
Notes:
(1) Operating ratio is the percent of operating expenses to operating revenue.
(2) Includes owned, leased, agent and other operating locations.
(3) Effective in 1996 the Company prospectively changed its classification of certain shipments, related tonnage and revenues
between less-than-truckload and truckload which affects the comparability of this data with 1993 through 1995 information.
</TABLE>
SEASONALITY
Crouse's quarterly operating results, as well as those of the motor
carrier industry in general, fluctuate with the seasonal changes in tonnage
levels and with changes in weather-related operating conditions. Tonnage levels
are generally highest from September through November. A smaller peak also
generally occurs in April through June. Inclement weather conditions during the
winter months adversely affect the number of freight shipments and increase
operating costs. Historically, Crouse has achieved its best operating results
in the second and third quarters when adverse weather conditions do not affect
its operations and seasonal peaks occur in the freight shipped via public
transportation.
INSURANCE AND SAFETY
Crouse is self-insured for the first $100,000 of losses per occurrence
with respect to public liability, property damage, workers' compensation, cargo
loss or damage, fire, general liability and other risks. In addition, Crouse
maintains excess liability coverage for risks over and above the self-insured
retention limits. In the opinion of management, all claims pending against
Crouse, are adequately reserved under Crouse's self-insurance program, or are
fully covered by outside insurance.
Because most risks are largely self-insured, Crouse's insurance costs are
primarily a function of the success of its safety programs and less subject to
increases in insurance premiums. Crouse conducts a comprehensive safety program
to meet its specific needs. Crouse's drivers have good driving records and have
won individual Iowa State Truck Driving Championships 17 times in the past 19
years.
COMPETITION
The motor carrier industry is highly competitive and fragmented. Crouse
competes on the basis of both price and service with other regional LTL motor
common carriers and, to a lesser degree, with contract and private carriage.
Such competition has resulted in a proliferation of discount programs among
competing carriers. Crouse negotiates rate discounts on an account by account
basis, taking into consideration the cost of services relative to the net
revenue to be obtained, the competing carriers and the need for freight in
specific traffic lanes. For freight moving over greater distances, Crouse must
compete with national and large inter-regional carriers and, to a lesser extent,
with truckload carriers, railroads and overnight delivery companies.
REGULATION
Through December 31, 1995, the interstate operations of Crouse were
subject to regulation by the Interstate Commerce Commission ("ICC") and the
Department of Transportation ("DOT"). Effective January 1, 1996, The ICC
Termination Act of 1995 closed the ICC and transferred its remaining
responsibilities to the DOT and a newly created panel within the DOT, the
Surface Transportation Board ("STB"). Motor carriers are required to register
with the DOT. Registration is granted by the DOT upon showing safety, fitness,
financial responsibility and willingness to abide by DOT regulations.
The trucking industry remains subject to the possibility of regulatory and
legislative changes that can influence operating practices and the demands for
and the costs of providing services to shippers.
Interstate motor carrier operations are subject to safety requirements
prescribed by DOT, while such matters as the weight and dimensions of equipment
are also subject to Federal and state regulations. Effective April 1, 1992,
truck drivers were required to be commercial vehicle licensed in compliance with
the DOT, and legislation subjects them to strict drug testing standards. These
requirements increase the safety standards for conducting operations, but add
administrative costs and have affected the availability of qualified, safety
conscious drivers throughout the trucking industry.
Crouse is subject to state public utilities commissions and similar state
regulatory agencies with respect to safety and financial responsibility in its
intrastate operations. Crouse is also subject to safety regulations of the
states in which it operates, as well as regulations governing the weight and
dimensions of equipment.
Crouse's operations are also subject to various federal, state and local
environmental laws and regulations governing the transportation, storage,
presence, use, disposal and handling of hazardous materials and the maintenance
of underground fuel storage tanks. Management does not know of any existing
condition that would cause compliance with applicable environmental regulations
to have a material effect on the Company's financial condition or results of
operations.* In the event that the Company should fail to comply with
applicable laws and regulations, the Company could be subject to substantial
liability. For a discussion of facilities used by Crouse which maintain
underground fuel storage tanks, see Item 7 "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Financial Condition."
EMPLOYEES
At December 31, 1997, Crouse employed 1,287 persons, of whom 1,030 were
drivers, mechanics, dockworkers or terminal office clerks. The remainder were
engaged in managerial, sales and administrative functions. In the opinion of its
management, Crouse has a good working relationship with its employees.
Approximately 80% of Crouse employees, including primarily drivers,
dockworkers and mechanics, are represented by the International Brotherhood of
Teamsters, Chauffeurs, Warehousemen and Helpers of America ("Teamsters Union")
or other local unions. Crouse and the Teamsters Union are parties to the
National Master Freight Agreement ("NMFA") which expires on March 31, 1998.
There can be no assurance that Crouse will be able to negotiate a new contract
with the Teamsters Union, or that work stoppages will not occur, or that the
terms of any such contract, including the profit sharing program discussed
below, will not be substantially less favorable than those of the existing
contract, any of which could have a material adverse effect on the Company's
business, financial condition, liquidity or results of operations.
As an employer signatory to the agreement, Crouse must contribute to
certain pension plans established for the benefit of employees belonging to the
Teamsters Union. Amendments to the Employee Retirement Income Security Act of
1974 ("ERISA") pursuant to the Multiemployer Pension Plan Amendments Act of 1980
(the "MPPA Act") substantially expanded the potential liabilities of employers
who participate in such plans. Under ERISA, as amended by the MPPA Act, an
employer who contributes to a multiemployer pension plan and the members of such
employer's controlled group may be jointly and severally liable for their
proportionate share of the plan's unfunded liabilities in the event the employer
ceases to have an obligation to contribute to the plan or substantially reduces
its contributions to the plan (i.e., in the event of plan termination or
withdrawal by the Company from the multiemployer plans). Although the Company
has no current information regarding its potential liability under ERISA in the
event it wholly or partially ceases to have an obligation to contribute or
substantially reduces its contributions to the multiemployer plans to which it
currently contributes, management believes that such liability would be
material.
Under provisions of the NMFA, Crouse has maintained a profit sharing
program for all employees since 1988 ("Profit Sharing"). In 1994 the Profit
Sharing was extended for at least another four years after 87% of the union
employees and 91% of its non-union employees voted for such extension. Profit
Sharing is structured to allow all Crouse employees to ratably share 50% of
Crouse's income before income taxes (excluding extraordinary items and gains and
losses on the sale of assets) in return for a 15% reduction in wages.
FINANCIAL SERVICES
UPAC, headquartered in Lenexa, Kansas, is engaged primarily in the
business of financing the payment of insurance premiums. The operations of APR
and UPAC were combined effective December 31, 1996. UPAC offers financing of
insurance premiums primarily to commercial purchasers of property and casualty
insurance who wish to pay their insurance premiums on an installment basis.
Whereas many insurance carriers require advance payment of a full year's
premium, UPAC allows the insured to spread the payment of the insurance premium
over time.
UPAC finances insurance premiums without assuming the risk of claims loss
borne by insurance carriers. When insureds buy an insurance policy from an
independent insurance agent or broker who offers financing through UPAC, the
insureds generally pay a down payment of 15% to 25% of the total premium and
sign a premium finance agreement for the balance, which is generally payable in
installments over nine months. Under the terms of UPAC's standard form of
financing contract, UPAC is given the power to cancel the insurance policies if
there is a default in the payment on the finance contracts and to collect the
unearned portion of the premiums from the insurance carrier. The down payments
are set at a level designed, in the event of cancellation of a policy, such that
the return premiums from the insurance carriers are expected to be sufficient to
cover the loan balances plus interest and other charges due to UPAC.
UPAC currently does business with more than 2,400 insurance agencies or
brokers, the largest of which referred approximately 3% of the total premiums
financed by UPAC in 1997. The following table sets forth certain financial and
operating data with respect to UPAC since the entry into this segment by TFH in
May 1995:
1997 1996 1995
Premiums financed (000's) $122,981 $ 120,355 $37,852
Number of premium finance contracts 48,818 46,968 7,214
Average amount of contracts $ 2,519 $ 2,562 $ 5,247
UPAC had 55 employees at December 31, 1997.
REGULATION
UPAC's operations are governed by state statutes, and regulations
promulgated thereunder, which provide for the licensing, administration and
supervision of premium finance companies. Such statutes and regulations impose
significant restrictions on the operation of UPAC's business.
UPAC currently operates as an insurance premium finance company in the 48
continental states under state licenses it holds or under foreign corporation
qualification in states that do not require separate licensing of insurance
premium finance companies. UPAC generally must renew its licenses annually.
UPAC is also subject to periodic examinations and investigations by state
regulators. The licensing agency for insurance premium finance companies is
generally the banking department or the insurance department of the applicable
state.
State statutes and regulations impose minimum capital requirements, govern
the form and content of financing agreements and limit the interest and service
charges UPAC may impose. State statutes also prescribe notice periods prior to
the cancellation of policies for non-payment, limit delinquency and collection
charges and govern the procedure for cancellation of policies and collection of
unearned premiums. In the event of cancellation, after deducting all interest,
service and late charges due it, UPAC must, under applicable state laws, refund
the surplus unearned premium, if any, to the insureds.
Changes in the regulation of UPAC's activities, such as increased rate
regulation, could have an adverse effect on its operations. The statutes do not
provide for automatic adjustments in the rates a premium finance company may
charge. Consequently, during periods of high prevailing interest rates on
institutional indebtedness and fixed statutory ceilings on rates UPAC may charge
its insureds, UPAC's ability to operate profitably could be adversely affected.
COMPETITION
UPAC encounters intense competition from numerous other firms, including
companies affiliated with insurance carriers, independent insurance brokers who
offer premium finance services, banks and other lending institutions. Some of
UPAC's competitors are larger and have greater financial and other resources and
are better known to insurance agents and brokers than UPAC. In addition, there
are few, if any, barriers to entry in the event other firms, particularly
insurance carriers and their affiliates, seek to compete in this market.
The market for premium finance companies is two-tiered. The first tier is
that of national companies that are owned by large insurance companies, banks,
and commercial finance companies. In this group are five companies that, on a
combined basis, finance approximately $10 billion per annum of insurance
premiums. The second tier is highly fragmented and is comprised of numerous
smaller local, regional and national companies, which finance approximately $2
billion per annum of insurance premiums.
Competition to provide premium financing to insureds is based primarily on
interest rates, level of service to the agents and insureds, and flexibility of
terms for down payment and number of payments. Management believes that its
commitment to account service distinguishes it from its first tier competitors
and that its cost of funds allows it to compete favorably with second tier
competitors.
NEW VENTURE
Effective July 31, 1997, the Company entered into a subscription agreement
with Presis, pursuant to which TFH committed to a $2.9 million capital
contribution over two years in exchange for the exclusive financing and/or sale
rights to equipment produced by, and a 60% equity interest in, Presis. Presis
owns all rights to a proprietary new technology for particle reduction. The new
technology, for which applications for United States patents have been
submitted, relates to a unique non-grinding, non-chemical process for reducing
dry materials particles to sub-micron size. Presis owns functioning prototypes
of machines using this technology and is in the process of engineering
marketable commercial units. Presis intends to contract for the production of
machines utilizing this technology for licensing and sale or financing to
manufacturers who would benefit from the use of sub-micron materials in their
processes. Initially, Presis' expects to market its technology to companies
processing pigments used in the production of inks, paints and coatings.
Competition in the particle reduction field is primarily with
manufacturers of machinery using various milling processes (including three-roll
mills, media mills, air jet mills and hammer mills). Many of the manufacturers
of such competing machinery are more established and have substantially greater
resources than Presis. Management believes its process will compete favorably
with existing technology based on cost effectiveness and quality improvements in
the end products. 'Management believes that the use of sub-micron size particles
will reduce the quantity of pigment required in the production of inks, paints
and coatings. Management also believes that this technology will process
pigments in less time and without the use of solvents required in the milling
processes.
The foregoing statements under the caption "New Venture" are forward-
looking statements which involve risks and uncertainties that are detailed under
the caption "Management Discussion and Analysis of Financial Condition and
Results of Operations - Forward looking Statements."
DISCONTINUED OPERATION
American Freight System, Inc. ("AFS") is treated as a discontinued
operation of TFH. The primary obligation of AFS is to administer the provisions
of a Joint Plan of Reorganization ("Joint Plan"). AFS is to resolve creditor
claims and make distributions to holders of allowed claims. The Joint Plan also
provided for certain distributions from AFS to TFH as unsecured creditor
distributions occurred in excess of 50% of allowed claims. TFH also will
receive the full benefit of any remaining assets through its ownership of the
capital stock of AFS after unsecured creditors received distributions equivalent
to 130% of their allowed claims.
TFH received distributions in accordance with the Joint Plan of $36
million. In addition, AFS paid dividends of $25.0 million, $6.8 million and
$8.5 million to TFH on December 28, 1994, July 5, 1995 and July 11, 1996.
AFS had remaining undistributed net assets of $8.0 million as of December
31, 1997. The closure of the bankruptcy estate is anticipated to occur in 1998.
See Note 8 to the Consolidated Financial Statements - AFS Net Assets - for
further discussion.
ITEM 2. PROPERTIES.
TFH's, UPAC's and Presis' corporate offices are located in approximately
13,000 square feet of a 24,000 square foot office building owned by the Company
at 8245 Nieman Road, Lenexa, Kansas 66214. The remainder of the space is leased
or available for lease to third-party tenants.
In connection with its operations, Crouse operates a fleet of tractors and
trailers and maintains a network of terminals to support the intercity movement
of freight. Crouse owns most of its fleet but leases some equipment from owner-
operators to supplement the owned equipment and to provide flexibility in
meeting seasonal and cyclical business fluctuations.
As of December 31, 1997, Crouse owned 604 tractors and 27 trucks. During
1997, Crouse leased 245 tractors and 30 flatbed trailers from owner-operators.
On December 31, 1997, it also owned 357 temperature controlled trailers, 1,026
volume vans (including 466 53-foot high-cube van trailers), and 34 flatbed
trailers.
The table below sets forth the number of operating locations at year end
for the last five years:
1997 1996 1995 1994 1993
Owned terminals......... 28 27 26 26 10
Leased terminals........ 14 8 8 8 19
Agency terminals........ 24 20 20 19 19
Total............. 66 55 54 53 48
The above operating locations include; Crouse's headquarters in Carroll,
Iowa; break bulk facilities in Des Moines, Iowa, Davenport, Iowa and
Indianapolis, Indiana; and terminals in Crouse's principal markets, Chicago,
Illinois, Milwaukee, Wisconsin, Minneapolis, Minnesota, Kansas City, Missouri,
Omaha, Nebraska, St. Louis, Missouri, Cleveland, Ohio, Cincinnati, Ohio and
Columbus, Ohio.
ITEM 3. LEGAL PROCEEDINGS.
On January 12, 1994 a complaint was filed in the District Court of Johnson
County, Kansas, against TFH, AFS and certain employees of those companies by a
former employee of AFS. Such complaint alleges breach of contract, promissory
estoppel, tortious interference, and misrepresentation and fraud, as it relates
to an alleged incentive compensation arrangement between the former employee and
AFS. The suit claims, from TFH and others, actual and punitive damages in
excess of $4 million. Management believes such claims will not have a material
adverse effect on TFH's financial position or results of operations.*
TFH's subsidiaries are parties to routine litigation primarily involving
claims for personal injury and property damage incurred in the transportation of
freight. TFH and its subsidiaries maintain insurance programs and accrue for
expected losses in amounts designed to cover liability resulting from personal
injury and property damage claims. In the opinion of management, the outcome of
such claims and litigation will not materially affect the Company's financial
position or results of operations.*
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the security holders during the
fourth quarter of 1997.
Included herein, pursuant to General Instruction G, is the information
regarding executive officers of the Company required by Item 401 of Regulation
S-K, as of March 13, 1998.
EXECUTIVE OFFICERS OF THE COMPANY
Name Age Position
Timothy P. O'Neil 41 President, Chief Executive Officer, and Director
Kurt W. Huffman 39 Executive Vice President
Lawrence D. Crouse 57 Vice President and Director
David D. Taggart 53 Vice President
Mark A. Foltz 39 Vice President, Finance and Corporate Secretary
Timothy P. O'Neil, a member of the Company's Board since August, 1995, has
been President and Chief Executive Officer since May, 1995. From October, 1989
through May, 1995, Mr. O'Neil served in various positions with the Company,
including, Senior Vice President, Vice President, Treasurer and Director of
Finance. Since March 1997, he has also served as President and Chief Executive
Officer of UPAC. Mr. O'Neil has been President, Chief Executive Officer, Chief
Financial Officer and Treasurer of AFS since July, 1991.
Kurt W. Huffman has been Executive Vice President of TFH since August 1997
and President and Chief Executive Officer of Presis since March 1998. From
August 1997 to March 1998 he served as Executive Vice President of Presis.
Prior to joining the Company in a management capacity in June 1997, Mr. Huffman
served as Chief Information Officer of Laidlaw Transit Services, Overland Park,
Kansas, a provider of school and municipal bus services, from May 1993 to
February 1997. Prior to his service with Laidlaw, he was a senior manager with
the international accounting firm of Arthur Andersen LLP.
Lawrence D. ("Larry") Crouse has been a member of the Company's Board and
Vice President of the Company since September 5, 1991. He has served as Vice
Chairman of Crouse since January 1997. He served as Chairman and Chief
Executive Officer of Crouse from 1987 until December 1996.
David D. Taggart has been Vice President of TFH since August 1997. He has
also served as Chairman and Chief Executive Officer of Crouse since January
1997. Mr. Taggart joined Crouse in October 1995 as Executive Vice President.
Prior to his service at Crouse, he served as President and Chief Executive
Officer of G.I. Trucking, a regional LTL carrier based in LaMirada, California,
from 1991 to 1995.
Mark A. Foltz has been Vice President, Finance since June 1997 and
Treasurer and Corporate Secretary of TFH since May 1996. He was employed with
TFH as Director of Finance in July 1995 and also served as Assistant Treasurer
and Assistant Secretary from August 1995 to May 1996. Mr. Foltz served in
various financial positions, most recently as Assistant Vice President -
Finance, with Mark VII, Inc., a publicly-held transportation company,
headquartered in Memphis, Tennessee, from October 1987 to June 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
(A) MARKET INFORMATION.
TFH's Common Stock is traded on the American Stock Exchange under the
symbol TFH. Prior to the name change, effective July 2, 1997, the Common Stock
traded under the symbol ANU. The following table shows the sales price
information for each quarterly period of 1997 and 1996.
1997 High Low
Fourth Quarter....................... $10 1/4 $ 8 5/8
Third Quarter........................ 10 1/8 8 7/8
Second Quarter....................... 9 1/16 7 1/2
First Quarter........................ 8 7 3/8
1996 High Low
Fourth Quarter....................... $ 8 9/16 $ 7 5/8
Third Quarter........................ 8 11/16 7 5/8
Second Quarter....................... 9 1/2 7 1/2
First Quarter........................ 8 7/8 7 1/2
(B) HOLDERS.
Number of
Holders of Record
Title of Class at December 31, 1997
Common Stock, par value $0.01 per share 1,291
(C) DIVIDENDS.
No cash dividends were paid during 1997 or 1996 on TFH's Common Stock. TFH
currently intends to retain earnings to finance expansion and does not
anticipate paying cash dividends on its Common Stock in the near future. TFH's
future policy with respect to the payment of cash dividends will depend on
several factors including, among others, acquisitions, earnings, capital
requirements and financial and operating conditions. See Note 4 to the
Consolidated Financial Statements for a discussion of restrictions on the
ability of TFH's subsidiaries to pay dividends to TFH and the ability of TFH to
pay cash dividends.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Operating Revenue........................... $ 133,687 $ 114,883 $ 97,444 $ 95,772 $ 76,888
Income from Continuing
Operations............................. $ 1,100 $ 852 $ 2,810 $ 5,495 $ 2,673
Income from Discontinued
Operations............................. $ -- $ -- $ 3,576 $ 54,845 $ 3,750
Net Income.................................. $ 1,100 $ 852 $ 6,386 $ 60,340 $ 6,423
Basic Earnings per Share -
Continuing Operations.................. $ 0.18 $ 0.13 $ 0.38 $ 0.73 $ 0.35
Discontinued Operations................ -- -- 0.48 7.27 0.50
Total.................................. $ 0.18 $ 0.13 $ 0.86 $ 8.00 $ 0.85
Diluted Earnings per Share -
Continuing Operations.................. $ 0.18 $ 0.12 $ 0.37 $ 0.72 $ 0.35
Discontinued Operations................ -- -- 0.48 7.21 0.50
Total.................................. $ 0.18 $ 0.12 $ 0.85 $ 7.93 $ 0.85
Total Assets................................ $ 89,755 $ 86,812 $ 88,426 $ 85,399 $ 24,484
Long-Term Debt.............................. $ -- $ -- $ -- $ -- $ 1,860
Cash Dividends per
Common Share........................... $ -- $ -- $ -- $ -- $ --
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
TFH operates primarily in two distinct industries; transportation, through
its subsidiary, Crouse; and insurance premium finance, through its subsidiary,
UPAC.
Transportation
OPERATING REVENUE - The changes in transportation operating revenue are
summarized in the following table (in thousands):
1997 1996
vs. vs.
1996 1995
Increase (decrease) from:
Increases in LTL tonnage.................. $11,792 $15,724
Increase (decrease) in LTL revenue
per hundredweight......................... 4,934 (3,946)
Increases in truckload revenues........... 1,834 571
Net increase............................ $18,560 $12,349
Less-than-truckload ("LTL") operating revenues rose 18.8% and 15.8% in 1997
and 1996, in comparison to the preceding years. LTL tonnage rose 13.3% and
21.1% in 1997 and 1996, as compared to 1996 and 1995. The substantial increases
in LTL tonnage in 1997 and 1996 were due to increased freight volumes with
existing and new customers resulting from improved economic conditions and
expansion of the Company's markets. Additionally, 1997 LTL revenues, tons and
shipments temporarily increased during the Teamsters' strike against UPS, as
Crouse met 'customers' needs for small parcel shipments. Crouse's LTL revenue
yield improved approximately 4.8% in 1997 compared to 1996. This improvement in
revenue yield was the result of Crouse's ability to sustain a significant
portion of a general rate increase placed in effect on January 1, 1997,
negotiated rate increases on certain shipping contracts and fuel surcharges.
Revenue per hundredweight also benefited temporarily from a decrease in average
weight per shipment, which was, in part due to the additional volume of small
parcel shipments handled. Smaller shipments typically yield more revenue per
hundredweight. Crouse's average revenue per hundredweight also was positively
impacted when the Company stopped hauling freight for certain customers who
would not agree to increases in rates to levels providing adequate compensation
for services provided and costs incurred. The impact on operating revenues from
increased LTL tonnages in 1996 was offset in part by a decrease in revenue
yield. Revenue per hundredweight decreased 4.3% in 1996, as compared to 1995,
as the trucking industry, including Crouse, was adversely impacted by industry
over-capacity which resulted in competitive market pressures on freight rates.
Truckload operating revenue rose 9.7% and 2.7% in 1997 and 1996, primarily
as a result of 13.9% and 2.1% increases in numbers of shipments. Truckload
revenues and tons benefited principally from strong volumes in the Company's
refrigerated division as the volume of meat hauled rose sharply in the second
half of 1997. Revenue per shipment declined 4.2% in 1997 compared to 1996 as a
result of a decrease in average weight per shipment. Revenue per shipment
increased slightly in 1996 compared to 1995.
OPERATING EXPENSES - A comparative summary of transportation operating
expenses as a percent of transportation operating revenue follows:
Percent of
Operating Revenue
1997 1996 1995
Salaries, wages & employee benefits..... 56.8% 55.9% 55.5%
Operating supplies and expenses......... 12.5 13.2 11.4
Operating taxes and licenses............ 2.6 2.7 2.7
Insurance and claims.................... 2.3 1.9 1.9
Depreciation and amortization........... 3.1 2.7 2.5
Purchased transportation and rents...... 20.2 20.9 21.8
Total operating expenses............. 97.5% 97.3% 95.8%
Crouse's operating ratio, total operating expenses as a percentage of total
operating revenue rose slightly for 1997 at 97.5% compared to 97.3% for 1996. '
Crouse made additional investments in fixed costs in its market expansion in
Ohio, Michigan and Kentucky which exceeded revenues generated as the Company
increased its market penetration into these new markets. Insurance and claims
costs were increased as Crouse incurred unusually high claims costs due to an
increase in the number and severity of accidents and cargo damage occurring in
1997. Salaries and wages were adversely impacted as Crouse operating and
administrative personnel devoted significant man-hours, primarily on an overtime
basis, in training and making the transition to Crouse's new computer system,
which was in service January 1, 1998. Crouse also incurred incrementally
greater variable costs due to the different freight handling characteristics of
the small parcel shipments moved during the strike against UPS as compared to
the freight Crouse typically handles.
Crouse's operating ratio increased in 1996 to 97.3% from 95.8% in 1995 as a
result of decreased revenue yields and increases in certain operating expense
categories. Salaries, wages and employee benefits rose as a result of
contractual wage increases. Operating supplies and expenses were adversely
impacted by increased fuel costs throughout 1996 and increased operating costs
resulting from severe winter weather in early 1996. Additionally, Crouse began
its market expansion in Indiana and Michigan in 1996, incurring additional fixed
costs to open these markets.
Overall, there has also been a change in the mix of Crouse's operating
expense as a percent of revenue in 1997 and 1996, with increases in salaries,
wages and employee benefits and depreciation and amortization and decreases in
purchased transportation and rents as Crouse's growth and market expansion has
been achieved primarily in its LTL operations.
Financial Services
In 1997, UPAC generated operating income of $396,000 on net financial
services revenue of $7.5 million from total insurance premiums financed of
$123.0 million. In 1996, UPAC and APR combined financed $120.4 million of
insurance premiums and generated net financial services revenue of $7.3 million
and an operating loss of $685,000. The increase in premiums financed and net
financial services revenue was primarily the result of the acquisition of UPAC
effective March 29, 1996. The improvement in operating income in 1997 from the
operating loss incurred in 1996 was primarily the result of the integration of
the operations of UPAC and APR which eliminated substantial duplicate
administrative costs incurred in 1996. Also positively impacting operating
income in 1997 was the improved cost of funds under the Company's new receivable
securitization agreement effective December 31, 1996, and an increase in gain
recognized on receivables sold under the new securitization agreement. Operating
income in 1997 was adversely impacted by unusually high levels of credit losses
during the year, primarily as a result of apparently falsified financings by
insurance agents.
The operating loss incurred in 1996 was primarily the result of significant
duplicate administrative costs incurred during the integration of the operations
of UPAC and APR. Additionally, as a result of the termination of the prior
receivables securitization agreement, unamortized deferred transaction costs of
$175,000 were expensed.
New Venture
Since acquiring a controlling interest in Presis, effective July 31, 1997,
the Company has recognized operating expenses of $299,000, primarily in
salaries, wages and employee benefits. In its initial phase Presis will focus
on continued research, product development, establishing sources of supply,
recruiting and training personnel, developing markets and contracting for
production. 'The Company expects this operation to generate minimal, if any,
revenues and to incur operating losses in 1998, which are likely to be material
in relation to its consolidated results of operations.*
Other
The Company's general corporate expenses, consisting primarily of Salaries,
Wages and Employee Benefits and Operating Supplies and Expenses were
approximately $1.4 million in 1997, 1996 and 1995.
As a result of TFH's use of funds for the Crouse market expansion and new
computer system, the UPAC acquisition and the stock repurchase programs, the
Company's interest earnings on invested funds were substantially lower in 1997
and 1996 than in the preceding years. Interest income is expected to continue to
decline as the Company invests its cash and short term investments in its
operations* In addition, in 1996, the Company recorded non-operating expense
reserves for certain non-operating insurance and other reserves. TFH's
effective tax rates for 1997, 1996 and 1995 were 58%, 51% and 43%. The
increases in the effective rate in 1997 and 1996 was the result of the greater
significance of non-deductible intangibles amortization relative to reduced pre-
tax income. Also, in 1997 the Company provided additional income tax reserves
for potential tax adjustments which may result from an ongoing examination of
the Company's income tax returns.*
Outlook
The following statements are forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, and as such
involve risks and uncertainties which are detailed below under the caption
"Forward-Looking Statements".
The Company has developed a three-year strategic plan with the goals of
continuing the growth of its business segments, and making the financial
services segment a more equal contributor to the Company's earnings per share.
In the transportation segment the plan calls for the Company to continue to
provide and improve upon its already superior service to its customers in its
primary operating territory, while extending its operations throughout the
Midwest. As the Company makes the strategic investments necessary to support
this expansion, the Company intends to continue to improve the efficiency and
effectiveness of its existing base of operations.
The financial services segment will focus on increasing its market penetration
in certain states with substantial population and commercial base. The
additional volumes of premium finance contracts is expected to be handled within
the Company's existing administrative operations without incurring significant
additional fixed costs.
In its initial phase Presis will focus on continued research, product
development, establishing sources of supply, recruiting and training personnel,
developing markets and contracting for production. The Company expects this
operation to generate minimal, if any, revenues and to incur operating losses in
1998, which are likely to be material in relation to its consolidated results of
operations.
In addition to the expansion of its existing operations in each of its
business segments, the Company continues to consider potential acquisitions
which would complement these operations.
Forward-Looking Statements
Certain statements contained in this Annual Report on Form 10-K which are not
statements of historical fact constitute forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
including, without limitation, the statements specifically identified as
forward-looking statements in this Form 10-K. In addition, certain statements in
future filings by the Company with the Securities and Exchange Commission, in
the Company's press releases, and in oral statements made by or with the
approval of an authorized executive officer of the Company which are not
statements of historical fact constitute forward-looking statements within the
meaning of the Act. Examples of forward-looking statements include, but are not
limited to (i) projections of revenues, income or loss, earnings or loss per
share, capital expenditures, the payment or non-payment of dividends, capital
structure and other financial items, (ii) statements of plans and objectives of
the Company or its management or Board of Directors, including plans or
objectives relating to the products or services of the Company, (iii) statements
of future economic performance, and (iv) statements of assumptions underlying
the statements described in (i), (ii) and (iii). These forward-looking
statements involve risks and uncertainties which may cause actual results to
differ materially from those anticipated in such statements. The following
discussion identifies certain important factors that could affect the Company's
actual results and actions and could cause such results or actions to differ
materially from any forward-looking statements made by or on behalf of the
Company that relate to such results or actions. Other factors, which are not
identified herein, could also have such an effect.
Transportation
Certain specific factors which may affect the Company's transportation
operation include: competition from other regional and national carriers for
freight in the Company's primary operating territory; price pressure; changes in
fuel prices; labor matters, including changes in labor costs, and other labor
contract issues resulting from the negotiation of a new contract to replace the
current contract which expires March 31, 1998; and environmental matters.
Financial Services
Certain specific factors which may affect the Company's financial services
operation include: the performance of financial markets and interest rates; the
performance of the insurance industry; competition from other premium finance
companies and insurance carriers for finance business in the Company's key
operating states; adverse changes in regulations, including maximum interest
rates, in states in which the Company operates; greater than expected credit
losses; the acquisition and integration of additional premium finance operations
or receivables portfolios; and the inability to obtain continued financing at a
competitive cost of funds.
New Venture
As described in this Report the Company has acquired an equity interest in a
start-up venture formed to develop, sell and/or finance equipment utilizing a
new industrial technology for dry particle reduction. This venture and
technology are subject to risks and uncertainties in addition to those generally
applicable to the Company's operations described herein. These additional risks
and uncertainties include the efficacy and commercial viability of the new
technology, the ability of the venture to market the new technology, the
acceptance of such technology in the marketplace, the general tendency of large
corporations to be slow to change from known technology to emerging new
technology, the venture's reliance on third parties to manufacture the equipment
utilizing the technology, the ability of the venture to protect its proprietary
information in the new technology and potential future competition from third
parties developing equivalent or superior technology. As result of these and
other risks and uncertainties, the future results of operations of the venture
are difficult to predict, and such results may be better or worse than expected
or projected.
Other Matters
With respect to statements in Item 1 and under "Financial Condition" below
regarding the adequacy of reserves and insurance with respect to claims against
Crouse, such statements are subject to a number of risks and uncertainties,
including without limitation the difficulty of predicting the actual number and
severity of future accidents and damage claims.
With respect to statements in Item 3 regarding the outcome of claims and
litigation, such statements are subject to a number of risks and uncertainties,
including without limitation the difficulty of predicting the final resolution
of ongoing claims and litigation.
With regard to the adequacy of the income tax reserves added in connection
with the ongoing tax examination of the Company, the ultimate outcome of the tax
examination cannot be determined at this time and there can be no assurance that
such reserves will be adequate to cover additional tax liabilities resulting
from such examination.
With respect to statements in this Report which relate to the current
intentions of the Company and its subsidiaries or of management of the Company
and its subsidiaries, such statements are subject to change by management at any
time without notice.
With respect to statements in "Financial Condition" regarding the adequacy of
the Company's capital resources, such statements are subject to a number of
risks and uncertainties including, without limitation: the future economic
performance of the Company (which is dependent in part upon the factors
described above); the ability of the Company and its subsidiaries to comply with
the covenants contained in the financing agreements; future acquisitions of
other businesses not currently anticipated by management of the Company; and
other material expenditures not currently anticipated by management.
With respect to statements in "Financial Condition" regarding the adequacy of
the allowances for credit losses, such statements are subject to a number of
risks and uncertainties including, without limitation: greater than expected
defaults by customers, fraud by insurance agents and general economic
conditions.
General Factors
Certain general factors which could impact any or all of the Company's
operations include: changes in general business and economic conditions; changes
in governmental regulation; and tax changes. Expansion of these businesses into
new states or markets is substantially dependent on obtaining sufficient
business volumes from existing and new customers in these new markets at
compensatory rates.
The cautionary statements made pursuant to Section 21E of the Securities
Exchange Act of 1934, as amended, are made as of the date of this Report and are
subject to change. The cautionary statements set forth in this Report are not
intended to cover all of the factors that may affect the Company's businesses in
the future. Forward-looking information disseminated publicly by the Company
following the date of this Report may be subject to additional factors hereafter
published by the Company.
FINANCIAL CONDITION
The Company's financial condition remained strong at December 31, 1997 with
no long-term debt and approximately $8.3 million in cash and investments at the
TFH level, as well as approximately $6.8 million in cash and investments
included in the net assets of AFS. In addition to cash and investment reserves,
a substantial amount of the Company's cash is generated by operating activities.
Cash generated from operating activities decreased in 1997 from 1996 and 1995,
due primarily to a temporary increase in freight accounts receivable resulting
from a lag in billing and collections during Crouse's transition to its new
computer system.
Investing Activities - The continuing winddown of its discontinued
operation, AFS, has been a source of cash to the Company's operation as AFS has
distributed $8.5 million and $6.8 million in dividends and distributions in 1996
and 1995. The Company expects to complete the winddown of AFS and distribute the
remaining cash and investments, $6.8 million at December 31, 1997, and other
assets to TFH in 1998.* The principal use of cash has been the acquisitions of
UPAC for approximately $12.0 million and APR for approximately $11.3 million in
1996 and 1995. In addition, Crouse expended $13.1 million, $9.6 million and
$4.0 million in 1997, 1996 and 1995, to replace and expand its fleet of tractors
and trailers and to acquire new terminals. As of December 31, 1997, Crouse was
committed to purchase approximately $4.0 million of late model tractors to
replace older units in its fleet. These tractors are scheduled for delivery in
the first quarter of 1998 and are expected to be financed from available cash
and investments.
A substantial portion of the capital required for UPAC's 'insurance premium
finance operations has been provided through the sale of undivided interests in
a designated pool of receivables on an ongoing basis under receivables
securitization agreements, as well as, from the date of the acquisition of UPAC
through December 30, 1996, secured borrowings against UPAC's receivables. The
current securitization agreement which matures December 31, 1999 currently
provides for the sale of a maximum of $50 million of eligible receivables. As
of December 31, 1997, $34.5 million of such receivables had been securitized.
See Note 4 to the Consolidated Financial Statements - Financing Agreements.
Through December 31, 1997, the Company contributed $800,000 to Presis,
$500,000 of which has been capitalized in operating equipment and intangibles.
The Company is committed to contribute an additional $2.1 million over the next
two years.
Financing Activities - From March 31, 1996 to December 31, 1996, UPAC's
receivables were financed by secured borrowings under a $30 million revolving
credit agreement with an average interest rate of 7.4% The balance outstanding
under this agreement at December 30, 1996, $22.5 million, was repaid from the
proceeds from the initial sale of receivables under the Company's new receivable
securitization agreement on December 31, 1996 described above.
Effective January 5, 1998, Crouse entered into a new Secured Loan Agreement
which provides for a working capital line of credit of $4.5 million at the
bank's prime rate and an equipment line of credit of $4.5 million accruing
interest, at Crouse's option at either a variable rate equal to the bank's
prime rate, or a fixed rate at 200 basis points over the Federal Home Loan Bank
Rate then existing. Both lines are secured by the Crouse's revenue equipment
and bank deposit balances. The Secured Loan Agreement replaced a revolving
credit agreement which provided for borrowings up to $2.5 million bearing
interest at the bank's prime rate, 8.5% at December 31, 1997. Borrowings under
the revolving credit agreement were secured by Crouse's revenue equipment. In
1995 through 1997, Crouse has utilized this agreement only on a limited basis
for short-term operational needs. The balance outstanding at December 31, 1997
was $2.5 million. This amount was refinanced under the working capital line of
credit pursuant to the Secured Loan Agreement.
In the third quarter of 1995, the Company initiated a program to repurchase
up to 10% of its outstanding shares of common stock. During the second quarter
of 1996, the Company completed this initial repurchase program and expanded the
number of shares authorized to be repurchased by an additional 10% of its then
outstanding shares. The second program was completed in the fourth quarter of
1997. During 1997, 1996 and 1995, the Company repurchased 257,099, 768,600 and
417,100 shares, at a total cost of $12.5 million. Additionally, during the
fourth quarter of 1996, the Company repurchased 28,541 shares of common stock at
a cost of $237,500 pursuant to an "Odd Lot Tender Offer" to holders of less than
100 shares.
On June 26, 1997, the shareholders of the Company approved a 1-for-100
reverse stock split followed by a 100-for-1 forward stock split. These stock
splits were effected on July 1, 1997. The result of this transaction was the
cancellation of approximately 107,000 shares of common stock held by holders of
fewer than 100 shares at the then current market price of $8.89 per share.
The Company believes available cash and investments, cash generated from
operations and funds available under the receivables securitization agreement
and Secured Loan Agreement will be sufficient to fund operations and other cash
needs for 1998.*
At December 31, 1997, Crouse owns or leases 42 parcels of real property
which are utilized in its operations. Six of these facilities maintain
underground fuel storage tanks. Old tanks and piping at five of the six
facilities were replaced and upgraded with tanks equipped with corrosion
protection and automatic tank monitoring equipment between 1990 and 1992. Any
contamination detected during the tank replacement process at these sites was
remediated at the same time. The cost of replacing and upgrading tanks and
remediating contamination, if any was detected, was not material to the
financial position of the Company. The sixth facility was acquired in 1996.
Testing of the site as a condition of purchase did not detect any contamination,
however, the Company expects to replace the existing underground tanks with new
tanks and piping equipped with corrosion protection and automatic tank
monitoring before the end of 1998.* The cost of this replacement and any
potential remediation is not expected to be material.* The Company is not
currently under any requirement to incur mandated expenditures to remediate
previously contaminated sites and does not anticipate any material costs for
other infrequent or non-recurring clean-up expenditures.*
Crouse retains a $100,000 per occurrence self-insured exposure, or
deductible, on its 'workers' compensation, general and automobile liability,
bodily injury and property damage and cargo damage insurance coverages. The
Company maintains reserves for the estimated cost of the self-insured portion of
claims based on management's evaluation of the nature and severity of individual
claims and the Company's past claims experience. There have been no material
adverse trends involving the differences in claims experience versus claims
estimates on any of the above categories of self-insured risks. Based upon
management's evaluation of the nature and severity of individual claims and the
Company's past claims experience, management believes accrued reserves are
adequate for its self-insured exposures as of December 31, 1997.*
The amount of the allowance for credit losses is based on periodic (not less
than quarterly) evaluations of the portfolios based on historical loss
experience, detail account by account agings of the portfolios and management's
evaluation of specific accounts. Management believes the allowances for credit
losses are adequate to provide for potential losses.* See Note 1 to the
Consolidated Financial Statements - Summary of Significant Accounting Policies -
Allowance for Credit Losses.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using
two digits to represent years rather than four digits, which include the century
designation. Without corrective action, it is possible that the Company's
computer programs that have date-sensitive software could recognize a date using
"00" as the year 1900 rather than the year 2000. In some systems this could
result in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The Company has performed preliminary assessments of the potential impact of
the year 2000 Issue on the data processing systems of its financial services and
transportation operations.
During 1997, the database engine for the PC-based finance system was
upgraded to a Year 2000 compliant version and the related databases and programs
were modified by internal personnel to properly handle Year 2000 dates. Testing
performed to date of these modifications has been successful.
As Crouse implemented its new data processing system during 1997, databases
were modified to allow for the century designation and certain common date
programs were identified. During 1998, the Company plans to upgrade its
operating system to a Year 2000 compliant version and to make and test the
necessary modifications to its common date programs using available personnel.*
The costs incurred in 1997 for the assessment of the issue, upgrades in
third party software and modification and testing of the Company's computer
systems did not have a material impact on the results of operations of the
Company. Management's best current estimates of the remaining costs to be
incurred, which are based on assumptions of future events, including, without
limitation, the continued availability of resources, third party modification
plans and other factors, such future costs should not be material to the
operations of the Company.*
The Company has initiated formal communications with significant vendors to
determine the extent to which its operations are vulnerable to those third
parties' failure to remediate their own Year 2000 Issues. Additional testing of
data exchanges with certain vendors will be performed in 1998 as such vendors
complete their systems modifications.*
There can be no assurance, however, that the systems of other companies with
which the Company interacts will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the financial
condition, liquidity or results of operations of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of TransFinancial Holdings, Inc.:
We have audited the consolidated balance sheets of TransFinancial Holdings, Inc.
(a Delaware corporation) and Subsidiaries as of December 31, 1997 and 1996 and
the related consolidated statements of income, cash flows and shareholders'
equity for the three years then ended. We have also audited Schedule II -
Valuation and Qualifying Accounts, as listed in Item 14(a)2 of the Form 10-K,
for the years ended December 31, 1997 and 1996. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of TransFinancial
Holdings, Inc. and Subsidiaries as of December 31, 1997 and 1996 and the
consolidated results of their operations and their cash flows for the three
years then ended in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Kansas City, Missouri
February 4, 1998
<TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31
1997 1996
(In Thousands)
<S> <C> <C>
ASSETS
Current Assets
Cash and temporary cash investments........................................ $ 4,778 $ 9,021
Short-term investments..................................................... 3,543 9,957
Freight accounts receivable, less allowance for
credit losses of $464 and $419........................................ 14,909 9,233
Finance accounts receivable, less allowance for
credit losses of $499 and $769........................................ 14,016 14,554
Current deferred income taxes.............................................. 1 618
Other current assets....................................................... 1,831 1,965
AFS net assets (Note 8).................................................... 7,993 7,570
Total current assets.................................................. 47,071 52,918
Operating Property, at Cost
Revenue equipment.......................................................... 32,275 24,373
Land....................................................................... 3,585 3,489
Structures and improvements................................................ 10,506 10,087
Other operating property................................................... 9,624 5,328
55,990 43,277
Less Accumulated Depreciation.............................................. (22,969) (19,887)
Net operating property................................................ 33,021 23,390
Intangibles, Net of Accumulated Amortization................................... 9,243 9,497
Other Assets .................................................................. 420 1,007
$ 89,755 $ 86,812
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Cash overdrafts............................................................ $ 754 $ --
Accounts payable........................................................... 2,855 2,980
Notes payable.............................................................. 2,500 --
Accrued payroll and fringes................................................ 5,956 5,533
Claims and insurance accruals.............................................. 566 246
Other accrued expenses..................................................... 2,374 2,289
Total current liabilities............................................. 15,005 11,048
Deferred Income Taxes.......................................................... 2,265 1,203
Contingencies and Commitments (Note 7)......................................... -- --
Shareholders' Equity (Notes 2 and 5)...........................................
Preferred stock $0.01 par value, authorized
1,000,000 shares, none outstanding.................................... -- --
Common stock $0.01 par value, authorized
13,000,000 shares, issued 7,509,622 and
7,605,570 shares...................................................... 75 76
Paid-in capital............................................................ 5,581 5,529
Retained earnings.......................................................... 79,394 79,242
Treasury stock, 1,481,735 and 1,224,661 shares, at
cost.................................................................. (12,565) (10,286)
Total shareholders' equity............................................ 72,485 74,561
$ 89,755 $ 86,812
<FN>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
</TABLE>
<TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Year Ended December 31
1997 1996 1995
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C>
Operating Revenue
Transportation........................................... $ 126,062 $ 107,502 $ 95,152
Financial Services and Other............................. 7,625 8,645 2,292
Less: Interest on secured borrowings..................... -- 1,264 --
Financial Services and Other, net................... 7,625 7,381 2,292
Total operating revenue............................. 133,687 114,883 97,444
Operating Expenses
Salaries, wages and employee benefits.................... 74,622 63,165 53,854
Operating supplies and expenses.......................... 19,605 18,487 12,441
Provision for credit losses.............................. 950 892 175
Operating taxes and licenses............................. 3,324 2,978 2,577
Insurance and claims..................................... 3,051 2,224 1,873
Depreciation and amortization............................ 4,758 3,702 2,821
Purchased transportation and rents....................... 25,441 22,589 20,851
Total operating expenses............................ 131,751 114,037 94,592
Operating Income............................................. 1,936 846 2,852
Nonoperating Income (Expense)
Interest income.......................................... 611 1,114 2,011
Gain on sale of operating property, net.................. 56 78 59
Other, net............................................... 22 (299) 8
Total nonoperating income (expense)................. 689 893 2,078
Income From Continuing Operations Before
Income Taxes............................................. 2,625 1,739 4,930
Income Tax Provision (Note 6)................................ 1,525 887 2,120
Income From Continuing Operations............................ 1,100 852 2,810
Income From Discontinued Operations (Note 8)................. -- -- 3,576
Net Income ................................................ $ 1,100 $ 852 $ 6,386
Weighted Average Common Shares Outstanding................... 6,214 6,780 7,409
Basic Earnings Per Share from:
Continuing Operations.................................... $ 0.18 $ 0.13 $ 0.38
Discontinued Operations.................................. 0.00 0.00 0.48
Net Income............................................... $ 0.18 $ 0.13 $ 0.86
Diluted Earnings Per Share from:
Continuing Operations.................................... $ 0.18 $ 0.12 $ 0.37
Discontinued Operations.................................. 0.00 0.00 0.48
Net Income............................................... $ 0.18 $ 0.12 $ 0.85
<FN>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
</TABLE>
<TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities-
Net income............................................... $ 1,100 $ 852 $ 6,386
Adjustments to reconcile net income to
net cash generated in operating activities-
Depreciation and amortization....................... 4,758 3,702 2,821
Provision for credit losses......................... 1,070 1,012 265
Deferred tax provision.............................. 1,679 336 569
Other............................................... 24 194 4
Net increase (decrease) from change in
working capital items affecting operating
activities-
Freight accounts receivable..................... (5,796) (1,401) 633
Accrued payroll and fringes..................... 423 330 (572)
Other........................................... (649) 1,860 (7)
Income from discontinued operations................. -- -- (3,576)
2,609 6,885 6,523
Cash Flows From Investing Activities-
Proceeds from discontinued operations.................... -- 8,500 6,753
Purchase of operating property, net...................... (12,956) (10,150) (4,280)
Purchase of finance subsidiaries,
net of cash acquired................................ -- (11,979) (11,267)
Origination of finance accounts
receivables......................................... (125,391) (120,989) (40,548)
Sale of finance accounts receivables..................... 84,974 61,289 27,110
Collection of owned finance accounts
receivables......................................... 40,005 82,836 14,138
Collections of long-term receivable...................... -- -- 1,270
Purchase of short-term investments....................... (10,411) (35,823) (71,142)
Maturities of short-term investments..................... 16,825 53,232 70,670
Other ................................................ (466) (1,050) (450)
(7,420) 25,866 (7,746)
Cash Flows from Financing Activities-
Borrowings (repayments) of debt.......................... 2,500 (23,775) --
Cash overdrafts.......................................... 754 -- --
Payments to acquire treasury stock....................... (2,277) (6,656) (3,543)
Payment for fractional shares from
reverse stock split................................. (459) -- --
Other ................................................ 50 85 18
568 (30,346) (3,525)
Net Increase (Decrease) in Cash and
Temporary Cash Investments............................... (4,243) 2,404 (4,748)
Cash and Temporary Cash Investments:
Beginning of Period...................................... 9,021 6,617 11,365
End of Period............................................ $ 4,778 $ 9,021 $ 6,617
Cash Paid During the Period for-
Interest ................................................ $ 16 $ 1,109 $ --
Income Tax............................................... $ 106 $ 332 $ 1,537
</TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Supplemental Schedule of Noncash Investing Activities:
The Company acquired all of the capital stock of UPAC for approximately
$11,979,000. In conjunction with the acquisition, liabilities were assumed as
follows (see Note 9):
1996
Fair value of assets acquired............................ $30,587
Cash paid for capital stock and acquisition expenses..... (11,979)
Intangibles.............................................. 6,617
Liabilities assumed...................................... $25,225
The Company acquired all of the capital stock of APR and a software and
service agreement for approximately $11,301,000. In conjunction with the
acquisition, liabilities were assumed as follows (See Note 9):
1995
Fair value of assets acquired............................ $10,582
Cash paid for capital stock, software/service
agreement and acquisition expenses................... (11,301)
Intangibles.............................................. 2,441
Liabilities assumed...................................... $ 1,722
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
Total
Share-
Common Paid-In Retained Treasury holders'
Stock Capital Earnings Stock Equity
(In Thousands)
<S> <C> <C> <C> <C> <C>
Balance at Dec. 31, 1994 $ 76 $ 5,339 $ 72,004 $ -- $ 77,419
Net income............................. -- -- 6,386 -- 6,386
Issuance of shares under
Incentive Stock Plan............... -- 18 -- -- 18
Purchase of 417,100 shares
of common stock.................... -- -- -- (3,543) (3,543)
Balance at Dec. 31, 1995 76 5,357 78,390 (3,543) 80,280
Net income............................. -- -- 852 -- 852
Issuance of shares under
Incentive Stock Plan............... -- 172 -- (87) 85
Purchase of 797,141 shares
of common stock.................... -- -- -- (6,656) (6,656)
Balance at Dec. 31, 1996 76 5,529 79,242 (10,286) 74,561
Net income............................. -- -- 1,100 -- 1,100
Fractional shares cancelled
in reverse stock split (1) -- (948) -- (949)
Issuance of shares under
Incentive Stock Plan............... -- 52 -- (2) 50
Purchase of 257,099 shares
of common stock.................... -- -- -- (2,277) (2,277)
Balance at Dec. 31, 1997 $ 75 $ 5,581 $ 79,394 $ (12,565) $ 72,485
<FN>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
</TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include TransFinancial Holdings, Inc. and its subsidiary companies ("the
Company" or "TFH"). Pursuant to the approval of shareholders, the Company
changed its name from Anuhco, Inc. to TransFinancial Holdings, Inc. effective
July 2, 1997. TFH's principal holdings include Crouse Cartage Company
("Crouse"), Agency Premium Resource, Inc. ("APR") and its subsidiaries,
Universal Premium Acceptance Corporation and UPAC of California, Inc. (together
"UPAC"), Presis, L.L.C. ("Presis") and American Freight System, Inc. ("AFS").
The operating results of APR and UPAC are included from May 31, 1995 and March
29, 1996, the dates of their respective acquisitions (See Note 9). The
Company's proportionate interest in Presis is included from July 31, 1997, the
date of the Company's investment. On June 10, 1991, the Joint Plan of
Reorganization ("Joint Plan") was confirmed by the Bankruptcy Court resulting in
the formal discharge of AFS and its affiliates from Chapter 11 Bankruptcy
proceedings. AFS, whose responsibility is to administer the Joint Plan, has
been accounted for as a discontinued operation since 1991 with only net assets
reflected in the TFH consolidated financial statements (see Note 8). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Segment Information - TFH operates primarily in two industry segments,
transportation and financial services. Other operations include the leasing of
space in the Company's headquarters office building and interest in the new
venture, Presis. Through Crouse, the Company operates as a regional less-than-
truckload motor carrier primarily serving the north central and midwest portion
of the United States. A substantial portion of Crouse's business is
concentrated in the states of Iowa, Illinois, Minnesota, Missouri and Wisconsin.
TFH also operates as an insurance premium finance company through UPAC. The
Company provides short-term secured financing for commercial insurance premiums
through insurance agencies throughout the United States. Over half of the
insurance premiums financed by UPAC are placed through insurance agencies in
California, Missouri, Florida, Massachusetts and Kansas. Information regarding
the Company's industry segments for the years ended December 31, 1997, 1996 and
1995 is as follows:
<TABLE>
<CAPTION>
Transpor- Financial Consoli-
tation Services Other dated
(In Thousands)
<S> <C> <C> <C> <C>
1997
Revenues................................................ $ 126,062 $ 7,542 $ 83 $ 133,687
Segment Operating Income................................ $ 3,136 $ 396 $ (198) $ 3,334
General Corporate Expenses.............................. (1,398)
Operating Income........................................ 1,936
Nonoperating Income..................................... 689
Income from Continuing Operations
before Income Taxes................................. $ 2,625
Depreciation and Amortization........................... $ 3,912 $ 770 $ 76 $ 4,758
Capital Expenditures.................................... $ 13,104 $ 143 $ 413 $ 13,660
Identifiable Assets..................................... $ 46,336 $ 24,360 $ 1,742 $ 72,438
Corporate Assets........................................ 17,317
Total Assets............................................ $ 89,755
1996
Revenues................................................ $107,502 $ 7,328 $ 53 $ 114,883
Segment Operating Income................................ $ 2,915 $ (685) $ 32 $ 2,262
General Corporate Expenses.............................. (1,416)
Operating Income........................................ 846
Nonoperating Income..................................... 893
Income from Continuing Operations
before Income Taxes................................. $ 1,739
Depreciation and Amortization........................... $ 3,001 $ 678 $ 23 $ 3,702
Capital Expenditures.................................... $ 9,556 $ 441 $ 956 $ 10,953
Identifiable Assets..................................... $ 33,633 $ 26,791 $ 933 $ 61,357
Corporate assets........................................ 25,455
Total Assets............................................ $ 86,812
1995
Revenues................................................ $ 95,152 $ 2,292 $ - $ 97,444
Segment Operating Income................................ $ 3,970 $ 283 $ - $ 4,253
General Corporate Expenses............................... (1,401)
Operating Income........................................ 2,852
Nonoperating Income..................................... 2,078
Income from Continuing Operations
before Income Taxes................................. $ 4,930
Depreciation and Amortization........................... $ 2,587 $ 234 $ -- $ 2,821
Capital Expenditures.................................... $ 4,432 $ 21 $ -- $ 4,453
Identifiable Assets..................................... $ 26,809 $ 13,607 $ -- $ 40,416
Corporate Assets........................................ 48,010
Total Assets............................................ $ 88,426
</TABLE>
Depreciation and Maintenance - Depreciation is computed using the
straight-line method and the following useful lives for new equipment:
Revenue Equipment -
Tractors............................. 3 - 5 years
Trailers............................. 3 - 7 years
Terminal Facilities..................... 19 - 39 years
Other Equipment......................... 2 - 10 years
Upon sale or retirement of operating property, the cost and accumulated
depreciation are removed from the accounts and any gain or loss is reflected in
non-operating income. The Company expenses costs related to repairs and
overhauls of equipment as incurred.
Recognition of Revenues - Transportation operating revenues, and related
direct expenses, are recognized when freight is delivered. Other operating
expenses are recognized as incurred.
Finance charges on premium finance receivables which are not sold pursuant
to the Company's securitization agreement are recognized when earned under
applicable state regulations using methods which approximate the interest
method. Recognition of earned finance charges on delinquent accounts is
suspended when it is determined that collectibility of principal and interest is
not probable. Interest on delinquent accounts is recognized when collected.
Gains on sale of receivables under the securitization agreement are recorded
when the receivables are sold (see Note 4). Late fees and other ancillary fees
are recognized when chargeable. Uncollectible accounts are generally charged
off after one year, unless there is specific assurance of collection
through return of unearned premiums from the insurance carrier. Recoveries of
charged off accounts are recognized when collected.
Allowance for Credit Losses - The allowances for credit losses are
maintained at amounts considered adequate to provide for potential losses. The
amount of each allowance for credit losses is based on periodic (not less than
quarterly) evaluations of the portfolios based on historical loss experience,
detail account by account agings of the portfolios and management's evaluation
of specific accounts. The following is an analysis of changes in the allowance
for credit losses on finance accounts receivable for 1997 and 1996 (in
thousands):
1997 1996
Balance, beginning of year................ $ 769 $ 351
Allowance acquired with UPAC.............. -- 510
Provision for credit losses............... 950 892
Charge-offs, net of recoveries of $257
and $175 ............................... (1,220) (984)
Balance, at the end of year............... $ 499 $ 769
Income Taxes - The Company accounts for income taxes in accordance with
the liability method. Deferred income taxes are determined based upon the
difference between the book and the tax basis of the Company's assets and
liabilities. Deferred taxes are provided at the enacted tax rates expected to
be in effect when these differences reverse.
Cash Equivalents - The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents.
Short-Term Investments - The Company's short-term investments generally
are held in U. S. Treasury securities, government agency securities or municipal
bonds of the highest rating. These investments are classified as held to
maturity securities and are recorded at amortized cost which approximates market
value.
Disclosures about Fair Value of Financial Instruments - The following
methods and assumptions are used to estimate the fair value of each class of
financial instruments:
a. Temporary Cash Investments and Short-Term Investments. The carrying
amount approximates fair value because of the short maturity of these
instruments.
b. Finance Accounts Receivable Under Premium Finance Agreements. The
carrying amount approximates fair value because of the short maturity of
these instruments.
Pervasiveness of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
Reclassifications - Certain amounts in the accompanying consolidated
balance sheets and consolidated statements of cash flows in prior periods have
been reclassified to conform with the current period's presentations.
Accounting for the Impairment of Long-Lived Assets - The Company
periodically reviews its long-lived assets and associated intangible
assets and has identified no events or changes in circumstances which indicate
that the carrying amount of these assets may not be recoverable. When
impairment is indicated, any impairment loss is measured by the excess of
carrying values over fair values. The Company currently has no material assets
to be disposed of.
New Accounting Policies - The Company adopted Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (SFAS 125), on January 1,
1997. SFAS 125 applies a control-oriented, financial-components approach to
financial-asset-transfer transactions, such as the Company's securitization of
finance accounts receivables, whereby the Company (1) recognizes the financial
and servicing assets it controls and the liabilities it has incurred, (2)
removes financial assets from the balance sheet when control has been
surrendered, and (3) removes liabilities from the balance sheet once they are
extinguished. Such transfers result in the recognition of a net gain or loss.
Under SFAS 125, control is considered to have been surrendered only if (i) the
transferred assets have been isolated from the transferor and its creditors,
even in bankruptcy or other receivership (ii) the transferee has the right to
pledge or exchange the transferred assets, or, is a qualifying special-purpose
entity (as defined) and the holders of beneficial interests in that entity have
the right to pledge or exchange those interests; and (iii) the transferor does
not maintain effective control over the transferred assets through an agreement
which both entitles and obligates it to repurchase or redeem those assets prior
to maturity, or through an agreement which both entitles and obligates it to
repurchase or redeem those assets if they were not readily obtainable elsewhere.
If any of these conditions are not met, the Company accounts for the transfer as
a secured borrowing.
The Company retains the servicing on finance receivables sold under its
securitization agreement. In accordance with SFAS 125, a servicing asset or
liability is recognized for the fair value based on an analysis of
discounted cash flows that includes estimates of servicing fees, servicing
costs, projected ancillary servicing revenue and projected prepayment rates.
The Company has not recorded a net servicing asset as the amount is not material
to its financial position or results of operations.
2. EMPLOYEE BENEFIT PLANS
Multiemployer Plans
Crouse participates in multiemployer pension plans which provide defined
benefits to substantially all of the drivers, dockworkers, mechanics and
terminal office clerks who are members of a union. Crouse contributed
$5,762,000, $4,596,000 and $3,688,000 to the multiemployer pension plans for
1997, 1996 and 1995. The Multiemployer Pension Plan Amendments Act of 1980
established a continuing liability to such union-sponsored pension plans for an
allocated share of each plan's unfunded vested benefits upon substantial or
total withdrawal by participating employers or upon termination of the pension
plans. Although the Company has no current information regarding its potential
liability under ERISA in the event it wholly or partially ceases to have an
obligation to contribute or substantially reduces its contributions to the
multiemployer plans to which it currently contributes, management believes that
such liability would be material. Crouse also contributed $7,161,000,
$5,904,000 and $5,142,000, to multiemployer health and welfare plans for 1997,
1996 and 1995.
Non-Union Pension Plan
Crouse has a defined contribution pension plan ("the Non-Union Plan")
providing for a mandatory Company contribution of 5% of annual earned
compensation of the non-union employees. Additional discretionary contributions
may be made by the Board of Directors of Crouse depending upon the profitability
of Crouse. Any discretionary funds contributed to the Non-Union Plan
will be invested 100% in TFH Common Stock.
Pension expense, exclusive of the multiemployer pension plans, was
$131,000, $420,000 and $396,000 for the years 1997, 1996 and 1995. The
accompanying consolidated balance sheets include an accrued pension contribution
of $70,000 and $240,000 as of December 31, 1997 and 1996.
Profit Sharing
In September, 1988, the employees of Crouse approved the establishment of
a profit sharing plan ("the Plan"). The Plan is structured to allow all
employees (union and non-union) to ratably share 50% of Crouse's income before
income taxes (excluding extraordinary items and gains or losses on the sale of
assets) in return for a 15% reduction in their wages. The Plan calls for profit
sharing distributions to be made on a quarterly basis. The Plan was recertified
in 1991 and 1994, and shall continue in effect through March 31, 1998, or until
a replacement Collective Bargaining Agreement is reached between the parties,
whichever is later. The accompanying consolidated balance sheets include profit
sharing accruals of $276,000 and $691,000 for 1997 and 1996. The accompanying
consolidated statements of income include profit sharing expense of $3,088,000,
$2,833,000, and $3,923,000 for 1997, 1996 and 1995.
401(k) Plan
Effective January 1, 1990, Crouse established a salary deferral program
under Section 401(k) of the Internal Revenue Code. To date, participant
contributions to the 401(k) plan have not been matched with Company
contributions. All employees of Crouse and AFS are eligible to participate in
the 401(k) plan after they attain age 21 and complete one year of qualifying
employment.
UPAC Plans
Effective June 1, 1995, the Company established a 401(k) Savings Plan and
a Money Purchase Pension Plan, both of which are defined contribution plans.
Employees of UPAC and TFH are eligible to participate in the plans after they
attain age 21 and complete one year of employment.
Participants in the 401(k) Savings Plan may defer up to 10% of annual
compensation. The Company matches 50% of the amount deferred by each employee.
Company contributions vest over five years. Company matching contributions in
1997, 1996 and 1995 were $48,000, $27,000 and $10,000.
Under the Money Purchase Pension Plan, the Company contributes 7% of each
eligible employee's annual compensation plus 5.7% of any compensation in excess
of the Social Security wage base. Company contributions in 1997, 1996 and 1995
were $112,000, $66,000 and $30,000.
Stock Option Plans
An Incentive Stock Option Plan was adopted in 1983 which provides that
options for shares of TFH Common Stock may be granted to officers and key
employees at fair market value of the stock at the time such options are
granted. This plan terminated under its provisions in May, 1993 and no further
options may be granted. In 1995, options for 25,000 shares were exercised at an
average exercise price of $2.44 per share. At December 31, 1997, no options
were outstanding or exercisable pursuant to this plan.
An Incentive Stock Plan was adopted in 1992 ("1992 Plan") which provides
that options for shares of TFH Common Stock shall be granted to directors, and
may be granted to officers and key employees at fair market value of the stock
at the time such options are granted. Initially, 500,000 shares of TFH common
stock were reserved for issuance pursuant to the 1992 Plan. As of December 31,
1997, options for 125,150 shares were available for grant pursuant to the
1992 Plan. These options generally become exercisable ratably over two to five
years and remain exercisable for ten years from the date of grant.
In each of 1995 and 1996 the Company granted non-qualified options to
acquire 10,000 shares of common stock to an officer of UPAC pursuant to an
employment agreement. These options become exercisable in 1998 and 1999 and
expire in 2005 and 2006.
The Company has elected to continue to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related Interpretations in accounting for its employee stock options. Under APB
25, because the exercise price of each of the Company's stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Financial Accounting Standards Board Statement No. 123 ("SFAS 123")
"Accounting for Stock-Based Compensation," requires the use of option valuation
models to estimate the fair value of stock options granted and recognize that
estimated fair value as compensation expense. Pro forma information regarding
net income and earnings per share is required by SFAS 123, and has been
determined as if the Company had accounted for its stock options under the fair
value method of SFAS 123. The fair value of these options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted average assumptions for 1997, 1996 and 1995: risk-free interest rates
of 6.1%, 6.1% and 6.2%; expected life of options of 4.9 years, 4.5 years and 4.4
years; and a volatility factor of the expected market price of the Company's
common stock of .20. The preceding assumptions used as inputs to the option
valuation model are highly subjective in nature. Changes in the subjective
input assumptions can materially affect the fair value estimates; thus, in
management's opinion, the estimated fair values presented do not necessarily
represent a reliable single measure of the fair value of its employee stock
options. For purposes of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the options' vesting periods. The
Company's unaudited pro forma information follows (in thousands, except for per
share amounts):
1997 1996 1995
Pro forma income from continuing operations $ 949 $ 743 $2,771
Pro forma basic earnings per share
from continuing operations............... $ 0.15 0.11 $0.37
The following table is a summary of data regarding stock options granted
during the three years ended December 31, 1997:
<TABLE>
<CAPTION>
1997 1996 1995
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year............. 263,200 $7.17 198,200 $ 6.43 127,850 $ 4.79
Granted........................... 118,250 $7.99 106,500 $ 7.96 75,500 $ 9.06
Forfeited......................... (19,900) $8.09 (18,000) $6.85 (1,000) $ 9.00
Exercised......................... (10,900) $4.84 (23,500) $4.73 (4,150) $ 3.23
Options outstanding at end
of year....................... 350,650 $7.47 263,200 $7.17 198,200 $ 6.43
Options exercisable at end
of year....................... 119,000 $ 6.38 91,650 $5.62 64,500 $ 4.47
Estimated weighted average
fair value per share of
options granted during
the year.......................... $ 2.00 $ 2.00 $ 2.40
<FN>
The per share exercise prices of options outstanding as of December 31, 1997, ranged from $2.41 to $9.79 per share. The weighted
average remaining contractual life of those options was 7.8 years.
</TABLE>
The following table summarizes information concerning outstanding and
exercisable options as of December 31, 1997.
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Number of Remaining Average Number of Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices Options Life Price Options Price
<S> <C> <C> <C> <C> <C>
$0.00-$2.50 4,150 4.4 $2.41 4,150 $2.41
$2.50-$5.50 70,450 5.8 $4.95 60,650 $4.91
$5.50-$8.00 188,050 8.6 $7.78 23,750 $7.47
$8.00-$10.00 88,000 7.9 $9.04 30,450 $9.01
350,650 119,000
</TABLE>
3. INSURANCE COVERAGE
Claims and insurance accruals reflect accrued insurance premiums and the
estimated cost of incurred claims for cargo loss and damage, bodily injury and
property damage and workers' compensation not covered by insurance. The Company
estimates reserves required for the self-insured portion of claims based on
management's evaluation of the nature and severity of individual claims and the
Company's past claims experience. The Company regularly assesses and adjusts
estimated reserves based on continued development of information regarding
claims through the ultimate claims settlement. Adjustments to estimated
reserves are recorded in the period in which additional information becomes
known. Workers' compensation expense is included in "Salaries, wages and
employee benefits" in the accompanying consolidated statements of income.
The Company's public liability and property damage, cargo and workers'
compensation premiums are subject to retrospective adjustments based on actual
incurred losses. The actual adjustments normally are not known for at least one
year; however, based upon a review of the preliminary compilation of losses
incurred through December 31, 1997, management does not believe any material
adjustment will be made to the premiums paid or accrued at that date.
4. FINANCING AGREEMENTS
Securitization of Receivables
In December, 1996, the Company, UPAC and APR Funding Corporation (wholly-
owned subsidiary of the Company) entered into an extendible three year
securitization agreement whereby it can sell undivided interests in a designated
pool of accounts receivable on an ongoing basis. The maximum allowable amount
of receivables to be sold under the agreement is $50.0. This agreement
replaced a similar securitization agreement with another financial institution
that was entered into in October 1995 and UPAC's secured credit agreement, dated
July 1994. The purchaser permits principal collections to be reinvested in new
financing agreements. The Company had securitized receivables of $34.5 million
and $37.2 million at December 31, 1997 and 1996. The cash flows from the sale
of receivables are reported as investing activities in the accompanying
consolidated statement of cash flows. The securitized receivables are reflected
as sold in the accompanying balance sheet. The proceeds from the initial
securitization of the receivables were used to purchase previous securitized
receivables under the prior agreement and to pay off the secured note payable
under UPAC's secured credit agreement.
The terms of the agreement require UPAC to maintain a minimum tangible net
worth of $5.0 million and contain restrictions on the payment of dividends by
UPAC to TFH without prior consent of the financial institution. The terms of
the agreement also require the Company to maintain a minimum tangible net worth
of $50.0 million. The Company was in compliance with all such provisions at
December 31, 1997.
The terms of the securitization agreement require UPAC to maintain a
reserve at specified levels which serves as collateral. At December 31, 1997,
approximately $5.0 million of owned finance receivables served as collateral
under the reserve provision.
Revolving Credit Agreement
In September, 1988, Crouse entered into a five-year credit agreement with
a commercial bank which provided for maximum borrowings equaling the lesser of
$2,500,000 or the borrowing base, as defined in such agreement. This agreement
was amended and superseded on September 30, 1991, and TFH was added as a
guarantor. In September, 1996 the term was extended to June 30, 1998. There
was no outstanding balance on this revolving line of credit at December 31,
1996. At December 31, 1997 the outstanding balance was $2.5 million. The
agreement provides for interest on borrowings at the bank's prime rate, 8.5% at
December 31, 1997. The terms of the agreement require the maintenance of a
minimum shareholder's equity and contain restrictions on declaration and payment
of dividends, acquisition of Crouse stock, loans to officers or employees and
type of investments. Crouse was in compliance with all such provisions at
December 31, 1997.
Secured Loan Agreement
Effective January 5, 1998, Crouse's Revolving Credit Agreement was
terminated and replaced with a five year Secured Loan Agreement which provides
for a $4.5 million working capital line of credit loan ("Working Capital Line")
and a $4.5 million equipment line of credit loan ("Equipment Line"). Interest
on the Working Capital Line accrues at a floating rate equal to the bank's prime
rate. Interest on the Equipment Line accrues, at Crouse's option, at either a
floating rate equal to the bank's prime rate or a fixed rate equal to the
Federal Home Loan Bank Rate plus 200 basis points at the time of each advance.
The Secured Loan Agreement is collateralized by Crouse's revenue equipment and
bank deposit balances.
The terms of the Secured Loan Agreement require Crouse to maintain
tangible net worth of $24.0 million, increasing by $1.0 million per year
beginning in 1998, and contain restrictions on the payment of dividends,
incurring debt or liens, or change in majority ownership of Crouse. The terms
of the agreement also permit the bank to accelerate the due date of borrowings
if there is a material adverse change in the financial condition of Crouse.
The balance outstanding on the Revolving Credit Agreement was refinanced
under the Working Capital Line as of January 5, 1998.
5. COMMON STOCK AND EARNINGS PER SHARE
On June 26, 1995, the Company adopted a program to repurchase up to 10% of
its outstanding shares of common stock. During the second quarter of 1996, the
Company completed this initial repurchase program and expanded the number of
shares authorized to be repurchased by an additional 10% of its then outstanding
shares. The second program was completed in the fourth quarter of 1997. During
1997, 1996 and 1995, the Company repurchased 257,099, 768,600 and 417,100 shares
of common stock, which represented 19.5% of outstanding shares before initiating
the program, at a cost of $12.5 million. Additionally, during the fourth
quarter of 1996, the Company made an "Odd Lot Tender Offer" to holders of less
than 100 shares of TFH Common Stock. Pursuant to this offer the Company
repurchased 28,541 shares at a cost of $237,000.
On June 26, 1997, the shareholders of the Company approved a 1-for-100
reverse stock split followed by a 100-for-1 forward stock split. These stock
splits were effected on July 2, 1997. The result of this transaction was the
cancellation of approximately 107,000 shares of common stock held by holders of
fewer than 100 shares, at the then current market price of $8.89 per share.
Earnings Per Share
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
was issued in February 1997 and was effective for financial statements issued
for periods ending after December 15, 1997. This standard requires dual
presentation of basic and diluted earnings per share. Because of the Company's
simple capital structure, income available to common shareholders is the same
for the basic and diluted earnings per share computations. Such amounts were
$1,100,000, $852,000 and $2,810,000 for 1997, 1996 and 1995. Following is a
reconciliation of basic weighted average common shares outstanding, weighted
average common shares outstanding adjusted for the dilutive effects of
outstanding stock options, and basic and diluted earnings per share for each
of the periods presented (in thousands, except per share amounts).
<TABLE>
<CAPTION>
1997 1996 1995
Per Share Per Share Per Share
Shares Amounts Shares Amounts Shares Amounts
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share 6,214 $ 0.18 6,780 $ 0.13 7,409 $ 0.38
Plus incremental shares
from assumed conversion of
stock options 52 40 73
Diluted earnings per share 6,266 $ 0.18 6,820 $ 0.12 7,482 $ 0.37
</TABLE>
Options to purchase 50,000 shares of common stock of an average exercise price
of $9.58 per share were outstanding at December 31, 1997, but were not included
in the computation of diluted earnings per share because the options average
exercise price was greater than the average market price of the common shares.
These options remain outstanding and expire through 2007.
6. INCOME TAXES
Deferred tax assets (liabilities) attributable to continuing operations
are comprised of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
(In Thousands)
<S> <C> <C>
Current Deferred Tax Assets (Liabilities):
Employee benefits..................................... $ (401) $ (75)
Financial services revenue............................ (205) --
Claims accruals and other............................. 421 258
Allowance for credit losses........................... 186 435
Net Current Deferred Tax Assets.................. $ 1 $ 618
Deferred Tax Assets (Liabilities):
Operating property, principally
due to differences in depreciation............... $ (3,367) $ (1,858)
Amortization of intangibles........................... (245) (132)
Net operating loss carry forwards..................... 693 --
Alternative minimum tax and other
credits.......................................... 654 787
Net Deferred Tax Liabilities..................... $ (2,265) $ (1,203)
</TABLE>
At December 31, 1997, the Company had approximately $4.8 million of net
operating loss carryforwards which were available for Federal income tax
purposes, including $3.1 million which were recorded in the Net Assets of AFS,
which expire in 2010 through 2012. At December 31, 1997 and 1996, the Company
had $654,000 and $787,000 of alternative minimum tax and other credit
carryforwards available which do not expire. Net Deferred Tax Assets of
$1,396,000 and $974,000 were recorded as a portion of the AFS Net Assets as of
December 31, 1997 and 1996. The Internal Revenue Service ("IRS") is currently
examining the Company's 1994 through 1996 tax returns. The IRS has proposed
adjustments to net operating loss and investment tax credit carryforwards
utilized in the Company's 1994 tax return. The Company believes that it has
made adequate provision for income taxes with respect to open years and any
proposed adjustments will not have a material adverse impact on the financial
position or operating results of the Company.
The following is a reconciliation of the Federal statutory income tax rate
to the effective income tax rate for continuing operations:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Federal statutory income tax rate................ 35.0% 35.0% 35.0%
State income tax rate, net....................... 5.9 6.7 5.6
Amortization of non-deductible
acquisition intangibles...................... 2.3 6.3 2.2
Non-deductible meals and
entertainment................................ 2.4 2.8 0.9
Adjustments to prior years' tax
liabilities.................................. 12.9 -- --
Other............................................ (0.4) 0.2 (0.7)
Effective income tax rate........................ 58.1% 51.0% 43.0%
</TABLE>
The components of the income tax provision, attributable to continuing
operations, consisted of the following:
<TABLE>
<CAPTION>
1997 1996
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Current Deferred Total Current Deferred Total
Federal................... $ (145) $ 1,434 $ 1,289 $ 441 $ 267 $ 708
State..................... (9) 245 236 110 69 179
Total................ $ (154) $ 1,679 $ 1,525 $ 551 $ 336 $ 887
</TABLE>
7. CONTINGENCIES AND COMMITMENTS
The Company is party to certain claims and litigation arising in the
ordinary course of business. In the opinion of management, the outcome of such
claims and litigation will not materially affect the Company's results of
operations, cash flows or financial position.
Payments are made to tractor owner-operators under various short-term
lease agreements for the use of revenue equipment. These lease payments, which
totaled $14,351,000, $13,179,000 and $11,527,000 for 1997, 1996 and 1995, are
primarily based on miles traveled or on a percent of revenue generated through
the use of the equipment.
As of December 31, 1997, the Company had a commitment to acquire late
model revenue tractors to replace older units at a total cost of approximately
$4.1 million.
Pursuant to its subscription agreement with Presis, TFH is committed to
additional capital contributions of $2.1 million over the next 12 to 24 months
(See Note 10).
8. AFS NET ASSETS
Under the provisions of the Joint Plan, AFS is responsible for the
administration of pre-July 12, 1991 creditor claims and conversion of assets
owned before that date. As claims were allowed, distributions to those
creditors occurred. The Joint Plan also provided for distributions to TFH as
unsecured creditor distributions occurred in excess of 50% of allowed claims.
Such distributions were recognized as "Income from Discontinued
Operations". After unsecured creditors received distributions, including
interest, equivalent to 130% of their allowed claims, TFH receives the full
benefit of any remaining assets through its ownership of AFS stock. As of
December 31, 1994 all unsecured creditors had been paid an amount equal to 130%
of their allowed claims, which was the maximum distribution provided under the
Joint Plan. TFH received distributions in accordance with the Joint Plan of $36
million. In addition, AFS paid dividends of $6.8 million and $8.5 million to
TFH on July 5, 1995, and July 11, 1996.
In 1995, the Company recognized Income from Discontinued Operations of
$3.6 million (net of income tax provision of $1.9 million) resulting primarily
from a more favorable resolution of a significant claim against the estate than
had originally been estimated.
The remaining AFS net assets are depicted in the following table. The
conversion of these assets and settlement of these liabilities is anticipated to
be substantially completed during 1998.
Amount
(In Thousands)
Cash and Short-Term Investments ................... $ 6,816
Deferred Income Tax Asset (primarily net loss
carryforwards and other assets)................ 1,396
Other Assets, at estimated net realizable value... 135
Accrued Administrative Costs..... ................. (354)
Net Assets ........................................ $ 7,993
AFS has provided notice to all known creditors and the deadline for filing
claims to be resolved under the Joint Plan has expired. Creditors are barred
from submitting claims after the deadline. As of December 31, 1997 no known
claims remain unresolved. The closure of the estate is anticipated to occur in
1998.
On January 12, 1994 a complaint was filed in the District Court of Johnson
County, Kansas, against TFH, AFS and certain employees of those companies by a
former employee of AFS. Such complaint alleges breach of contract, promissory
estoppel, tortious interference, and misrepresentation and fraud, as it relates
to an alleged incentive compensation arrangement between the former employee and
AFS. The suit claims, from TFH and others, actual and punitive damages in
excess of $4 million. Management believes such claims will not have a material
adverse effect on TFH's financial position or results of operations.
9. ACQUISITION OF PREMIUM FINANCE SUBSIDIARIES
On May 31, 1995, TFH completed the acquisition of all of the issued and
outstanding stock of Agency Premium Resource, Inc. and Subsidiary ("APR"). The
purchase price, together with payments for certain services to be rendered by
the sellers after closing, was approximately $11.3 million. In addition to the
Stock Purchase Agreement by which TFH acquired all of the APR stock, TFH entered
into a consulting agreement with the former majority shareholder of APR, and an
employment agreement with APR's president and chief executive officer. Under
the former, TFH is entitled to consult with the former majority shareholder
regarding APR for three years. Under the latter, APR was entitled to the
continuation of the services of APR's president and chief executive officer for
five years. This contract was amended and extended for two additional years
with no increase in compensation. This transaction was accounted for as a
purchase. TFH utilized a portion of its available cash to consummate the
purchase. The terms of the acquisition and the purchase price resulted from
negotiations between TFH and the APR shareholders.
In connection with the purchase of APR, TFH recorded goodwill of $2.4
million, which is being amortized on the straight-line basis over 15 years, and
a software and service agreement of $1.0 million, which is being amortized over
5 years. Accumulated amortization of these intangibles at December 31, 1997 was
$937,000.
On March 29, 1996, TFH completed the acquisition of all of the issued and
outstanding stock of UPAC. UPAC offers short-term collateralized financing of
commercial and personal insurance premiums through approved insurance agencies
in over 30 states throughout the United States. At March 31, 1996, UPAC had
outstanding net finance receivables of approximately $30 million. This
transaction was accounted for as a purchase. TFH utilized a portion of its
available cash and short-term investments to consummate the purchase at a price
of approximately $12.0 million. The terms of the acquisition and the purchase
price resulted from negotiations between TFH and William H. Kopman, the former
sole shareholder of UPAC. In connection with the purchase of UPAC, TFH has
recorded goodwill of $6.6 million, which is being amortized on the straight-line
basis over 25 years. Accumulated amortization of this intangible at December
31, 1997 was $463,000.
In addition to the Stock Purchase Agreement by which TFH acquired all of
the UPAC stock, TFH entered into a consulting agreement with Mr. Kopman. Under
the consulting agreement, TFH is entitled to consult with Mr. Kopman on industry
developments as well as UPAC operations through December 31, 1998. In addition
to retaining the services of Mr. Kopman under a consulting agreement, certain
existing executive management personnel of UPAC have been retained under multi-
year employment agreements.
The following reflects the operating results of TFH for the years ended
December 31, 1996 and 1995 assuming the acquisitions occurred as of the
beginning of each of the respective periods:
<TABLE>
Unaudited Pro Forma Operating Results
(In thousands, except per share data)
<CAPTION>
1996 1995
<S> <C> <C>
Operating Revenue............................... $ 116,116 $ 102,329
Income from Continuing Operations................... 837 2,915
Income from Discontinued Operations................. -- 3,576
Net Income...................................... $ 837 $ 6,491
Basic Earnings Per Share -
Continuing Operations...................... $ 0.12 $ 0.39
Discontinued Operations.................... 0.00 0.48
Total...................................... $ 0.12 $ 0.87
</TABLE>
The pro forma results of operations are not necessarily indicative of the
actual results that would have been obtained had the acquisition been made at
the beginning of the respective periods, or of results which may occur in the
future.
10. NEW VENTURE
Effective July 31, 1997, the Company entered into a subscription agreement
with a start-up venture, Presis, pursuant to which TransFinancial committed to a
$2.9 million capital contribution over two years in exchange for the exclusive
financing and/or sale rights to equipment produced by, and a controlling
interest in, the venture. Presis owns rights to a proprietary, new technology
for particle reduction. Presis intends to market equipment utilizing this
technology to companies which would benefit from the use of sub-micron materials
in their manufacturing processes. Capital contributions through December 31,
1997 total approximately $800,000, $500,000 of which has been capitalized in
operating property and equipment and intangibles. The initial phase of this
venture will focus on continued research, product development, establishing
sources of supply, recruiting and training personnel, developing markets and
contracting for production. The Company expects this operation to generate
minimal, if any, revenues and to incur additional operating losses in 1998,
which may be material in relation to its consolidated results of operations.
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
DECEMBER 31, 1997 AND 1996
SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
TFH's quarterly operating results from Crouse, as well as those of the
motor carrier industry in general, fluctuate with the seasonal changes in
tonnage levels and with changes in weather related operating conditions.
Inclement weather conditions during the winter months adversely affect freight
shipments and increase operating costs. Historically, TFH has achieved its best
operating results in the second and third quarters when adverse weather
conditions have a lesser effect on operating efficiency.
The following table sets forth selected unaudited financial information
for each quarter of 1997 and 1996 (in thousands, except per share amounts).
<TABLE>
<CAPTION>
1997
First Second Third Fourth Total
<S> <C> <C> <C> <C> <C>
Revenue................................... $ 31,301 $ 32,688 $ 35,123 $ 34,575 $ 133,687
Operating Income(Loss).................... 935 1,065 866 (930) 1,936
Nonoperating Income (Expense)............. 215 215 181 78 689
Net Income(Loss).......................... 632 704 569 (805) 1,100
Basic and Diluted Earnings
per Share............................. 0.10 0.11 0.09 (0.13) 0.18
1996
First Second Third Fourth Total
Revenue................................... $ 25,216 $ 28,345 $ 30,041 $ 31,281 $ 114,883
Operating Income (Loss)................... 194 426 709 (483) 846
Nonoperating Income (Expense)............. 425 209 297 (38) 893
Net Income (Loss)......................... 353 362 505 (368) 852
Basic Earnings per Share.................. 0.05 0.05 0.08 (0.05) 0.13
Diluted Earnings per Share................ 0.05 0.05 0.08 (0.05) 0.12
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3), the information required by this
Item 10 is hereby incorporated by reference from the TransFinancial Holdings,
Inc. Proxy Statement for the 1998 Annual Meeting of Shareholders, which the
Registrant will file pursuant to Regulation 14A. (See Item 4, included
elsewhere herein, for a listing of Executive Officers of the Registrant).
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3), the information required by this
Item 11 is hereby incorporated by reference from the TransFinancial Holdings,
Inc. Proxy Statement for the 1998 Annual Meeting of Shareholders, which the
Registrant will file pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3), the information required by this
Item 12 is hereby incorporated by reference from the TransFinancial Holdings,
Inc. Proxy Statement for the 1998 Annual Meeting of Shareholders, which the
Registrant will file pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3), the information required by this
Item 13 is hereby incorporated by reference from the TransFinancial Holdings,
Inc. Proxy Statement for the 1998 Annual Meeting of Shareholders, which the
Registrant will file pursuant to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. Financial Statements
Included in Item 8, Part II of this Report -
Consolidated Balance Sheets at December 31, 1997 and 1996
Consolidated Statements of Income for the years ended December 31, 1997,
1996 and 1995
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
Supplemental Financial Information (Unaudited) - Summary of Quarterly
Financial Information for 1997 and 1996
(a)2. Financial Statement Schedules
Included in Item 14, Part IV of this Report -
Financial Statement Schedules for the three years ended December 31,
1997:
Schedule II - Valuation and Qualifying Accounts
Other financial statement schedules are omitted either because of the
absence of the conditions under which they are required or because the
required information is contained in the consolidated financial
statements or notes thereto.
(a)3. Exhibits
Exhibit No. Exhibit Description
2(a) Fifth Amended Joint Plan of Reorganization of the Registrant
and others and Registrant's Disclosure Statement Relating to
the Fifth Amended Joint Plan of Reorganization. Filed as
Exhibit 28(a) and 28(b) to the Registrant's Form 8-K dated
March 21, 1991.
2(b) United States Bankruptcy Court order confirming the Fifth
Amended Joint Plan of Reorganization of the Registrant and
others. Filed as Exhibit 28(c) to Registrant's Form 8-K
dated June 11, 1991.
3(a) 1997 Restated Certificate of Incorporation of the
Registrant. Filed as Exhibit 3(a) to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997.
3(b) Restated By-Laws of the Registrant. Filed as Exhibit 3(b)
to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997.
4 Specimen Certificate of the Common Stock, $.01 par value, of
the Registrant. Filed as Exhibit 4 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997.
10(a) Form of Indemnification Agreement with Directors and
Executive Officers. Filed as Exhibit 10(k) to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1986.
10(b) Secured Revolving Credit Agreement for a revolving credit
facility in the amount of $2,500,000 by and between Crouse
Company and Bankers Trust Company of Des Moines, Iowa. Filed
as Exhibit 10(i) to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1991 by Amendment No. 1
dated July 30, 1992.
10(c) Registrant's 1992 Incentive Stock Plan. Filed as Exhibit
10(j) to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992.
10(d) Stock Purchase Agreement dated May 23, 1995 by and among
Anuhco, Inc. Seafield Capital Corporation and C. Ted
McCarter. Filed as Exhibit 2(a) to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995.
10(e) Consulting and Assignment Agreement dated May 31, 1995 by
and between Seafield Capital Corporation and Anuhco, Inc.
Filed as Exhibit 10(a) to Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995.
10(f) Stock Purchase Agreement by and between Anuhco, Inc. and
William H. Kopman, dated December 18, 1995. Filed as
Exhibit 2(a) to Registrant's Current Report on Form 8-K,
dated March 29, 1996.
10(g) First Amendment to Stock Purchase Agreement by and between
Anuhco, Inc. and William H. Kopman, dated March 7, 1996.
Filed as Exhibit 2(b) to Registrant's Current Report on Form
8-K dated March 29, 1996.
10(h) Second Amendment to Stock Purchase Agreement by and between
Anuhco, Inc. and William H. Kopman, dated March 29, 1996.
Filed as Exhibit 2(c) to Registrant's Current Report on Form
8-K dated March 29, 1996.
10(i) Consulting Agreement by and between William H. Kopman and
Anuhco, Inc., dated March 29, 1996. Filed as Exhibit 10(a)
to Registrant's Current Report on Form 8-K, dated March 29,
1996.
10(j) Receivables Purchase Agreement by and among APR Funding
Corporation, Universal Premium Acceptance Corporation,
Anuhco, Inc., EagleFunding Capital Corporation, The First
National Bank of Boston, dated December 31, 1996.
Filed as Exhibit 10(j) to Registrant's Annual Report on Form
10-K for the year ended December 31, 1996.
10(k)*Secured Loan Agreement by and between Bankers Trust Company
of Des Moines, Iowa and Crouse Cartage Company, dated
January 5, 1998.
21* List of all subsidiaries of TransFinancial Holdings, Inc.
the state of incorporation of each such subsidiary, and the
names under which such subsidiaries do business.
23* Consent of Independent Accountant.
27* Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31, 1997.
*Filed herewith.
<TABLE>
<CAPTION>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at Charged Charged Balance
Beginning to to Other Deduc- at End
Description of Year Expense Accounts tions(1) of Year
(In Thousands)
<S> <C> <C> <C> <C> <C>
Allowance for credit losses
accounts (deducted from
freight accounts receivable)
Year Ended December 31 -
1997............................... $ 419 $ 120 $ -- $ (75) $ 464
1996............................... 409 120 -- (110) 419
1995............................... 412 90 -- (93) 409
Allowance for credit losses (deducted from
finance accounts receivable)
Year Ended December 31 -
1997............................... $ 769 $ 950 $ -- $ (1,220) $ 499
1996............................... 351 892 510(2) (984) 769
1995............................... -- 175 515(3) (339) 351
<FN>
(1)Deduction for purposes for which reserve was created.
(2)Allowance established as of March 29, 1996, the date of acquisition of Universal Premium Acceptance Corporation and UPAC of
California, Inc.
(3)Allowance established as of May 31, 1995, the date of acquisition of Agency
Premium Resource, Inc. and Subsidiary.
</TABLE>
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.
Date: March 30, 1998 By /s/Timothy P. O'Neil
Timothy P. O'Neil,
President and Chief Executive
Officer
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.
/s/Timothy P. O'Neil President and Chief Executive Officer
Timothy P. O'Neil
/s/Mark A. Foltz Vice President, Finance and Secretary
Mark A. Foltz (Principal Accounting Officer)
/s/William D. Cox /s/Roy R. Laborde
William D. Cox, Chairman Roy R. Laborde, Vice Chairman of the
of the Board of Directors Board of Directors
/s/Lawrence, D. Crouse /s/Timothy P. O'Neil
Lawrence D. Crouse, Director Timothy P. O'Neil, Director
/s/J. Richard Devlin /s/Eleanor B. Schwartz
J. Richard Devlin, Director Eleanor B. Schwartz, Director
/s/ Harold C. Hill /s/ Clark D. Stewart
Harold C. Hill, Jr., Director Clark D. Stewart, Director
March 30, 1998
Date of all signatures
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit No. Exhibit Description
10(k) Secured Loan Agreement by and between Bankers Trust Company
of Des Moines, Iowa and Crouse Cartage Company, dated January
5, 1998.
21 List of all Subsidiaries of TransFinancial Holdings, Inc.
23 Consent of Independent Accountant.
27 Financial Data Schedule.
SECURED LOAN AGREEMENT
This Secured Loan Agreement is made and entered into this 5th day of
January, 1998, by and between Bankers Trust Company of Des Moines, Iowa,
hereinafter referred to as the "Bank", and Crouse Cartage Company, hereinafter
referred to as the "Borrower".
WITNESSETH
WHEREAS, Borrower desires to borrow monies from Bank in the amounts
described below; and
WHEREAS, Bank is willing to loan monies to Borrower subject to the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties agree as follows:
1. DEFINITIONS
For purpose of this Agreement, the following terms shall have the following
meanings:
"AFFILIATES" The term "Affiliate" shall mean: (i) any natural person who is
a shareholder of Borrower, or who is an officer, director or managing agent of
Borrower; (ii) any corporation, partnership or entity that is a shareholder of
Borrower; and (iii) any person who directly or indirectly controls, is
controlled by or is under common control or ownership with Borrower or any
shareholder of Borrower. For this the purposes of this definition, the term
"Control" shall mean the ownership of ten percent (10%) or more of the
beneficial interest in the entity being referred to.
"AGREEMENT" shall mean this Secured Loan Agreement, as amended or modified
from time to time, together with all exhibits or schedules attached hereto or
hereafter.
"BANK'S PRIME RATE" shall mean the fluctuating interest rate per annum from
time to time designated by Bank as its prime rate. The Bank's Prime Rate shall
not be deemed the lowest rate or most favored rate charged by Bank to its
customers. Changes in the Bank's Prime Rate shall be effective without notice
to Borrower on the date of each change.
"BORROWING BASE" shall mean an amount equal to eighty percent (80%) of the
Net Depreciated Value of all Revenue Equipment owned by Borrower as of the date
of each Borrowing Base Certificate, free and clear of liens except those in
favor of Bank.
"BORROWING BASE CERTIFICATE" shall mean a document duly certified by an
authorized officer of Borrower in the form attached hereto as Exhibit A.
"COLLATERAL" shall mean without limitation Borrower's assets pledged to
Bank as security for the Notes, now or in the future, as more particularly
described in Section 4 of this Agreement.
"DEFAULT" OR "EVENT OF DEFAULT" shall have the meaning delineated in
Section 9 of this Agreement.
"GAAP" shall mean those Generally Accepted Accounting Principles and
Practices that are recognized as such by the American Institute of Certified
Public Accountants and by the Financial Accounting Standards Board.
"HAZARDOUS SUBSTANCES." The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. section
9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of
1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act,
49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 49
U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules
or regulations adopted pursuant to any of the foregoing.
"INDEBTEDNESS" shall mean and include without limitation all Loans,
together with all other obligations, debts and liabilities of Borrower to Bank
as well as all claims by Bank against Borrower, whether now or hereafter
existing, voluntary or involuntary, due or not due, absolute or contingent,
liquidated or unliquidated; whether Borrower may be liable individually or
jointly with others; whether Borrower may be obligated as a guarantor, surety,
or otherwise; whether recovery upon such indebtedness may be or hereafter may
become barred by any statute of limitations; and whether such indebtedness may
be or hereafter may become otherwise unenforceable.
"LOAN" OR "LOANS" means and includes any and all extensions of credit and
financial accommodations from Bank to Borrower, whether now or hereafter
existing, and however evidenced, including without limitation those loans and
financial accommodations described herein or described on any exhibit or
schedule attached to this Agreement from time to time.
"LOAN DOCUMENTS" shall mean this Agreement, the Notes and any other
instrument executed in connection with or evidencing the Indebtedness.
"MAXIMUM CREDIT" shall mean, as it pertains to the Working Capital Line of
Credit Loan, the lesser of Four Million Five Hundred Thousand Dollars
($4,500,000.00) or the Borrowing Base, and as it pertains to the Equipment Line
of Credit Loan, Four Million Five Hundred Thousand Dollars ($4,500,000.00).
"NET DEPRECIATED VALUE" shall mean the actual original cost of those items
comprising Revenue Equipment, as of the date of acquisition thereof, minus the
related accumulated depreciation as reflected on the books of Borrower and the
financial reports of Borrower delivered to Bank pursuant to Section 6 of this
Agreement.
"NOTES" shall refer to the promissory notes more particularly described in
Section 2 of this Agreement executed by Borrower in favor of Bank, together with
any and all extensions, modifications, substitutions or renewals thereof. "NOTE"
shall refer to any one of such Notes.
"REVENUE EQUIPMENT" shall mean and include all of Borrower's (i) commercial
and highway trucks, (ii) commercial and highway tractors and trailers, (iii)
automobiles, (iv) pickup and delivery vehicles for which titles have been issued
in the name of Borrower and which titles are in the possession of Bank, or in
possession of another party acting as agent for Bank; and (v) all mechanical
refrigeration units attached to, or held for use upon, such trucks, tractors and
trailers.
"TANGIBLE NET WORTH" shall be determined in accordance with GAAP and shall
mean that number calculated by subtracting from the sum of Borrower's equity,
all sums relating to goodwill, patents, copyrights, trademarks, licenses,
franchises, or other assets normally considered an intangible asset under GAAP.
"TRANSFINANCIAL" shall mean TransFinancial Holdings, Inc., the parent
corporation of Borrower.
2. LOANS
Subject to the terms and conditions of this Agreement and the other Loan
Documents, the Bank agrees to lend to Borrower the amounts as provided in the
following described Loans:
A. Working Capital Line of Credit Loan. A revolving line of credit loan
in the principal amount not to exceed the lesser of Four Million Five
Hundred Thousand Dollars ($4,500,000.00) or the Borrowing Base, and
Borrower shall execute and deliver to Bank a promissory note ("Working
Capital Line of Credit Note") for $4,500,000.00 dated as of the date
of this Agreement. Such funds shall be used to provide working
capital for Borrower. Interest and principal payments shall be
payable on the dates and in the manner set forth in the Working Line
of Credit Note. Interest shall accrue at a floating rate which shall
at all times equal the Bank's Prime Rate, as adjusted to the date of
change. Borrower may borrow, repay and re-borrow under the Working
Capital Line of Credit Note during the term of this Agreement. In the
event Borrower utilizes the credit available under the Working Capital
Line of Credit Note to purchase capital assets (as determined in
accordance with GAAP) and such amount is not repaid within 45 days
after borrowing, and providing there is credit available under the
Equipment Line of Credit Loan, the amount so utilized shall be
converted to an Equipment Line of Credit Note and repaid as provided
in Paragraph 2(B) below. In the event at any time the Borrowing Base
is less than the unpaid principal balance of the Working Capital Line
of Credit Note, Borrower will immediately pay that amount necessary to
reduce the unpaid principal balance to an amount equal to the
Borrowing Base. In the event Bank issues any letters of credit on
Borrower's behalf, the credit availability under the Working Capital
Line of Credit Note shall be reduced by an amount equal to the Bank's
exposure under such letters of credit. Bank agrees to review this
credit on or about December 1st of each year and providing Borrower is
not then in default or out of compliance under any of the terms and
conditions of this Agreement or the other Loan Documents, shall extend
the maturity date of the Working Capital Line of Credit Note for an
additional twelve month period so as to maintain a five (5) year
maturity date.
B. Equipment Line of Credit Loan. An equipment line of credit loan in
the principal amount of Four Million Five Hundred Thousand Dollars
($4,500,000.00). Such funds shall be used to finance equipment
utilized by Borrower in the ordinary course of its business. Borrower
may borrow, repay and re-borrow hereunder during the term of this
Agreement. Each advance shall be documented by a separate promissory
note (hereinafter referred to as an "Equipment Line of Credit Note")
and shall be repaid in equal monthly installments of principal and
interests over a period not to exceed sixty (60) months as more
particularly provided therein. At the time of taking each advance,
Borrower shall have the option of selecting either a fixed rate, which
shall equal the then existing Federal Home Loan Bank Rate plus 200
basis points, or the Bank's Prime Rate, which shall be a floating rate
which adjusts to the date of change.
The commitment of Bank hereunder to make advances pursuant to the
Loans may be terminated by the Bank at any time following the giving
of one hundred eighty (180) days' written notice to Borrower. Upon
such termination of the Bank's commitment, the Bank shall have no
further obligation to make advances, provided however, this Agreement
shall otherwise remain in full force and effect until the Indebtedness
is paid and satisfied in full. At any time during the term hereof
that the Indebtedness has been paid in full, Borrower may terminate
this Agreement upon thirty (30) days' written notice to Bank. In the
event of such termination by Borrower, Bank shall have no further
obligation hereunder.
In regard to each of the Loans described above, Bank's determination
as to the outstanding principal balances owed by Borrower shall be
presumed to be correct and binding on all parties whomsoever and
Bank's documentation to support said outstanding balances will be
sufficient to establish and sustain Borrower's obligations under the
Notes, unless Borrower is able to provide documentation to the
contrary satisfactory to Bank which is sufficient to rebut the
aforesaid presumption.
3. ADVANCES
A. Each request by Borrower for an advance of funds shall be made by
Borrower either orally or in writing not later than 2:00 o'clock P.M.
on the day such advance is requested. Upon receipt by Bank of each
request for advance, Bank shall lend to Borrower the amount requested
provided, however, that Bank shall not be obligated to make any
advance (i) during the existence of any Event of Default; or (ii) if
Bank has given notice to Borrower of the violation of any terms or
conditions of this Agreement, the Notes, or any other Loan Documents,
which violation(s) remain unremedied by Borrower; or (iii) if Borrower
is out of compliance with any of the Affirmative Covenants or Negative
Covenants required by this Agreement; or (iv) if the amount of the
advance requested together with the unpaid principal balance of the
Working Capital Line of Credit Note or Equipment Line of Credit Note,
as the case may be, exceeds the Maximum Credit thereunder, or (v)
Borrower becomes insolvent, or voluntarily or involuntarily becomes a
debtor in bankruptcy; or (vi) there occurs a material adverse change
in Borrower's financial condition, or in the value of the Collateral;
or (vii) Borrower seeks, claims or otherwise attempts to limit, modify
or revoke its unconditional and unlimited liability for the
Indebtedness.
B. Any checks or other charges presented against the regular checking
account of Borrower in excess of the balance of said regular checking
account may be treated by the Bank as a request for an advance under
the Working Capital Line of Credit Note, and payment by the Bank of
any check may at its option constitute a loan to the Borrower pursuant
to this Agreement of the amounts so paid. However, the amounts
debited to the Working Capital Line of Credit Note and credited to the
checking account shall at no time exceed the unused portion of the
Maximum Credit available under the Working Capital Line of Credit
Note.
C. In the event Borrower shall fail to provide adequate insurance, pay
taxes, or pay any other charges which may affect the assets
collateralized to Bank, Bank may, at its option, without notice, but
without any obligation or liability to do so, procure insurance, pay
taxes or pay any other charges and add said sum to the balance of the
Working Capital Line of Credit Note.
D. Although it is contemplated that at no time during the term of this
Agreement shall the outstanding principal amount of either the Working
Capital Line of Credit Note or Equipment Line of Credit Note exceed
the Maximum Credit thereunder, it is understood and agreed that the
contemplated Maximum Credit may be exceeded at any time, in Bank's
sole discretion, and Borrower shall nevertheless remain liable for the
repayment in full of all sums advanced by or to Borrower by Bank,
together with interest, late charges, attorneys' fees and costs, if
any, as more fully set forth herein.
4. COLLATERAL
A. Revenue Equipment As security for the Notes and all Loans and
advances made pursuant to this Agreement, and any renewals, modifications,
substitutions or extensions thereof, and any other Notes, Loans or advances
made by the Bank to Borrower, Borrower herein grants to Bank a first lien
on all of its Revenue Equipment together with all proceeds therefrom. The
titles to the vehicles included within the Revenue Equipment shall be
physically delivered by Borrower to the Commercial Savings Bank in Carroll,
Iowa as agent for Bank, or such other party as designated by Bank, and Bank
(and/or its designated agent) is herein granted a power of attorney to
affix Bank's lien on all such titles and file such liens of record in the
event Borrower commits an Event of Default hereunder. Bank acknowledges
that Borrower will, in the ordinary course of its business, buy, sell or
trade items of Revenue Equipment and thus will be allowed access to such
titles.
B. Bank Deposits, Bank shall at all times have a perfected first security
interest in and right of setoff against any and all deposit balances of
Borrower whether now existing or hereafter established, and may at any
time, after an Event of Default hereunder, without notice, apply the same
against payment of any obligations of Borrower to Bank, whether or not due
regardless of the existence or amount of any other security held by the
Bank.
5. BORROWER'S REPRESENTATIONS AND WARRANTIES
To induce Bank to make Loans and advances hereunder, Borrower represents
and warrants to Bank from the date of this Agreement and thereafter until all
Indebtedness of the Borrower to Bank is paid in full that:
A. Borrower's Authority. (1) Borrower is duly organized and existing
under the laws of the State of Iowa, has full power, right, and
authority to make and execute this Agreement, and to borrow the funds
provided for in this Agreement; (2) the execution of this Agreement,
the Notes, and all other Loan Documents will not conflict with any
provision of law of Borrower's articles of incorporation or bylaws or
any other organizational requirement, or under any agreement or
instrument to which Borrower is a party or by which Borrower or any of
its property may be bound or affected; (3) the individual who, on
behalf of Borrower, executes and delivers this Agreement, Notes and
other Loan Documents is authorized to do so and has provided to the
Bank the appropriate authorization evidencing same.
B. No Litigation. No litigation or governmental proceedings are pending
or threatened against Borrower and Borrower has no liabilities, actual
or contingent, not previously disclosed to Bank.
C. First Lien For Bank. The lien of the Bank on the Collateral shall be
a first lien at all times during the term of this Agreement.
D. No Other Liens. None of Borrower's assets are subject to any
mortgage, pledge, encumbrance, or other lien, except as otherwise
disclosed to the Bank in writing.
E. Tax Returns. Borrower has filed all federal and state income tax
returns which are required to be filed and has paid all taxes and
assessments which are due.
F. Financial Statements. All financial statements previously delivered
to Bank by Borrower are true and correct in all respects and
accurately represent the financial condition of Borrower as of the
respective dates thereof. No adverse change in the financial
condition of Borrower has occurred since the date of the most recent
financial statement given to Bank.
G. Ownership of Collateral. Borrower warrants that it owns the entire
legal and beneficial ownership in all assets set forth in its
financial statements and in all Collateral Borrower is furnishing to
Bank as security for the Loans hereunder, except as otherwise
disclosed to the Bank.
H. No Violation of Occupational Safety and Environmental Protection.
Borrower is not in violation in any material manner of any federal,
state, county or city statutes, orders, rules or regulations
pertaining to occupational safety or environmental protection, nor
does Borrower presently anticipate that future expenditures needed to
meet the provisions of existing federal, state, county or city
statutes, orders, rules or regulations will be so burdensome as to
affect or impair in a materially adverse manner Borrower's financial
conditions.
I. Indemnification and Hold Harmless Obligation. Borrower represents and
warrants that neither the Collateral given to Bank as security for the
Notes, nor any other assets owned by Borrower have been, or ever will
be, so long as the Notes remain unpaid, used for the generation,
manufacture, storage, treatment, disposal, release or threatened
release of any Hazardous Substances, provided however, it is
understood that Borrower, in the ordinary course of its business, does
transport items which may be deemed Hazardous Substances. The
representations and warranties contained herein are based on
Borrower's due diligence in investigating the collateralized
properties for Hazardous Substances. Borrower hereby (i) releases and
waives any future claims against Bank for indemnity or contribution in
the event Borrower becomes liable for cleanup or other costs under any
such laws; (ii) agrees that Bank may recover against Borrower to the
full extent of any damages, claims or other liabilities suffered by
Bank as a result of the violation of any such environmental laws,
whether or not such violation occurred while the Collateral was owned
by a predecessor or successor in interest to Borrower; and (iii)
agrees to indemnify and hold Bank harmless against any and all claims
and losses resulting from a breach of this provision of this
Agreement, including reasonable attorney's fees and expenses. This
obligation to indemnify and hold Bank harmless shall survive the
payment of the Notes.
J. Address of Borrower. The address appearing on the signatory page of
this Agreement represents the chief executive office of the Borrower.
K. No Damage To Collateral. The Collateral is not now damaged or injured
as a result of any uninsured fire, explosion, accident, flood or other
casualty.
L. Collateral Not In Flood Zone. None of the Collateral is situated in
any federal or state designated flood zone.
6. AFFIRMATIVE COVENANTS
From the date of this Agreement and thereafter until all Indebtedness is
paid in full, Borrower, will:
A. Accounting. Maintain a modern system of accounting in accordance with
GAAP.
B. Financial Statements. Furnish to Bank (i) within one hundred-twenty
(120) days of each fiscal year end, consolidated, audited and
unqualified financial statements from TransFinancial prepared by an
independent certified public accountant acceptable to Bank in
reasonable detail and dated as of the immediately preceding fiscal
year end, and prepared in accordance with GAAP; (ii) within forty-five
(45) days following the end of each calendar quarter, an unaudited
financial statement of Borrower which shall contain a balance sheet,
statement of income and retained earnings, and cash flow, each as of
the end of such calendar quarter; (iii) within forty-five (45) days
following the end of each calendar quarter, the 10-K Report filed by
TransFinancial with the Securities and Exchange Commission; (iv)
within forty-five (45) days following the end of each calendar
quarter, a duly completed Borrowing Base Certificate as of the end of
the prior calendar quarter; and (v) at such times as requested by
Bank, a list of Borrower' equipment, cash flow projections and such
other information as the Bank may reasonably request .
C. Access To Books and Collateral. At all times, keep proper books of
account in a manner satisfactory to Bank, and permit the Bank and its
agents access to the books, records, premises, assets and operations
of the Borrower at all reasonable times.
D. Notification of Legal Proceedings. Notify the Bank promptly of any
litigation or legal proceedings involving the Collateral.
E. Insurance. Obtain such insurance or evidence of insurance as Bank may
reasonably require, including but not limited to, an all-risk policy
of casualty insurance, and such other hazard insurance in such amount,
form and substance as Bank may require with Bank named as loss payee
thereunder as it pertains to the Collateral and with standard waiver
of subrogation clauses, it being understood by Bank that Borrower
self-insures the first $100,000.00 of casualty damages. This
insurance shall be issued by such companies as shall be approved by
Bank, and the originals of such policies (together with appropriate
endorsements thereto, evidence of payment of premiums thereon and
written agreement by the insurers therein to give Bank 30 days prior
written notice of intention to cancel) shall be promptly delivered to
Bank. This insurance shall be kept in full force and effect at all
times hereafter until the Loans have been paid in full.
F. Maintenance and Preservation of Collateral. At all times maintain,
preserve and protect the Collateral and keep the same in good repair,
working order and condition.
G. Payment of Obligations. Except as otherwise disclosed to and approved
by the Bank, Borrower will at times during the term hereof pay all
obligations relating to the Collateral as they come due in the
ordinary course of business.
H. Collected Funds. At all times maintain in Borrower's accounts at the
Bank collected funds sufficient to pay all items presented for payment
from such accounts and sufficient to pay service charges imposed by
the Bank. Borrower agrees to pay to Bank interest on any overdraft or
deficit balance in any such account at the rate set forth in the
Working Capital Line of Credit Note.
I. Submission of Environmental Reports. Promptly upon receipt thereof,
Borrower shall submit to Bank copies of any reports, inspections or
examinations conducted by the Iowa Department of Natural Resources or
the Federal Environmental Protection Agency, or any similar agency,
with respect to the assets of Borrower.
J. Operating Accounts at Bank. Borrower shall maintain its primary cash
concentration accounts with Bank.
K. Tangible Net Worth. Borrower shall maintain a Tangible Net Worth of
no less than $24,000,000.00 for its fiscal year ending December 31,
1997, such requirement to increase by $1,000,000.00 for each
subsequent fiscal year.
L. Expenses. Borrower shall pay all of Bank's (and any participant's)
out-of-pocket costs (including, but not limited to, attorneys' fees
and legal expenses) pertaining to the preparation of the Loan
Documents and the closing and administration of the Loan. Additional
examples of such costs are environmental and other consultant fees,
appraisal costs, filing and recording expenses, long distance
telephone charges, hand delivery and telefax charges, overnight and
other mail charges, and similar items.
M. New Entities. If Borrower causes any new entities to be created to
conduct business activities similar to, or related to, its current
business activities, such new entities shall immediately execute
unlimited guaranties of the Indebtedness.
N. ERISA Compliance. Borrower shall meet its minimum funding
requirements under the Employee Retirement Income Security Act of 1974
(ERISA), as amended, with respect to any employee benefit plan or
other class of benefit plan, which the Pension Benefit Guaranty
Corporation, established under ERISA (PBGC) has elected to insure, in
either case, whether now in existence or hereafter instituted by
Borrower.
7. NEGATIVE COVENANTS
From the date of this Agreement and thereafter until all Indebtedness is
paid in full, Borrower will not, without the prior written consent of the Bank:
A. Incur Debt. Incur, permit or remain outstanding, assume or in any way
become committed for indebtedness except the indebtedness incurred
herein and except for indebtedness not to exceed in the aggregate, ten
million dollars to TransFinancial and/or other Affiliates, and except
those debts incurred in the ordinary course of Borrower's business
consistent with past practices, or as otherwise approved by Bank.
B. Grant Liens. Pledge, mortgage, lease or otherwise encumber, or permit
any lien to exist on any asset or property of any kind owned by the
Borrower, except as may exist at and be reflected on the financial
statements provided at the time of this Agreement other than accounts
payable to suppliers incurred in the normal course of Borrower's
business, or as otherwise approved by Bank.
C. Sell Assets Out of Ordinary Course. Sell, lease or otherwise dispose
of any part of Borrower's real or personal property other than in the
ordinary course of Borrower's business.
D. Dividends. Declare and/or distribute in cash or other assets any
dividends on Borrower's outstanding stock, or redeem any of Borrower's
outstanding stock, without Bank's prior approval.
E. Sale, Change In Control, Merger, Etc. Suffer or permit majority
control of Borrower to be sold, assigned or otherwise transferred, or
change management, or merge or consolidate with any entity or
enterprise.
F. No Other Guaranties. Grant guarantees to any other financial
institutions or entities without the Bank's prior approval.
G. Acquisitions. Acquire other entities without the Bank's prior
approval.
8. CONDITIONS OF BANK'S OBLIGATIONS
Bank's obligations to perform hereunder shall be subject to satisfaction of
the following conditions on or before closing:
A. No Breach of Covenants. Borrower shall have performed all agreements
required to be performed, and shall not be in breach of any covenant.
agreement, representation or warranty made herein or in any other Loan
Document.
B. No Default. No Event of Default and no event or condition which, with
notice or the lapse of time, or both, would constitute an Event of
Default, shall exist.
C. No Material Change in Financial Condition. Borrower shall not have
incurred any material liabilities, direct or contingent, other than in
the ordinary course of business, since the date of the last financial
statement given to Bank by Borrower.
D. Insurance. Borrower shall have obtained hazard or fire and extended
coverage insurance (and flood insurance if the Collateral is located
in a flood zone) on the Collateral, issued by a company or companies
approved by Bank and in amounts acceptable to Bank which policy or
policies shall name Bank as loss payee as it pertains to the
Collateral under a standard loss payee clause, and Bank shall also
have been provided with such additional policies of insurance as Bank
may reasonably require insuring against such risks and in such amounts
as are customarily carried by like businesses operating in the same
vicinity.
E. Reimbursement of Bank's Expense. The payment by Borrower of all out-
of-pocket expenses incurred by Bank and any participants in making and
administering this Loan, including, without limitation, all costs of
appraisals, attorneys' fees and expenses, filings and recordings.
F. Authorized Action. Receipt by Bank of a duly executed certificate
from Borrower authorizing the borrowings and the execution of the
various Loan Documents contemplated by this Agreement.
G. Legal Opinion. Receipt by Bank of an opinion from Borrower's legal
counsel to the effect that (i) Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Iowa and to the best of such counsel's knowledge and belief,
is duly qualified and in good standing as a foreign corporation
authorized to do business in each state where, because of the nature
of its activities or properties, such qualification is required; (ii)
Borrower has full power to execute and deliver the Notes and other
Loan Documents, and to perform its obligations under this Agreement
and such Loan Documents; (iii) such actions have been duly authorized
by all necessary corporate action, and are not in conflict with any
provision of the law or of the articles of incorporation or bylaws of
Borrower, nor in conflict with any agreement binding upon Borrower of
which such counsel has knowledge; and (iv) this Agreement and the
other Loan Documents are the legal and binding obligations of
Borrower, enforceable in accordance with their terms.
H. Loan Documents. Receipt by Bank of the Notes and other Loan Documents
duly executed by an authorized officer of Borrower.
I. Borrowing Base Certificate. Borrower shall have delivered to Bank a
duly completed Borrowing Base Certificate.
9. EVENTS OF DEFAULT
If any of the following events occur, the Bank may, at its option, without
notice or demand, except as otherwise specifically provided, declare the entire
Indebtedness of Borrower to Bank immediately due and payable.
A. Late Payment. Any payment of principal or interest due under the
terms of any Note is not made on the due date and such default
continues unremedied for five (5) days after written notice thereof
shall have been given to Borrower by Bank.
B. Misrepresentation. Any representation or warranty made by Borrower in
this Agreement shall prove to be incorrect or untrue, or any
statement, report or writing furnished by Borrower to the Bank is
untrue in any material aspect.
C. Breach of Covenants. Borrower fails to perform or observe any term,
covenant or condition of this Agreement and such failure is not
remedied or corrected within ten (10) days after written notice
thereof shall have been given to Borrower by Bank.
D. Breach Under Other Loan Documents. Any breach of any provisions
contained in the Notes or any other Loan Documents and such breach is
not remedied within ten (10) days after written notice thereof shall
have been sent to Borrower by Bank.
E. Bankruptcy, Etc. If Borrower becomes insolvent or bankrupt or makes
an assignment for the benefit of creditors, or is petitioned into
bankruptcy, either voluntarily or involuntarily.
F. Adverse Impairment in Collateral. Bank's interest in the Collateral
is adversely impaired in any manner, and Borrower is unable to remedy,
to the Bank's satisfaction, such adverse impairment within 30 days
after written notice from the Bank.
G. Adverse Change In Financial Condition. Any adverse material change in
Borrower's financial condition shall have occurred.
H. Bank Deems Itself Insecure. If Bank at any time reasonably deems
itself insecure.
10. REMEDIES
Upon the occurrence of a Default (it being understood that a Default under
any Note shall constitute a Default under all Notes), the Bank may, after
expiration of any notice period referenced above (it being understood that in
regard to the Events of Default described in Paragraphs 9 (C), 9 (D) or 9 (F),
if any such default cannot reasonably be cured within such grace period, as
solely determined by Bank, the period of time within which to cure such default
shall be extended for such reasonable time as is necessary to cure such default,
as long as Borrower promptly, diligently and continuously acts to cure such
default), (it being further understood that Borrower shall not be entitled to
any grace period or notice prior to acceleration if the Bank reasonably and in
good faith believes that the granting of such grace period or notice would
jeopardize Bank's lien position) declare the unpaid principal balance and
interest on the Note(s) immediately due and payable, together with any other
debt owed by Borrower to Bank, and all such principal, interest and other debt
shall thereupon be immediately due and payable in full. The Bank shall
thereupon have all remedies set forth herein and in the Notes and any other Loan
Documents, and all remedies otherwise available to a secured creditor under the
Uniform Commercial Code of Iowa.
12. MISCELLANEOUS
A. The Bank As Attorney-In-Fact. In the event of a Default, Borrower
hereby appoints Bank to be Borrower's attorney-in-fact, without
requiring the Bank to act as such, for the purpose of carrying out the
provisions hereof and taking any action and executing any document or
instrument which the Bank may deem necessary or advisable to
accomplish the purposes hereof, which appointment as attorney-in-fact
is irrevocable and coupled with an interest. Without limiting the
generality of the foregoing, Bank shall, as attorney-in-fact of
Borrower, have the right to receive, collect and endorse all vehicle
titles, checks, drafts or other remittance made payable to Borrower,
or Borrower's order, representing any payment on account of any of the
Collateral and to give full discharge therefor.
B. Waiver Not Binding. Any waiver of any default by Bank is not a waiver
of any subsequent default. Further, no delay on the part of the Bank
in the exercise of any power or right shall constitute a waiver
thereof, nor shall any single or partial exercise of any power or
right preclude other or further exercise thereof.
C. Notice. Any notice hereunder to Borrower shall be in writing, and
shall be deemed to be given on the date delivered, personally, or on
the date when mailed by ordinary mail, postage prepaid, or by
facsimile and addressed to the Borrower as appearing on the signature
page of this Agreement, or at such other address as the Borrower may,
by written notice received by the Bank, designate as the Borrower's
address for purposes of notice hereunder.
D. Governing Law. This Agreement, the Notes and all other Loan Documents
shall be covered in all respects by the laws of the State of Iowa. A
determination that any provision of this Agreement is unenforceable or
invalid shall not affect the validity or enforceability of any other
provision.
E. Enforcement in Iowa. Borrower acknowledges that this Agreement is
being entered into by the Bank in partial consideration of Bank's
right to enforce in Iowa the terms and provisions of this Agreement
and the Loan Documents. Borrower consents to jurisdiction in Iowa and
construction of this Agreement under the laws of the State of Iowa.
Borrower waives any right to commence any action against the Bank
except in Iowa.
F. Term of Agreement. The term of this Agreement shall coincide with the
terms of any Note or Notes executed by Borrower in favor of the Bank,
as modified, extended, substituted, renewed or until all Indebtedness
is paid in full and any commitment to extend credit has terminated.
G. Assignment. This Agreement shall not be assigned by Borrower without
the written consent of the Bank.
H. Participation. The Bank may enter into participation agreements with
other financial institutions with regard to any Indebtedness of
Borrower.
I. Successors and Assigns. This Agreement shall be binding upon
Borrower's successors and assigns.
J. Additional Documents. Borrower agrees to execute and cause to be
executed such additional documents as the Bank may require in order to
effectuate the terms of this Agreement. All documents shall be on the
Bank's standard forms for the same or forms otherwise acceptable to
Bank.
K. Conflict in Documents. In the event of a conflict between the terms
and conditions of this Agreement and those of any other documents
pertaining to Borrower's Indebtedness to Bank, the terms of this
Agreement shall be controlling.
L. Survival of Representations and Warranties. All representations,
warranties, covenants, and agreements of Borrower herein shall survive
the execution and delivery of this Agreement and shall be deemed
continuing until the Indebtedness is paid in full to the Bank and any
commitment to extend credit has terminated.
M. Release of Bank. Borrower hereby releases and forever discharges Bank
and any participants, their officers, directors, employees,
shareholders, agents and representatives from all claims or causes of
actions of every kind or character, known or unknown, without limit,
which Borrower allegedly may have as of the date of this Agreement.
N. Collection Costs. If Bank hires an attorney to assist in collecting
any amount due or enforcing any right or remedy under this Agreement,
the Notes or any other Loan Document, Borrower agrees to pay the
attorney fees and expenses incurred by Bank.
IMPORTANT - READ BEFORE SIGNING, THE TERMS OF THIS AGREEMENT SHOULD BE READ
CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER TERMS
OR ORAL PROMISES NOT CONTAINED IN THIS WRITTEN CONTRACT MAY BE LEGALLY ENFORCED.
YOU MAY CHANGE THE TERMS OF THIS AGREEMENT ONLY BY ANOTHER WRITTEN AGREEMENT.
Borrower warrants that it has received a copy of this Agreement and further
states that it understands fully the terms and conditions described herein.
BANKERS TRUST COMPANY
Steven D. Simon, Vice President
P.O. Box 897
665 Locust Street
Des Moines, Iowa 50304-9987
"BANK"
CROUSE CARTAGE COMPANY
By:
Gordon C. Headlee, Chief Financial
Officer
"BORROWER"
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
TransFinancial Holdings, Inc. consolidated statement of income for the year
ended December 31, 1997 and consolidated balance sheet as of December 31, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000719271
<NAME> TRANSFINANCIAL HOLDINGS, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 4778
<SECURITIES> 3543
<RECEIVABLES> 29888
<ALLOWANCES> 963
<INVENTORY> 0
<CURRENT-ASSETS> 47071
<PP&E> 55990
<DEPRECIATION> 22969
<TOTAL-ASSETS> 89755
<CURRENT-LIABILITIES> 15005
<BONDS> 0
0
0
<COMMON> 75
<OTHER-SE> 72410
<TOTAL-LIABILITY-AND-EQUITY> 89755
<SALES> 0
<TOTAL-REVENUES> 133687
<CGS> 0
<TOTAL-COSTS> 131751
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2625
<INCOME-TAX> 1525
<INCOME-CONTINUING> 1100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1100
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
Exhibit 21
TRANSFINANCIAL HOLDINGS, INC.
LISTING OF SUBSIDIARIES
Subsidiaries of TransFinancial Holdings, Inc. State of Incorporation
Crouse Cartage Company Iowa
Phoenix Computer Services, Inc. Kansas
American Freight System, Inc.
(d/b/a AFS, Inc.) Delaware
Agency Premium Resource, Inc. Kansas
Subsidiary of Agency Premium Resource, Inc.
APR Funding Corporation Delaware
TFH Properties, Inc. Kansas
Universal Premium Acceptance Corporation Missouri
UPAC of California, Inc. California
TransFinancial Acceptance, Inc. Kansas
Presis, L.L.C. Kansas
(All companies do business under same name unless otherwise indicated).
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference into the Company's previously filed
Registration Statements on Form S-8 for the Anuhco, Inc. 1992 Incentive Stock
Plan, File No. 33-51494, and the Stock Option Agreement by and between Anuhco,
Inc. and C. Ted McCarter, effective may 31, 1995, File No. 33-62553, of our
report dated February 4, 1998 on our audit of the consolidated financial
statements and financial statement schedule of TransFinancial Holdings, Inc.
(formerly Anuhco, Inc.) as of December 31, 1997 and 1996, and for the years
ended December 31, 1997, 1996, and 1995,, which report is incorporated by
reference in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Kansas City, Missouri
March 30, 1998
