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, 1998
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 12, 1999, was $13,862,000 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
12, 1999 was 3,932,372 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 1999 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. These
statements can often be identified by the use in such statements of forward-
looking terminology, such as "believes," "expects," "may," "will," "should,"
"could," "intends," "plans," "estimates," or "anticipates," or the negative
thereof, or comparable terminology. Certain of the forward-looking statements
contained herein are marked by an asterisk ("*") or otherwise specifically
identified herein. These statements involve risks and uncertainties that 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. ("TransFinancial" or the "Company"), is
headquartered in Lenexa, Kansas, and is a Delaware holding company formed in
April, 1976. TransFinancial operates in three industry segments;
transportation, through, its subsidiary Crouse Cartage Company ("Crouse");
financial services, primarily through its insurance premium finance subsidiary,
Universal Premium Acceptance Corporation ("UPAC"); and industrial technology,
through its subsidiary, Presis, L.L.C. ("Presis"). TransFinancial acquired
Crouse on 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. TransFinancial acquired its interest in Presis effective July 31, 1997.
Financial information about the Company's operating industry segments is
presented in Note 1 of Notes to Consolidated Financial Statements.
TRANSPORTATION
Crouse, headquartered in Carroll Iowa, is a regional motor common carrier
of general commodities in less-than-truckload ("LTL") quantities in 15 states in
the north central and midwest portion of the United States. In 1998, Crouse
entered into a strategic partnership arrangement with a southeastern regional
LTL carrier that enables Crouse to offer its customers service in 7 southeastern
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 carriers 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 relation to weight. Crouse 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. Local drivers operating from Crouse's network of 68 service locations
pick up shipments from customers. The freight is 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>
1998(4) 1997 1996 1995(3) 1994(3)
<S> <C> <C> <C> <C> <C>
Revenue (000's).................................. $ 144,592 $ 126,062 $ 107,502 $ 95,152 $ 95,772
Operating Income (000's)......................... 2,865 3,136 2,915 3,970 6,017
Operating Ratio (1).............................. 98.0% 97.5% 97.3% 95.8% 93.7%
Number of shipments (000's) -
Less-than-truckload ........................... 1,150 1,076 952 742 744
Truckload ............................... 39 31 27 32 33
Revenue per hundredweight -
Less-than-truckload ........................... $ 9.32 $ 9.25 $ 8.84 $ 9.25 $ 9.38
Truckload ............................... 2.36 2.09 2.04 2.30 2.19
Tonnage (000's) -
Less-than-truckload ........................... 638 570 503 402 398
Truckload ............................... 545 495 461 451 479
Intercity miles operated (000's)................. 60,848 51,952 44,523 39,424 36,720
At year-end, number of -
Terminals (2) ............................... 68 66 55 54 53
Tractors and trucks ........................... 684 631 585 527 504
Trailers ...................................... 1,501 1,417 1,194 1,004 948
Employees ............................... 1,338 1,287 1,113 945 965
<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 1994 through 1995 information.
(4) 1998 operating income excludes certain charges totaling $1,544,000 relating to events surrounding the hostile takeover of
Crouse's parent.
</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 August through October. 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.
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
The interstate operations of Crouse are subject to regulation by the
Department of Transportation ("DOT") and a 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. Professional truck drivers
must be licensed to operate commercial vehicles in compliance with the DOT
regulations, and are subject 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 utility 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, 1998, Crouse employed 1,338 persons, of whom 1,068 were
drivers, mechanics, dockworkers or terminal office clerks. The remaining
employees were engaged in managerial, sales and administrative functions.
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, 2003.
Crouse achieved ratification in 1998 of new five-year pacts with the
International Brotherhood of Teamsters or other local unions covering
substantially all of its union employees. The new contracts generally provide
for all of the terms of the NMFA with a separate addendum for wages. Crouse
will continue to maintain its past work rules, practices and flexibility within
its operating structure. Crouse continues to negotiate with the union local
representing the remaining employees. There can be, however, no assurance that
Crouse's remaining union employees will ratify a new contract acceptable to both
the Company and the union, or that work stoppages will not occur. If a work
stoppage should occur, Crouse's customer base would be put at risk inasmuch as
its competition would have a continuing operating advantage. Any of these
actions could have a material adverse effect on the Company's business,
financial condition, liquidity or results of operations.*
As an employer signatory to the NMFA, 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 Crouse from the multiemployer plans). Although Crouse has no
current information regarding its potential liability under ERISA in such an
event, management believes that such liability would be material.*
Under provisions of the former NMFA, Crouse maintained a profit sharing
program for all employees from 1988 through September 1998 ("Profit Sharing").
Profit Sharing was 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. The
profit sharing program was not extended in the new contract ratified in 1998.
The new contract includes a separate wage reduction provision that specifies
wage rates below those provided in the NMFA.
FINANCIAL SERVICES
UPAC, headquartered in Lenexa, Kansas, is engaged in the business of
financing the payment of insurance premiums. 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 some
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 20% to 25% of the total premium and
sign a premium finance agreement for the balance, which is generally payable in
installments over the following 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 usually set at a level determined, in the event of
cancellation of a policy, such that the unearned premiums returned by 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 3,200 insurance agencies or
brokers, the largest of which referred approximately 3% of the total premiums
financed by UPAC in 1998. The following table sets forth certain financial and
operating data with respect to UPAC since the entry into this segment by
TransFinancial in May 1995:
1998 1997 1996 1995
Premiums financed (000's) $ 160,773 $ 122,981 $ 120,355 $37,852
Number of premium finance contracts 49,789 48,818 46,968 7,214
Average amount of contracts $ 3,229 $ 2,519 $ 2,562 $ 5,247
UPAC had 55 employees at December 31, 1998.
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. The Federal Truth
in Lending statute also governs a portion of the format of UPAC's premium
finance agreements.
UPAC currently operates as an insurance premium finance company in the 48
contiguous states under state licenses it holds or under foreign corporation
qualification in states that do not require 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
insurance carriers offering installment payment plans, finance companies
affiliated with insurance carriers, independent insurance brokers who offer
premium finance services, banks and other lending institutions. Many 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 large, national premium finance companies owned by large insurance
companies, banks, or commercial finance companies. This group is composed of a
small number companies that, on a combined basis, finance in excess of 80% of
the total market. The second tier, which includes UPAC, is highly fragmented
and is composed of numerous smaller local, regional and national premium finance
companies, which finance the remainder of the total market.
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 technology and account service distinguishes it from its first
tier competitors and that its cost of funds allows it to compete favorably with
second tier competitors.*
INDUSTRIAL TECHNOLOGY
In July 1997, the Company acquired a controlling interest in Presis and
subsequently purchased the minority interests from the former owners in 1998.
Presis is a start-up business involved in developing technical advances in dry
particle processing. Presis has working prototypes that it is utilizing for
research and testing which will require further engineering before being placed
in commercial operation. In the event the process is successfully developed,
Presis expects to market its process to companies processing pigments used in
the production of inks, paints and coatings.*
Competition in the particle processing 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 machinery used in competing processes are more established and have
substantially greater resources than Presis.
DISCONTINUED OPERATION
American Freight System, Inc. ("AFS") is treated as a discontinued
operation of TransFinancial. The primary obligation of AFS is to administer the
provisions of a Joint Plan of Reorganization ("Joint Plan"). As of December 31,
1994, all unsecured creditors were paid an amount equal to 130% of their allowed
claims, which was the maximum distribution provided under the Joint Plan.
In 1992 through 1994 TransFinancial received distributions in accordance
with the Joint Plan of $36 million. In addition, AFS paid dividends of $25.0
million, $6.8 million $8.5 million and $9.2 million to TransFinancial on
December 28, 1994, July 5, 1995, July 11, 1996 and April 30, 1998.
AFS had minimal remaining undistributed net assets as of December 31,
1998. The closure of the bankruptcy estate is anticipated to occur in 1999.*
ITEM 2. PROPERTIES.
TransFinancial's, UPAC's and Presis' corporate offices are located in
approximately 16,000 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 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. In 1998 Crouse entered into a long-
term operating lease for certain tractors and trailers. Crouse also leases some
equipment from owner-operators to supplement the owned and leased equipment and
to provide flexibility in meeting seasonal and cyclical business fluctuations.
As of December 31, 1998, Crouse owned 484 tractors and leased 200 tractors
under a long-term operating lease. During 1998, Crouse leased 284 tractors and
34 flatbed trailers from owner-operators. On December 31, 1998, it also owned
319 temperature controlled trailers, 1,053 volume vans (including 470 53-foot
van trailers), and 29 flatbed trailers. Crouse also leased 100 53-foot van
trailers under a long-term operating lease.
The table below sets forth the number of Crouse operating locations at
year-end for the last five years:
1998 1997 1996 1995 1994
Owned terminals......... 28 28 27 26 26
Leased terminals........ 16 14 8 8 8
Agency terminals........ 24 24 20 20 19
Total............. 68 66 55 54 53
The above operating locations include; 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.
TransFinancial's subsidiaries are parties to routine litigation primarily
involving claims for personal injury and property damage incurred in the
transportation of freight. TransFinancial 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 1998.
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 12, 1999.
EXECUTIVE OFFICERS OF THE COMPANY
Name Age Position
Timothy P. O'Neil 42 President, Chief Executive Officer, and Director
David D. Taggart 54 Executive Vice President and Director
Kurt W. Huffman 40 Executive Vice President
Mark A. Foltz 40 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. From March 1997 through October 1998, he 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.
David D. Taggart, a member of the Board since July 1998, has been
Executive Vice President of TransFinancial since April 1998. From August 1997
to April 1998 he served as Vice President of TransFinancial. 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.
Kurt W. Huffman has been Executive Vice President of TransFinancial since
August 1998, President and Chief Executive Officer of Presis since March 1998
and President and Chief Executive Officer of UPAC since October 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 publicly-held provider of school and municipal bus services, from May
1993 to February 1998. Prior to his service with Laidlaw, he was a senior
manager with the international accounting firm of Arthur Andersen LLP.
Mark A. Foltz has been Vice President, Finance since June 1997 and
Treasurer and Corporate Secretary of TransFinancial since May 1996. He was
employed with TransFinancial 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.
TransFinancial's Common Stock is traded on the American Stock Exchange
under the symbol TFH. Prior to July 2, 1997, the Common Stock traded under the
symbol ANU. The following table shows the sales price information for each
quarterly period of 1998 and 1997.
1998 High Low
Fourth Quarter....................... $ 6 1/2 $4 1/8
Third Quarter........................ 9 1/2 5 13/16
Second Quarter....................... 9 5/8 8 7/8
First Quarter........................ 10 1/2 8 7/8
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
(B) HOLDERS.
Number of
Holders of Record
Title of Class at December 31, 1998
Common Stock, par value $0.01 per share 1,158
(C) DIVIDENDS.
No cash dividends were paid during 1998 or 1997 on TransFinancial's Common
Stock. TransFinancial currently intends to retain earnings to finance expansion
and does not anticipate paying cash dividends on its Common Stock in the near
future.* TransFinancial's future policy with respect to the payment of cash
dividends will depend on several factors including, among others, acquisitions,
earnings, capital requirements, financial conditions and operating results. See
Note 4 of Notes to Consolidated Financial Statements for a discussion of
restrictions on the ability of TransFinancial's subsidiaries to pay dividends to
TransFinancial and the ability of TransFinancial to pay cash dividends.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Operating Revenue........................... $ 151,701 $ 133,223 $113,693 $ 96,847 $ 95,772
Income (Loss) from Continuing
Operations............................. $ (2,027) $ 1,100 $ 852 $ 2,810 $ 5,495
Income from Discontinued
Operations............................. $ -- $ -- $ -- $ 3,576 $ 54,845
Net Income (Loss)........................... $ (2,027) $ 1,100 $ 852 $ 6,386 $ 60,340
Basic Earnings (Loss) per Share -
Continuing Operations.................. $ (0.39) $ 0.18 $ 0.13 $ 0.38 $ 0.73
Discontinued Operations................ -- -- -- 0.48 7.27
Total.................................. $ (0.39) $ 0.18 $ 0.13 $ 0.86 $ 8.00
Diluted Earnings (Loss) per Share -
Continuing Operations.................. $ (0.39) $ 0.18 $ 0.12 $ 0.37 $ 0.72
Discontinued Operations................ -- -- -- 0.48 7.21
Total.................................. $ (0.39) $ 0.18 $ 0.12 $ 0.85 $ 7.93
Total Assets................................ $ 77,763 $ 89,755 $ 86,812 $ 88,426 $ 85,399
Long-Term Debt.............................. $ 9,700 $ -- $ -- $ -- $ --
Cash Dividends per
Common Share........................... $ -- $ -- $ -- $ -- $ --
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
TransFinancial operates in three distinct industries; transportation,
through its subsidiary, Crouse; insurance premium finance, through its
subsidiary, UPAC; and industrial technology, through its subsidiary, Presis.
In June 1998, TJS Partners, LP ("TJS"), a shareholder of the Company,
announced its intent to acquire an additional 23% of the Company's outstanding
common stock held by one family (the "Crouse family"), obtain control of the
Company's board of directors and study possible actions such as the liquidation
or sale of part or all of the Company's businesses or assets. The board of
directors determined that the hostile takeover attempt was not in the best
interest of the Company and its shareholders and agreed to repurchase the shares
held by TJS and the Crouse family. The failed takeover attempt, together with
other events, led TransFinancial to record after-tax charges totaling $2.9
million. These charges included costs related to management and personnel
changes, asset and liability valuation adjustments and transaction costs and
other expenses related to the takeover attempt. See Notes 1 and 5 of Notes to
Consolidated Financial Statements.
Transportation
OPERATING REVENUE - The changes in transportation operating revenue are
summarized in the following table (in thousands):
1998 1997
vs. vs.
1997 1996
Increase (decrease) from:
Increases in LTL tonnage.................. $ 12,615 $11,792
Increase in LTL revenue
per hundredweight....................... 892 4,934
Increases in truckload revenues........... 5,023 1,834
Net increase............................ $ 18,530 $18,560
Less-than-truckload ("LTL") operating revenues rose 12.8% and 18.8% in
1998 and 1997, in comparison to the preceding years. LTL tonnage rose 12.0% and
13.3% in 1998 and 1997, as compared to 1997 and 1996. The substantial increases
in LTL tonnage in 1998 and 1997 were due to increased freight volumes with
existing and new customers resulting primarily from 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 rose 0.9% in 1998
as compared to 1997. The effects of a softening agricultural economy, a slowing
in the growth of LTL tons and an increase in competitive pressures on freight
rates, were substantially offset by additional, high yield freight handled as a
result of Crouse's partnership with a southeastern regional carrier which was
initiated in the third quarter of 1998. 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 in
1997 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 in 1997 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.
Truckload operating revenue rose 24.3% and 9.7% in 1998 and 1997,
primarily as a result of 26.3% and 13.9% 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 continued to be
strong. Revenue per shipment declined 2.0% and 4.2% in 1998 and 1997 compared
to 1997 and 1996 as a result of decreases in average weight per shipment.
OPERATING EXPENSES - A comparative summary of transportation operating
expenses as a percent of transportation operating revenue follows:
Percent of
Operating Revenue
1998(1) 1997 1996
Salaries, wages & employee benefits..... 56.8% 56.8% 55.9%
Operating supplies and expenses......... 12.5 12.5 13.2
Operating taxes and licenses............ 2.6 2.6 2.7
Insurance and claims.................... 1.8 2.3 1.9
Depreciation and amortization........... 2.3 3.1 2.7
Purchased transportation and rents...... 22.0 20.2 20.9
Total operating expenses............. 98.0% 97.5% 97.3%
(1) Additionally, in connection with the failed takeover attempt by certain
shareholders, an in-depth evaluation was performed on each of the Company's
business enterprises utilizing both internal and external resources. As a
result of this process the Company effected certain changes in its management
team and corporate structure, and recorded valuation adjustments to certain
assets and liabilities. The following charges relative to the Company's
transportation business are not reflected in the percentages above: $494,000 in
Salaries, Wages and Employee Benefits; $450,000 in Operating Supplies and
Expenses; and $600,000 in Insurance and Claims.
Crouse's operating expenses as a percentage of operating revenue, or
operating ratio, excluding the charges discussed above, were 98.0% for 1998
compared to 97.5% for 1997. The increase in operating ratio was primarily the
result of operating costs associated with the Company's substantial investments
in market expansion; the replacement and modernization of its fleet, and the
development of management information systems. The operating costs of these
investments will continue to impact Crouse's operating ratio into 1999. The
Company also believes that its labor productivity and operating efficiency were
adversely impacted during 1998 by employee and management attention to issues
relating to the union negotiations and attempted hostile takeover and possible
liquidation of the Company. With the favorable resolution of these issues and
renewed focus on operating performance, the Company believes the unfavorable
trend in operating ratios can be reversed in 1999.* Crouse's operating expenses
were positively impacted by approximately $756,000 in 1998 as a result of a
change in accounting estimate of the remaining useful lives of certain revenue
equipment.
Crouse's operating ratio for 1997 rose slightly to 97.5% compared to 97.3%
for 1996. The fixed costs related to Crouse's investment in expanding its market
throughout Ohio, Michigan and Kentucky exceeded revenues generated in these new
markets. Insurance and claims expenses 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.
Financial Services
As a result of the in-depth evaluation of the Company's business
enterprises, changes in its management team and adjustments to certain assets
and liabilities discussed previously, UPAC recorded charges relative to its
financial services business in 1998. These charges include $392,000 relative to
management and personnel costs and $683,000 of charges related to adjustments in
asset values, including $333,000 of additional depreciation related to the
change in estimated useful life for purchased software (See Note 1 of Notes to
Consolidated Financial Statements).
In 1998, UPAC reported operating income, excluding the charges discussed
above, of $422,000 on net financial services revenue of $7.0 million and total
insurance premiums financed of $160.8 million. A slight decrease in net
financial services revenue in 1998 was primarily due to an increase in the
percentage of finance receivables sold and a decrease in gains realized on sale
of receivables pursuant to the securitization agreement resulting from a lower
average yield on contracts originated in 1998. Operating income, excluding the
charges discussed above, was slightly higher due to reduced operating expenses
in 1998, principally provisions for credit losses. The increase in total
insurance premiums financed in 1998 was the result of the acquisition of Oxford
Premium Finance, Inc. on May 29, 1998 and increased volumes financed with
existing and new agents.
In 1997, UPAC generated operating income of $396,000 on net financial
services revenue of $7.1 million from total insurance premiums financed of
$123.0 million. In 1996, UPAC financed $120.4 million of insurance premiums and
generated net financial services revenue of $6.1 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 in Lenexa, Kansas that 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.
Industrial Technology
As a result of the in-depth evaluation of the Company's business
enterprises, changes in its management team and adjustments to certain assets
and liabilities discussed previously, Presis, the Company's start-up industrial
technology business, recorded charges related to its industrial technology
investment in 1998. These charges include $244,000 related to management and
consulting contracts and $525,000 resulting from the adjustment of the carrying
value of certain equipment and intangibles to fair value (See Note 1 of Notes to
Consolidated Financial Statements).
In 1998, Presis incurred operating expenses, excluding the charges
discussed above, of $700,000, primarily in salaries, wages and employee benefits
as compared to operating expenses of $295,000 during the partial year of 1997.
In its initial phase Presis has focused on continued research and testing of its
technology. The Company expects this operation to incur operating losses in
1999 at or below its current expenditure levels of $100,000 per quarter as it
continues to pursue the research, testing and commercialization of its
technology.*
Other
In connection with the failed takeover attempt, the Company incurred
$500,000 in transaction costs and expenses that are included in general
corporate expenses in 1998. Additionally, general corporate charges of $700,000
were recorded principally to reflect certain excess costs incurred to remove
contaminated soil from a site formerly owned by the Company. A lawsuit has been
filed against the environmental engineering firm that performed the initial
cleanup to recover such excess costs. The Company has not recorded the benefit
of potential recovery pursuant to this lawsuit and none can be assured.
As a result of the Company's use of funds for the Crouse market expansion
and new computer system, the UPAC acquisition and stock repurchases, interest
earnings on invested funds were substantially lower in 1998 and 1997 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.*
Interest expense increased in 1998 due to borrowings on long-term debt incurred
to repurchase stock (See Note 4 of Notes to Consolidated Financial Statements).
TransFinancial's effective income tax provision (benefit) rates for 1998,
1997 and 1996 were (29%), 58% and 51%. The effective income tax rate for 1998
was a lower percentage due to the impact of non-deductible amortization of
intangibles and meals and entertainment expenses, which reduce the tax benefit
of pre-tax losses in 1998, as compared to the impact of these items on pre-tax
income in 1997. The increase in the effective rate in 1997 was the result of
the greater significance of non-deductible amortization of intangibles relative
to reduced pre-tax income. Also, in 1997 the Company provided additional income
tax reserves for tax adjustments resulting from an examination of the Company's
income tax returns. This examination was concluded in 1998 with no additional
tax provision required.
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 utilizes a three-year strategic planning process with the goal
of maximizing shareholder value through profitable growth of its business
segments. 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 increasing the density of
its operations in the eastern portion of its service area. The Company also
intends to continue to focus on improving the efficiency and effectiveness of
its operations.
The Financial services segment will focus on targeting its marketing
efforts to improve its contribution to the Company's return on equity.
Additionally, the Company intends to focus on utilizing technology to improve
its operating efficiency.
The industrial technology operation will focus on continued research,
testing and commercialization of its technology. The Company expects this
operation to incur operating losses in 1999 at or below its current expenditure
levels of $100,000 per quarter.
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 new contracts to replace
current contracts, covering certain terminal employees which expired 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 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.
Industrial Technology
Presis is a start-up business formed to develop an industrial technology
for dry particle processing. This technology is 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 technology, the ability of the
venture to market the technology, the acceptance of such technology in the
marketplace, the general tendency of large corporations to be slow to change
from known technology, the ability to protect its proprietary information in the
technology and potential future competition from third parties developing
equivalent or superior technology. As a 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 materially 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 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 that 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, 1998
with approximately $3.3 million in cash and investments. The Company's current
ratio was 2.3 to 1.0 and its ratio of total liabilities to tangible net worth
was 0.7 to 1.0. In addition to utilizing 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, 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. Substantially all of these delinquent receivables were collected in
1998 resulting in the improvement in cash generated from operating activities in
that period.
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 $6.3 million and $8.5 million in cash dividends in 1998 and 1996.
AFS had minimal remaining undistributed net assets as of December 31, 1998. The
principal use of cash has been the acquisitions of Oxford for approximately $4.2
million in 1998 and UPAC for approximately $12.0 million in 1996. In addition,
Crouse expended $13.1 million, $9.6 million and $4.0 million in 1998, 1997 and
1996, to replace and expand its fleet of tractors and trailers and to acquire
new terminals.
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 that matures December 31, 2001 currently
provides for the sale of a maximum of $85 million of eligible receivables. As
of December 31, 1998, $61.6 million of such receivables had been securitized
(See Note 4 of Notes to Consolidated Financial Statements).
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. The balance outstanding under this agreement at December 30,
1996, $22.5 million, was repaid from the proceeds of the initial sale of
receivables under UPAC's new receivable securitization agreement on December 31,
1996 described above.
Effective January 5, 1998, Crouse entered into a new Secured Loan
Agreement that 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. Crouse's revenue equipment and bank deposit balances are pledged
as collateral for both lines. In 1996 through 1998, Crouse has utilized this
and previous agreements only on a limited basis for short-term operational
needs. No borrowings were outstanding on the lines at December 31, 1998.
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 and 1996, the Company repurchased 257,099 and 768,600 shares,
at a total cost of $8.7 million. Additionally, during the fourth quarter of
1996, the Company repurchased 28,541 shares of common stock at a cost of
$237,000 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.
Pursuant to a definitive stock purchase agreement resolving the hostile
takeover attempt, the Company repurchased 2,115,422 shares of its common stock
held by the Crouse family, including 881,550 shares registered in the name of
TJS Partners, LP, all at a price of $9.125 per share, effective August 14, 1998.
The Company paid and expensed $350,000 of legal and other expenses incurred by
the Crouse family in connection with the takeover attempt. See Note 5 of Notes
to Consolidated Financial Statements. The Company funded the stock repurchase
out of available cash and short-term investments, the proceeds from the sale and
leaseback of approximately $4.2 million of revenue equipment and the proceeds
from a $10.0 million secured loan from one of the Company's existing bank
lenders as described below.
In September 1998, the Company entered into a two-year secured loan
agreement with a commercial bank to borrow $10.0 million (the "Loan"). Freight
accounts receivable and a second lien on revenue equipment are pledged as
collateral for the Loan. The Loan bears interest at the bank's prime rate,
7.75% at December 31, 1998. The terms of the Loan provide for monthly payments
of interest only through September 30, 1999, with monthly principal payments
thereafter of $100,000 plus interest through maturity on September 30, 2000. At
December 31, 1998 current maturities of long-term debt were $300,000, with the
remaining $9,700,000 due in 2000 (See Note 4 of Notes to Consolidated Financial
Statements).
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 1999.*
As of December 31, 1998, Crouse owned or leased 44 parcels of real
property which are utilized in its operations. Six of these facilities maintain
underground fuel storage tanks. These fuel systems were replaced with new tanks
equipped with corrosion protection and automatic tank monitoring equipment. 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 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. 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, 1998.*
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 of Notes to
Consolidated Financial Statements - Summary of Significant Accounting Policies -
Allowance for Credit Losses.
Crouse has achieved ratification of new five-year pacts with the
International Brotherhood of Teamsters or other local unions covering
substantially all of its union employees. The new contracts generally provide
for all of the terms of the National Master Freight Agreement with a separate
addendum for wages. Crouse will continue to maintain its past work rules,
practices and flexibility within its operating structure. Crouse continues to
negotiate with the union local representing the remaining employees. There can
be, however, no assurance that Crouse's remaining union employees will ratify a
new contract acceptable to both the Company and the union, or that work
stoppages will not occur. If a work stoppage should occur, Crouse's customer
base would be put at risk inasmuch as its competition would have a continuing
operating advantage. Any of these actions could have a material adverse effect
on the Company's business, financial condition, liquidity or results of
operations.*
Year 2000 Issues
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, or its major service providers, vendors, suppliers, partners
or customers that have date-sensitive software could recognize a date using "00"
as the year 1900 rather than the year 2000. Additionally, certain other assets
may contain embedded chips that include date functions that could be affected by
the transition to 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 developed and is executing a Year 2000 Compliance
Strategic Plan ("Year 2000 Plan") to enable management of TransFinancial and
each of its business operations to ensure that each of its critical business
systems are "Year 2000 Compliant". The Company considers a business system to
be Year 2000 Compliant if it is able to transition into the year 2000 without
significant disruption to the Company's internal operations or those of its key
business partners. The Year 2000 Plan encompasses the Company's information
technology assets, including computer hardware and software ("IT assets") and
non-information technology assets, goods and services, including assets
utilizing embedded chip technology and significant customer and vendor
relationships ("non-IT assets").
The Company's Year 2000 Plan includes three principal sections: (1)
mainframe computer and personal computer hardware and software utilized by the
Company's transportation operations ("Transportation IT assets"); (2) desktop
computer applications, embedded chips, significant business partners of the
transportation operations ("Transportation non-IT assets"); and (3) personal
computer hardware and software, desktop computer applications, embedded chips,
significant business partners of the financial services operations ("Financial
Services IT and non-IT assets"). The general phases common to all sections are:
(1) inventorying, assessing and assigning priorities to Year 2000 items
("Inventory Phase"); (2) taking corrective actions to modify, repair or replace
items that are determined not to be Year 2000 Compliant ("Corrective Action
Phase"); (3) testing material items ("Testing Phase"); and (4) developing and
implementing contingency plans for each organization and location ("Contingency
Planning Phase"). The Company intends to utilize primarily internal personnel
and resources to execute its Year 2000 Plan but may utilize external consultants
as needed in certain phases.
Transportation IT assets
With regard to the Transportation IT assets section, the Inventory Phase
is completed. The Company has identified its computer applications, programs
and hardware and is in the processing of assessing the Year 2000 risk associated
with each item. The Company has begun executing the Corrective Action Phase by
modifying or upgrading items that are not Year 2000 compliant. This phase is
expected to be substantially complete by the end of the second quarter of 1999.*
The Testing Phase is ongoing as corrective actions are completed. The Testing
Phase is anticipated to be complete in the second quarter of 1999.* The
Contingency Planning Phase will begin in the first quarter of 1999 and be
completed in the third quarter of 1999.*
Transportation non-IT assets
With regard to the Transportation non-IT assets section, the Inventory
Phase is completed. The Company has identified assets that may contain embedded
chip technologies and has contacted the related vendors to gain assurance of
Year 2000 status on each item. The Company has also identified its significant
business relationships and has contacted key vendors, suppliers and customers to
attempt to reasonably determine their Year 2000 status. The Company is in the
process of effecting the Corrective Action Phase, which is anticipated to be
complete by the end of the first quarter of 1999.* The Testing Phase is ongoing
as corrective actions are completed. This phase is anticipated to be complete
in the second quarter of 1999.* The Contingency Planning Phase will begin in
the first quarter of 1999 and be completed in the third quarter of 1999.*
Financial Services IT and non-IT assets
With regard to the Financial Services IT and non-IT assets section, the
Inventory Phase is completed. The Company has identified its computer
applications, programs and hardware and non-IT assets and has assessed the Year
2000 risk associated with each item. The Company has also identified its
significant business relationships and has contacted key vendors, suppliers and
customers to attempt to reasonably determine their Year 2000 status. The
Company has substantially completed the Corrective Action Phase. The Company's
financial services database, operating systems and computer applications have
been upgraded or modified to address the Year 2000. The Testing Phase has been
ongoing as corrections were made and was substantially complete in the fourth
quarter of 1998. Certain testing of bank and other interfaces is expected to be
completed in the first quarter of 1999.* The Contingency Planning Phase will
begin in the first quarter of 1999 and be completed in the second quarter of
1999.*
Costs
It is currently estimated that the aggregate cost of the Company's Year
2000 efforts will be approximately $150,000 to $200,000, of which approximately
$80,000 has been spent.* These costs are being expensed as they are incurred
and are being funded out of operating cash flow. These amounts do not include
approximately $100,000 of costs to be capitalized as the Company replaces
certain non-IT assets, in part to address the Year 2000 issue, as part of the
Company's normal capital replacement and upgrades. These amounts also do not
include any internal costs associated with the development and implementation of
contingency plans.
Risks
The failure to correct a material Year 2000 issue could result in an
interruption in, or failure of, certain normal business operations. Such
failures could materially and adversely affect the Company's results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Year 2000 issue, resulting in part from the uncertainty of the
Year 2000 readiness of third-party vendors, suppliers and customers, the Company
is unable to determine at this time whether the consequences of Year 2000
failures will have a material impact on the Company's results of operations,
liquidity and financial condition. The Company's Year 2000 Plan is designed to
gather information concerning Year 2000 issues facing the Company and to address
and resolve such issues to the extent reasonably possible. Even if the Company
successfully implements its Year 2000 Plan, there can be no assurance that the
Company's operations will not be affected by Year 2000 failures or that such
failures will not have a material adverse effect on the Company's results of
operations, liquidity and financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk is interest rate risk. Changes in short-
term interest rates can affect: (a) the amount of the Company's interest expense
on its variable interest rate debt and (b) the amount of the discount on finance
accounts receivables sold by UPAC under its receivable securitization agreement.
The Company has not obtained any financial instruments for trading purposes.
The Company's long-term, variable interest rate debt was $10,000,000 as of
December 31, 1998, with $300,000 maturing in 1999 and the remaining $9,700,000
maturing in 2000. In addition, Crouse has a variable rate credit facility
through which it may borrow $4.5 million for working capital purposes and $4.5
million for equipment purposes. Crouse has utilized this line on a limited
basis for short-term working capital needs, however, no borrowings were
outstanding under this credit facility as of December 31, 1998.
UPAC sells undivided interests in its insurance premium finance accounts
receivables on an ongoing basis under a receivables securitization agreement.
The receivables sold are fixed rate notes and typically have a term of nine
months. An undivided interest in the pool of receivables is sold at a discount
rate based on the average rate on 28 - 35 day commercial paper over the term of
the notes. Consequently, with respect to insurance premium finance receivables
sold by UPAC under the securitization agreement, changes in the rate on 28 - 35
day commercial paper during the term of such receivables will affect the amount
to be received by UPAC in the sale of receivables under the securitization
agreement. The Company recognizes a gain on sale of receivables that represents
the excess of the sale proceeds over the net carrying value of the receivables.
Included in the gain recognized are the estimated effects of prepayments,
recourse provisions and the discount rate in effect at the time of sale. As of
December 31, 1998, UPAC had a total finance accounts receivable portfolio of
$76.5 million, including $61.6 million that had been sold under the
securitization agreement. UPAC closely monitors interest rates and the extent
of its interest rate exposure resulting from its insurance premium finance
activities and the sale of insurance premium finance receivables. UPAC does not
currently use derivatives, such as interest rate swaps, to manage its interest
rate risk and does not engage in any other hedging activities.
The estimated impact of a hypothetical 100 basis point (one percent) change
in short-term interest rates on the Company's interest expense on its variable
interest rate debt and on UPAC's gain on sale of insurance premium finance
receivables is approximately $292,000. This hypothetical short-term interest
rate change impact is based on existing business and economic conditions and
assumes that UPAC would pass the increase in interest rates on to its customers
in new finance contracts generated after the increase.*
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of TransFinancial Holdings, Inc.:
In our opinion, the consolidated financial statements listed in the
accompanying index appearing under Item 14 (a)(1) and (2) herein present fairly,
in all material respects, the financial position of TransFinancial Holdings,
Inc. and its subsidiaries at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Kansas City, Missouri
February 3, 1999, except for Note 10,
as to which the date is February 18, 1999.
<TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31
1998 1997
(In Thousands)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.................................................. $ 3,256 $ 4,778
Short-term investments..................................................... -- 3,543
Freight accounts receivable, less allowance for
credit losses of $387 and $464........................................ 13,351 14,909
Finance accounts receivable, less allowance for
credit losses of $566 and $499........................................ 12,584 14,016
Current deferred income taxes.............................................. 2,548 1
Other current assets....................................................... 2,401 1,831
AFS net assets (Note 8).................................................... -- 7,993
Total current assets.................................................. 34,140 47,071
Operating Property, at Cost
Revenue equipment.......................................................... 31,969 32,275
Land....................................................................... 3,681 3,585
Structures and improvements................................................ 11,130 10,506
Other operating property................................................... 10,500 9,624
57,280 55,990
Less accumulated depreciation.............................................. (24,122) (22,969)
Net operating property................................................ 33,158 33,021
Intangibles, net of accumulated amortization................................... 9,777 9,243
Other Assets .................................................................. 688 420
$ 77,763 $ 89,755
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Cash overdrafts............................................................ $ 1,976 $ 754
Accounts payable........................................................... 3,093 2,855
Current maturities of long-term debt....................................... 300 --
Line of credit payable..................................................... -- 2,500
Accrued payroll and fringes................................................ 6,068 5,956
Claims and insurance accruals.............................................. 283 566
Other accrued expenses..................................................... 3,402 2,374
Total current liabilities............................................. 15,122 15,005
Deferred Income Taxes.......................................................... 1,867 2,265
Long-Term Debt (Note 4)........................................................ 9,700 --
Contingencies and Commitments (Note 7)......................................... -- --
Shareholders' Equity (Notes 2, 5 and 10)
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 7,593,592 and
7,509,622 shares...................................................... 76 75
Paid-in capital............................................................ 6,090 5,581
Retained earnings.......................................................... 77,367 79,394
Treasury stock, 3,661,220 and 1,481,935 shares, at
cost.................................................................. (32,459) (12,565)
Total shareholders' equity............................................ 51,074 72,485
$ 77,763 $ 89,755
<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
1998 1997 1996
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C>
Operating Revenue
Transportation........................................... $ 144,592 $ 126,062 $ 107,502
Financial services and other, net........................ 7,109 7,161 6,191
Total operating revenue............................. 151,701 133,223 113,693
Operating Expenses
Salaries, wages and employee benefits.................... 87,503 74,622 63,165
Operating supplies and expenses.......................... 23,144 19,141 17,297
Provision for credit losses.............................. 827 950 892
Operating taxes and licenses............................. 3,722 3,324 2,978
Insurance and claims..................................... 3,324 3,051 2,224
Depreciation and amortization............................ 6,286 4,758 3,702
Purchased transportation and rents....................... 29,916 25,441 22,589
Total operating expenses............................ 154,722 131,287 112,847
Operating Income (Loss)...................................... (3,021) 1,936 846
Nonoperating Income (Expense)
Interest income.......................................... 301 645 1,141
Interest expense......................................... (311) (34) (27)
Gain on sale of operating property, net.................. 164 56 78
Other, net............................................... 1 22 (299)
Total nonoperating income (expense)................. 155 689 893
Income (Loss) Before Income Taxes............................ (2,866) 2,625 1,739
Income Tax Provision (Benefit)(Note 6)....................... (839) 1,525 887
Net Income (Loss)............................................ $ (2,027) $ 1,100 $ 852
Basic Average Shares Outstanding............................. 5,249 6,214 6,780
Basic Earnings (Loss) Per Share.............................. $ (0.39) $ 0.18 $ 0.13
Diluted Average Share Outstanding............................ 5,263 $ 6,266 $ 6,820
Diluted Earnings (Loss) Per Share............................ $ (0.39) $ 0.18 $ 0.12
<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
1998 1997 1996
(In Thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities-
Net income (loss)........................................ $ (2,027) $ 1,100 $ 852
Adjustments to reconcile net income (loss) to
net cash generated by operating activities-
Depreciation and amortization....................... 6,286 4,758 3,702
Provision for credit losses......................... 1,220 1,070 1,012
Deferred tax provision.............................. (2,644) 1,679 336
Other............................................... (100) 24 194
Net increase (decrease) from change in
working capital items affecting operating
activities-
Freight accounts receivable..................... 1,165 (5,796) (1,401)
Accrued payroll and fringes..................... 112 423 330
Other........................................... 749 (649) 1,860
4,761 2,609 6,885
Cash Flows From Investing Activities-
Proceeds from discontinued operations.................... 6,345 -- 8,500
Purchase of operating property........................... (9,102) (13,660) (10,953)
Sale of operating property............................... 4,639 704 803
Purchase of finance subsidiaries,
net of cash acquired................................ (4,178) -- (11,979)
Origination of finance accounts
receivables......................................... (162,329) (125,391) (120,989)
Sale of finance accounts receivables..................... 128,136 84,974 61,289
Collection of owned finance accounts
receivables......................................... 37,804 40,005 82,836
Purchase of short-term investments....................... (2,998) (10,411) (35,823)
Maturities of short-term investments..................... 6,541 16,825 53,232
Other .................................................. (368) (466) (1,051)
4,490 (7,420) 25,865
Cash Flows From Financing Activities-
Borrowings on long-term debt............................. 10,000 -- --
Borrowings (repayments) on line of credit
agreements, net..................................... (2,500) 2,500 (23,775)
Cash overdrafts.......................................... 1,101 754 --
Payments to acquire treasury stock....................... (19,303) (2,277) (6,656)
Payment for fractional shares from
reverse stock split................................. (96) (459) --
Other .................................................. 25 50 85
(10,773) 568 (30,346)
Net Increase (Decrease) in Cash and
Cash Equivalents......................................... (1,522) (4,243) 2,404
Cash and Cash Equivalents:
Beginning of Period...................................... 4,778 9,021 6,617
End of Period............................................ $ 3,256 $ 4,778 $ 9,021
Cash Paid During the Period for-
Interest ................................................ $ 196 $ 16 $ 1,109
Income Tax............................................... $ 383 $ 106 $ 332
</TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Supplemental Schedule of Noncash Investing Activities:
In 1998, the Company acquired all of the capital stock of Oxford for
approximately $4,178,000. In conjunction with the acquisition, liabilities
were assumed as follows (See Note 9):
1998
Fair value of assets acquired............................ $22,338
Cash paid for capital stock and acquisition expenses....... (4,178)
Intangibles.............................................. 1,876
Liabilities assumed...................................... $20,036
In 1996, 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...................................... $25,225
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
Total
Share-
Common Paid-In Retained Treasury holders'
Stock Capital Earnings Stock Equity
(In Thousands)
<S> <C> <C> <C> <C> <C>
Balance at Dec. 31, 1995...............$ 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
Net loss ..............................-- -- (2,027) -- (2,027)
Issuance of shares under
Incentive Stock Plan............... 1 509 -- (591) (81)
Purchase of 2,115,422 shares
of common stock.................... -- -- -- (19,303) (19,303)
Balance at Dec. 31, 1998...............$ 76 $ 6,090 $ 77,367 $ (32,459) $ 51,074
<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, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include TransFinancial Holdings, Inc. and its subsidiary companies ("the
Company" or "TransFinancial"). TransFinancial's principal holdings include
Crouse Cartage Company ("Crouse"), Universal Premium Acceptance Corporation and
its subsidiaries, Oxford Premium Finance, Inc. ("Oxford") and UPAC of
California, Inc. (together "UPAC"), Presis, L.L.C. ("Presis") and American
Freight System, Inc. ("AFS"). The operating results of UPAC and Oxford are
included from March 31, 1996 and May 29, 1998, 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 initial investment. AFS
has been accounted for as a discontinued operation since 1991 with only net
assets reflected in the consolidated financial statements (See Note 8). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Segment Information - The Company has adopted Statement of Financial
Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The adoption of this statement did not
require significant changes in the way the Company's segments were disclosed.
TransFinancial operates in three industry segments, transportation, financial
services and industrial technology. 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. TransFinancial also operates as an insurance premium finance
company through UPAC. The Company provides short-term secured financing for
commercial and personal insurance premiums through insurance agencies throughout
the United States. About half of the insurance premiums financed by UPAC are
placed through insurance agencies in Illinois, California, Missouri and Florida.
Presis is a startup company that involves advances in dry particle processing.
Information regarding the Company's industry segments for the years ended
December 31, 1998, 1997 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
Operating Depreciation
Operating Income and Capital Total
Revenues (Loss)(1) Amortization Additions Assets
<S> <C> <C> <C> <C> <C> <C>
Transportation 1998 $ 144,592 $ 1,321 $ 4,456 $ 8,754 $ 47,874
1997 126,062 3,136 3,912 13,104 47,076
1996 107,502 2,915 3,001 9,556 33,633
Financial Services 1998 6,972 (653) 1,172 233 24,859
1997 7,078 396 770 143 24,360
1996 6,138 (685) 678 441 26,791
Industrial Technology 1998 -- (1,469) 610 104 185
1997 -- (295) 31 239 640
1996 -- -- -- -- --
Total Segments 1998 151,564 (801) 6,238 9,091 72,918
1997 133,140 3,237 4,713 13,486 72,076
1996 113,640 2,230 3,679 9,997 60,424
Corporate and Other 1998 137 (2,220) 48 11 4,845
1997 83 (1,301) 45 174 17,679
1996 53 (1,384) 23 956 26,388
Consolidated 1998 151,701 (3,021) 6,286 9,102 77,763
1997 133,223 1,936 4,758 13,660 89,755
1996 113,693 846 3,702 10,953 86,812
<FN>
(1) See Note 5 - Common Stock and Earnings Per Share - Stock Repurchases.
</TABLE>
Depreciation and Maintenance - Depreciation is computed using the
straight-line method and the following useful lives:
Revenue Equipment -
Tractors............................. 5 - 7 years
Trailers............................. 7 - 10 years
Structures and Improvements............. 19 - 39 years
Other Operating Property................ 2 - 10 years
As of January 1, 1998, the Company prospectively increased the estimated
remaining useful lives of certain revenue equipment to reflect the Company's
actual utilization of such equipment. This change decreased depreciation and
increased operating income by approximately $756,000 for 1998. Net income was
increased by approximately $454,000, or $0.09 per share, for 1998.
As of July 1, 1998, the Company prospectively decreased the estimated
remaining useful life of certain purchased software to reflect the Company's
plan to substantially revise and replace the software. This change increased
amortization expense in 1998 by $333,000 and decreased net income by
approximately $200,000, or $0.04 per share.
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 that are not sold pursuant
to the Company's securitization agreement are recognized when earned under
applicable state regulations using methods that 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.
The Company 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.
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. 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.
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 1998 and 1997 (in
thousands):
1998 1997
Balance, beginning of year................ $ 499 $ 769
Allowance acquired with Oxford............ 343 --
Provision for credit losses............... 827 950
Charge-offs, net of recoveries of $196
and $257 ............................... (1,103) (1,220)
Balance, at the end of year............... $ 566 $ 499
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. The
Company maintains cash and cash equivalents with various major financial
institutions. At times such amounts may exceed the F.D.I.C. limits. The
Company believes that no significant concentration of credit risk exists with
respect to cash and 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. Cash Equivalents and Short-Term Investments. The carrying amount
approximates fair value because of the short maturity of these
instruments.
b. Finance Accounts Receivable. The carrying amount approximates fair
value because of the short maturity of these instruments.
c. Long-Term Debt - The carrying amount approximates fair value as the
debt bears interest at a variable market rate.
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
statements of income 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, except as described
below. 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. An evaluation of certain equipment and
intangible assets of the Company's industrial technology operation resulted in
the determination that these assets were impaired. The impaired assets were
written down by $525,000 effective September 30, 1998. Fair value was based on
estimated discounted future cash flows to be generated by these assets and
management's estimate of the value realizable from sale of the assets. This
writedown is included in "Depreciation and Amortization" in the Consolidated
Statements of Income.
Intangible Assets and Accumulated Amortization - Intangible assets,
consisting primarily of goodwill and intangibles recorded in connection with the
acquisition of insurance premium finance companies, totaled $11,322,000 at
December 31, 1998. These intangibles assets are generally being amortized on
the straight-line basis over 15 - 25 years. The accumulated amortization of
intangible assets as of December 31, 1998 was $1,545,000.
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
$6,931,000, $5,762,000 and $4,596,000 to the multiemployer pension plans for
1998, 1997 and 1996. 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 Crouse 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 $8,342,000,
$7,161,000 and $5,904,000, to multiemployer health and welfare plans for 1998,
1997 and 1996.
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 TransFinancial Common Stock.
Pension expense, exclusive of the multiemployer pension plans, was
$357,000, $131,000 and $420,000 for the years 1998, 1997 and 1996. The
accompanying consolidated balance sheets include accrued pension contributions
of $95,000 and $70,000 as of December 31, 1998 and 1997.
Profit Sharing
In September 1988, the employees of Crouse approved the establishment of a
profit sharing plan ("the Plan"). The Plan was 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 continued in effect through October 3, 1998, when a
replacement Collective Bargaining Agreement was reached between the parties.
The Plan was not renewed under the new Collective Bargaining Agreement effective
October 4, 1998. A separate wage reduction provision was substituted in its
place. The accompanying consolidated balance sheets include a profit sharing
accrual of $276,000 for 1997. The accompanying consolidated statements of
income include profit sharing expense of $2,013,000, $3,088,000, $2,833,000 for
1998, 1997 and 1996.
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 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 TransFinancial 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 13% of annual
compensation. The Company matches 50% of the first 10% deferred by each
employee. Company contributions vest after five years. Company matching
contributions in 1998, 1997 and 1996 were $63,000, $48,000 and $27,000.
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 1998, 1997 and 1996
were $108,000, $112,000 and $66,000.
Stock Option Plans
A Long-Term Incentive Plan adopted in 1998 ("1998 Plan") provides that
options for shares of TransFinancial Common Stock be granted to directors, and
that options and other shares may be granted to officers and key employees. All
such option grants are at or above fair market value at the date of grant.
Options granted generally become exercisable ratably over two to five years and
remain exercisable for ten years from the date of grant. Initially, 600,000
shares were reserved for issuance pursuant to the 1998 Plan. As of December 31,
1998, 590,000 shares were available for grant pursuant to the 1998 Plan.
An Incentive Stock Plan was adopted in 1992 ("1992 Plan") which provides
that options for shares of TransFinancial 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
TransFinancial common stock were reserved for issuance pursuant to the 1992
Plan. As of December 31, 1998, options for 48,630 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 follows 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.
SFAS No. 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 No.
123, and has been determined as if the Company had accounted for its stock
options under the fair value method of SFAS No.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 1998, 1997 and 1996:
risk-free interest rates of 5.5%, 6.1% and 6.1%; expected life of options of 4.4
years, 4.9 years and 4.5 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):
1998 1997 1996
Pro forma net income (loss).............. $(2,234) $ 949 $ 743
Pro forma basic earnings (loss) per share $ (0.43) $0.15 $ 0.11
The following table is a summary of data regarding stock options granted
during the three years ended December 31, 1998:
<TABLE>
<CAPTION>
1998 1997 1996
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............. 350,650 $7.47 263,200 $7.17 198,200 $6.43
Granted........................... 131,050 $9.03 118,250 $7.99 106,500 $7.96
Forfeited......................... (44,580) $9.13 (19,900) $8.09 (18,000) $6.85
Exercised......................... (83,970) $6.07 (10,900) $4.84 (23,500) $4.73
Options outstanding at end
of year....................... 353,150 $8.17 350,650 $7.47 263,200 $7.17
Options exercisable at end
of year....................... 114,180 $7.49 119,000 $6.38 91,650 $5.62
Estimated weighted average
fair value per share of
options granted during
the year....................... $ 2.12 $ 2.00 $ 2.00
<FN>
The per share exercise prices of options outstanding as of December 31, 1998, ranged from $2.41 to $9.79 per share. The
weighted average remaining contractual life of those options was 7.7 years.
</TABLE>
The following table summarizes information concerning outstanding and
exercisable options as of December 31, 1998.
<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 1.9 $2.41 4,150 $2.41
$2.50-$5.50 17,050 4.2 $4.90 15,300 $4.85
$5.50-$8.00 156,300 7.6 $7.68 51,780 $7.64
$8.00-$10.00 175,650 8.2 $9.05 42,950 $8.73
353,150 114,180
</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, 1998, 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 UPAC) entered into an extendible three year securitization
agreement whereby undivided interests in a designated pool of accounts
receivable can be sold on an ongoing basis. In 1998, this agreement was amended
to extend through December 2001, to expand the facility capacity, and to
increase the percent of finance receivables eligible under the agreement. The
maximum allowable amount of receivables to be sold under the agreement is $85.0
million. The purchaser permits principal collections to be reinvested in new
financing agreements. UPAC had securitized receivables of $61.6 million and
$34.5 million at December 31, 1998 and 1997. 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 former secured credit agreement.
Among other things, the terms of the agreement require UPAC to maintain a
minimum tangible net worth of $5.0 million, contain restrictions on the payment
of dividends by UPAC to TransFinancial without prior consent of the financial
institution and require UPAC to report any material adverse changes in its
financial condition. The terms of the agreement also require the Company to
maintain a minimum tangible net worth of $40.0 million. The Company was in
compliance with all such provisions at December 31, 1998.
The terms of the securitization agreement require UPAC to maintain a
reserve at specified levels which serves as collateral. At December 31, 1998,
approximately $6.9 million of owned finance receivables served as collateral
under the reserve provision.
Long-Term Debt
In September 1998, the Company entered into a two-year secured loan
agreement with a commercial bank to borrow $10.0 million (the "Loan"). Freight
accounts receivable and a second lien on revenue equipment are pledged as
collateral for the Loan. The Loan bears interest at the bank's prime rate,
7.75% at December 31, 1998. The terms of the Loan provide for monthly payments
of interest only through September 30, 1999, with monthly principal payments
thereafter of $100,000 plus interest through maturity on September 30, 2000. At
December 31, 1998 current maturities of long-term debt were $300,000, with the
remaining $9,700,000 due in 2000.
The terms of the Loan require the Company to maintain a minimum tangible
net worth of $40 million, a ratio of current assets to current liabilities of
1.25 to 1.00, a ratio of total liabilities to tangible net worth of 1.0 to 1.0,
and contain restrictions on the payment of dividends without prior consent of
the financial institution. In connection with the closing of the Loan the
Company represented to the bank that it would take all measures reasonably
necessary to make its computer hardware and software compliant with the year
2000. The Company was in compliance with all such provisions at December 31,
1998. The proceeds of the Loan were used to repurchase shares of the Company's
common stock (See Note 5).
Secured Loan Agreement
Effective January 5, 1998, Crouse's former 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, 7.75% at December 31, 1998. 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 specified bank deposit balances. No borrowings were
outstanding under the Working Capital Line or Equipment Line as of December 31,
1998.
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.
Crouse was in compliance with all such provisions at December 31, 1998.
5. COMMON STOCK AND EARNINGS PER SHARE
Stock Repurchases
In June 1998, TJS Partners, LP ("TJS"), a shareholder of the Company,
announced its intent to acquire an additional 23% of the Company's outstanding
common stock held by one family (the "Crouse family"), obtain control of the
Company's board of directors and study possible actions such as the liquidation
or sale of part or all of the Company's businesses or assets. The board of
directors determined that the hostile takeover attempt was not in the best
interest of the Company and its shareholders and agreed to repurchase the shares
held by TJS and the Crouse family. The failed attempt at a hostile takeover of
the Company, together with other events, led the Company to record charges for
management and personnel restructuring, asset and liability valuation
adjustments, and transaction costs and other expenses related to the takeover
attempt.
Pursuant to a definitive stock purchase agreement resolving the hostile
takeover attempt, the Company repurchased 2,115,422 shares of its common stock
held by the Crouse family, including 881,550 shares registered in the name of
TJS Partners, LP, all at a price of $9.125 per share, effective August 14, 1998.
In addition, the Company paid and expensed $350,000 of legal and other costs
incurred by the Crouse family in connection with the takeover attempt. The
Company funded the payment out of available cash and short-term investments, the
proceeds from the sale and leaseback of approximately $4.2 million of revenue
equipment and the proceeds from the $10.0 million secured loan from one of the
Company's existing bank lenders.
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 and 1996, the Company repurchased 257,099 and 768,600 shares of common
stock at a cost of $2.3 million and $6.4 million, respectively. Additionally,
during the fourth quarter of 1996, the Company made an "Odd Lot Tender Offer" to
holders of less than 100 shares of TransFinancial 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
Because of the Company's simple capital structure, income (loss) available
to common shareholders is the same for the basic and diluted earnings per share
computations. Such amounts were $(2,027,000), $1,100,000 and $852,000 for 1998,
1997 and 1996. 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>
1998 1997 1996
Per Share Per Share Per Share
Shares Amounts Shares Amounts Shares Amounts
<S> <C> <C> <C> <C> <C> <C>
Basic earnings (loss)
per share............................ 5,249 $ (0.39) 6,214 $ 0.18 6,780 $ 0.13
Plus incremental shares
from assumed conversion of
stock options........................ 14 52 40
Diluted earnings (loss)
per share............................ 5,263 $ (0.39) 6,266 $ 0.18 6,820 $ 0.12
</TABLE>
Options to purchase 216,150 shares of common stock at an average exercise
price of $8.85 per share were outstanding at December 31, 1998, 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 2008.
6. INCOME TAXES
Deferred tax assets (liabilities) attributable to continuing operations
are comprised of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
(In Thousands)
<S> <C> <C>
Current Deferred Tax Assets (Liabilities):
Employee benefits..................................... $ 951 $ (401)
Financial services revenue............................ (295) (205)
Claims accruals and other............................. 1,276 421
Allowance for credit losses........................... 616 186
Current deferred tax assets, net................. $ 2,548 $ 1
Deferred Tax Assets (Liabilities):
Operating property, principally
due to differences in depreciation............... $ (3,780) $ (3,367)
Amortization of intangibles........................... (179) (245)
Net operating loss carryforwards...................... 1,054 693
Alternative minimum tax and other
credits.......................................... 1,038 654
Deferred tax liabilities, net.................... $ (1,867) $ (2,265)
</TABLE>
At December 31, 1998, the Company had approximately $3.4 million of net
operating loss carryforwards which were available for Federal income tax
purposes, including $0.7 million which were recorded in the AFS Net Assets,
which expire in 2018. At December 31, 1998 and 1997, the Company had
$1,038,000 and $654,000 of alternative minimum tax and other credit
carryforwards available which do not expire. Net Deferred Tax Assets of $27,000
and $1,396,000 were recorded as a portion of the AFS Net Assets as of December
31, 1998 and 1997. The Internal Revenue Service ("IRS") has examined the
Company's 1994 through 1996 tax returns. In April 1998, the Company and the IRS
settled all issues for tax years 1994 through 1996 within the tax reserves that
the Company made provision for in 1997.
The following is a reconciliation of the Federal statutory income tax rate
to the effective income tax provision (benefit) rate for continuing operations:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Federal statutory income tax rate................ (35.0)% 35.0% 35.0%
State income tax rate, net....................... (3.8) 5.9 6.7
Amortization of non-deductible
acquisition intangibles...................... 3.0 2.3 6.3
Non-deductible meals and
entertainment................................ 3.2 2.4 2.8
Adjustments to prior years' tax
liabilities.................................. - 12.9 -
Other............................................ 3.5 (0.4) 0.2
Effective income tax rate........................ (29.1)% 58.1% 51.0%
</TABLE>
The components of the income tax provision (benefit), attributable to
continuing operations, consisted of the following:
<TABLE>
<CAPTION>
1998 1997
(In thousands)
Current Deferred Total Current Deferred Total
<S> <C> <C> <C> <C> <C> <C>
Federal................... $ 1,444 $ (2,115) $ (671) $ (145) $1,434 $ 1,289
State..................... 361 (529) (168) (9) 245 236
Total................ $ 1,805 $ (2,644) $ (839) $ (154) $1,679 $ 1,525
</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 $16,836,000, $14,351,000 and $13,179,000 for 1998, 1997 and 1996, are
primarily based on miles traveled or on a percent of revenue generated through
the use of the equipment.
In 1998, Crouse entered into a long-term operating lease for new and used
tractors and new trailers. Lease terms are five years for tractors and seven
years for trailers. Rental expense relating to these leases was $319,000 in
1998. Minimum future rentals for operating leases are as follows: 1999 -
$1,629,000; 2000 - $1,630,000; 2001 - $1,630,000; 2002 - $1,630,000; 2003 -
$1,381,000; and thereafter - $494,000. Additionally, Crouse has limited
contingent rental obligations of $568,000 if the fair market value of such
equipment at the end of the lease term is less than certain residual values.
Such lease also requires Crouse to maintain tangible net worth of $26.0 million,
increasing by $1.0 million per year beginning in 1999. Crouse was in compliance
with this covenant at December 31, 1998.
8. AFS NET ASSETS
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. As of December 31, 1994
all unsecured creditors were paid an amount equal to 130% of their allowed
claims, which was the maximum distribution provided under the Joint Plan.
TransFinancial received distributions in accordance with the Joint Plan of $36
million. In addition, AFS paid dividends of $6.8 million, $8.5 million, and
$9.2 million to TransFinancial on July 5, 1995, July 11, 1996 and April 30,
1998.
9. ACQUISITION OF PREMIUM FINANCE SUBSIDIARIES
On May 29, 1998, TransFinancial through UPAC, its insurance premium
finance subsidiary, completed the acquisition of all of the issued and
outstanding stock of Oxford for approximately $4.2 million. Oxford offers
short-term collateralized financing of commercial insurance premiums through
approved insurance agencies in 17 states throughout the United States. At May
29, 1998, Oxford had outstanding net finance receivables of approximately $22.5
million. This transaction was accounted for as a purchase. UPAC sold an
additional $4.2 million of its receivables under its receivable securitization
agreement to obtain funds to consummate the purchase. Concurrently with the
closing of the acquisition, UPAC amended its receivables securitization
agreement to increase the maximum allowable amount of receivables to be sold
under the agreement and to permit the sale of Oxford's receivables under the
agreement. Effective on May 29, 1998, Oxford sold approximately $19 million of
its receivables under the securitization agreement using the proceeds to repay
the balance outstanding under its prior financing arrangement. The terms of the
acquisition and the purchase price resulted from negotiations between UPAC and
Oxford Bank & Trust Company, the former sole shareholder of Oxford. In
connection with the purchase of Oxford, based on a preliminary allocation of the
purchase price, UPAC recorded goodwill of $1.9 million, which will be amortized
on the straight-line basis over 15 years.
On March 29, 1996, TransFinancial 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. The Company 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
TransFinancial and William H. Kopman, the former sole shareholder of UPAC. In
connection with the purchase of UPAC, the Company has recorded goodwill of $6.6
million, which is being amortized on the straight-line basis over 25 years.
In addition to the Stock Purchase Agreement by which the Company acquired
all of the UPAC stock, TransFinancial entered into a consulting agreement with
Mr. Kopman. Under the consulting agreement, the Company was 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 unaudited pro forma operating results of TransFinancial for the years
ended December 31, 1998 and 1997, assuming the acquisitions occurred as of the
beginning of each of the respective periods, are as follows. For the year ended
December 31, 1998, pro forma operating revenue was $152.2 million, pro forma net
loss was $1,994,000, and pro forma basic loss per share was $.38. For the year
ended December 31, 1997, pro forma operating revenue was $134.3 million, pro
forma net income was $1,139,000 and pro forma basic earnings per share was $.18.
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 that may occur in the
future.
10. SHAREHOLDER RIGHTS PLAN
On February 18, 1999, the Board of Directors authorized the amendment of
the previously adopted Shareholder Rights Plan by which the Board of Directors
declared a dividend distribution of one Preferred Stock Purchase Right for each
outstanding share of TransFinancial Common Stock.
Under the Shareholder Rights Plan, Rights were issued on July 27, 1998 to
shareholders of record as of that date and will expire in ten years, unless
earlier redeemed or exchanged by the Company. The distribution of Rights was
not taxable to the Company or its shareholders.
The Rights become exercisable only if a person or entity is an "Acquiring
Person" (as defined in the Plan) or announces a tender offer, the consummation
of which would result in any person or group becoming an "Acquiring Person."
Each Right initially entitles the holder to purchase one one-hundredth of a
newly issued share of Series A Preferred Stock of the Company at an exercise
price of $50.00. If, however, a person or group becomes an "Acquiring Person",
each Right will entitle its holder, other than an Acquiring Person and its
affiliates, to purchase, at the Right's then current exercise price, a number of
shares of the Company's common stock having a market value of twice the Right's
exercise price.
In addition, if after a person or group becomes an Acquiring Person, the
Company is acquired in a merger or other business combination transaction, or
sells 50% or more of its assets or earning power, each Right will entitle its
holder, other than an Acquiring Person and its affiliates, to purchase, at the
Right's then current exercise price, a number of shares of the acquiring
company's common stock having a market value at the time of twice the Right's
exercise price.
Under the Shareholder Rights Plan, an "Acquiring Person" is any person or
entity which, together with any affiliates or associates, beneficially owns 15%
or more of the shares of Common Stock of the Company then outstanding. The
Shareholder Rights Plan contains a number of exclusions from the definition of
Acquiring Person. The Shareholders Rights Plan will not apply to a Qualifying
Offer, which is a cash tender offer to all shareholders satisfying certain
conditions set forth in the Plan. The Company's Board of Directors may redeem
the Rights at any time prior to a person or entity becoming an Acquiring Person.
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
DECEMBER 31, 1998 AND 1997
SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
TransFinancial'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 may adversely affect
freight shipments and increase operating costs. Historically, TransFinancial 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 1998 and 1997 (in thousands, except per share amounts).
<TABLE>
<CAPTION>
1998
First Second Third Fourth Total
<S> <C> <C> <C> <C> <C>
Revenue................................... $ 37,003 $ 37,036 $ 39,614 $ 38,048 $ 151,701
Operating Income (Loss)................... 300 266 (4,031) 444 (3,021)
Nonoperating Income (Expense)............. 51 131 174 (201) 155
Net Income (Loss)......................... 161 176 (2,474) 110 (2,027)
Basic and Diluted Earnings
(Loss) per Share...................... 0.03 0.03 (0.50) 0.03 (0.39)
1997
First Second Third Fourth Total
Revenue................................... $ 31,057 $ 32,513 $ 35,100 $ 34,553 $ 133,223
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
(Loss) per Share...................... 0.10 0.11 0.09 (0.13) 0.18
</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 1999 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 1999 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 1999 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 1999 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, 1998 and 1997
Consolidated Statements of Income for the years ended December 31, 1998,
1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
Supplemental Financial Information (Unaudited) - Summary of Quarterly
Financial Information for 1998 and 1997
(a)2. Financial Statement Schedules
Included in Item 14, Part IV of this Report -
Financial Statement Schedules for the three years ended December 31,
1998:
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
The following exhibits have been filed as part of this report in
response to Item 14(c) of Form 10-K. The management contracts or
compensatory plans or arrangements required to be filed at exhibits to
this form pursuant Item 14(c) are contained in Exhibits 10(a), 10(b),
10(d), and 10(h).
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) 1998 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(a) Specimen Certificate of the Common Stock, $.01 par value, of
the Registrant. Filed as Exhibit 4.3 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998.
4(b) Certificate of Designations of Series A Preferred Stock,
dated July 15, 1998. Filed as Exhibit 4.1 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998.
4(c) First Amended and Restated Rights Agreement, between
TransFinancial Holdings, Inc. and UMB Bank, N.A., dated
March 4, 1999. Filed as Exhibit 1 to Registrant's Current
Report on Form 8-K dated March 5, 1999.
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) 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(c) Stock Purchase Agreement by and between Universal Premium
Acceptance Corporation and Oxford Bank and Trust Company,
dated April 29, 1998. Filed as Exhibit 2(a) to Registrant's
Current Report on Form 8-K, dated May 29, 1998.
10(d)* Registrant's 1998 Long-Term Incentive Plan.
10(e) 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(f) 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(g) 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(h) 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(i) 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(j) Amendment No. 4 to Receivables Purchase Agreement by and
among APR Funding Corporation, Universal Premium Acceptance
Corporation, TransFinancial Holdings, Inc., EagleFunding
Capital Corporation and BankBoston, N.A., dated May 29,
1998. Filed as Exhibit 10(a) to Registrant's Current Report
on Form 8-K, dated May 29, 1998.
10(k) Amendment No. 5 to Receivables Purchase Agreement by and
among APR Funding Corporation, Universal Premium Acceptance
Corporation, TransFinancial Holdings, Inc., EagleFunding
Capital Corporation and BankBoston, N.A., dated August 25,
1998. Filed as Exhibit 10.1 to Registrant's Quarterly
Report on Form 10-Q for the quarter filed September 30,
1998.
10(l) Amendment No. 6 to Receivables Purchase Agreement by and
among APR Funding Corporation, Universal Premium Acceptance
Corporation, TransFinancial Holdings, Inc., EagleFunding
Capital Corporation and BankBoston, N.A., dated September
11, 1998. Filed as Exhibit 10.2 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1998.
10(m) Secured Loan Agreement by and between Bankers Trust Company
of Des Moines, Iowa and Crouse Cartage Company, dated
January 5, 1998.
10(n) Stock Purchase Agreement, dated August 14, 1998, by and
between TransFinancial Holdings, Inc. and certain members of
the Crouse family. Filed as Exhibit 10.1 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998.
10(o) Secured Loan Agreement by and between Bankers Trust of Des
Moines, Iowa, TransFinancial Holdings, Inc., and Crouse
Cartage Company, dated September 29, 1998. Filed as Exhibit
10.3 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 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, 1998.
*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 -
1998............................... $ 464 $ 393 $ -- $ (470) $ 387
1997............................... 419 120 -- (75) 464
1996............................... 409 120 -- (110) 419
Allowance for credit losses (deducted from
finance accounts receivable)
Year Ended December 31 -
1998............................... $ 499 $ 827 $ 343(3) $ (1,103) $ 566
1997............................... 769 950 -- (1,220) 499
1996............................... 351 892 510(2) (984) 769
<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 29, 1998, the date of acquisition of Oxford Premium Finance, Inc.
</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 15, 1999 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/Timothy P. O'Neil
William D. Cox, Chairman Timothy P. O'Neil, Director
of the Board of Directors
/s/J. Richard Devlin /s/ Clark D. Stewart
J. Richard Devlin, Director Clark D. Stewart, Director
/s/ Harold C. Hill /s/David D. Taggart
Harold C. Hill, Jr., Director David D. Taggart, Director
/s/Roy R. Laborde
Roy R. Laborde, Vice Chairman of
the Board of Directors
March 15, 1999
Date of all signatures
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit No. Exhibit Description
10(d) Registrant's 1998 Long-Term Incentive Plan.
21 List of all Subsidiaries of TransFinancial Holdings, Inc.
23 Consent of Independent Accountant.
27 Financial Data Schedule.
TRANSFINANCIAL HOLDINGS, INC.
1998 LONG-TERM INCENTIVE PLAN
1. PURPOSE.
The purpose of the TransFinancial Holdings, Inc. 1998 Long-Term Incentive
Plan (the "Plan") is to further the earnings of TransFinancial Holdings, Inc.
("TransFinancial") and its subsidiaries (collectively the "Company") by:
(a) assisting the Company in attracting, retaining and motivating officers,
directors, employees and consultants of high caliber and potential and (b)
providing for the award of long-term incentives to such officers, directors,
employees and consultants. The Plan is not intended to be a Plan that is
subject to the Employee Retirement Income Security Act of 1974, as amended.
Certain capitalized terms used herein are defined in paragraph 16 below.
2. ADMINISTRATION.
(a) Committee. The Plan shall be administered by a committee (the
"Committee") consisting of two or more members of the Board of Directors of
TransFinancial (the "Board"). The members of the Committee shall be appointed
by and may be changed from time to time in the discretion of the Board. The
Board may, in its sole discretion, bifurcate the powers of the Committee among
one or more separate committees, or retain all powers and duties of the
Committee in a single committee; provided, however, that except as otherwise
determined by the Board, (i) if a Committee is authorized to grant Awards or
make determinations with respect to a Reporting Person, each member of such
Committee shall be a "non-employee director" within the meaning of Rule 16b-
3 under the 1934 Act, or any successor rule of similar import, and (ii) if a
Committee is authorized to grant Awards or make determinations with respect to a
Covered Employee, each member of such Committee shall be an "outside director"
within the meaning of Section 162(m) of the Code and the regulations promulgated
thereunder.
(b) Authority. The Committee shall have full and final power and
authority to administer and interpret the Plan. In addition to such general
power and authority, and subject to the provisions of the Plan, the Committee
shall have full and final authority in its discretion to: (i) determine the
eligible persons to whom Awards shall be made under the Plan, (ii) determine the
type or types of Awards to be granted to each Participant hereunder, (iii)
determine the time or times when Awards shall be granted, (iv) determine the
terms and conditions of Awards and the terms and conditions of any agreement
evidencing an Award, (v) authorize the issuance of Shares pursuant to Awards
granted under the Plan, (vi) interpret, construe and administer the Plan and any
instrument or agreement relating to or evidencing an Award under the Plan, (vii)
establish, amend, suspend or waive rules and guidelines relating to the Plan and
Awards hereunder, (viii) correct any defect, supply any omission and reconcile
any inconsistency in the Plan and (ix) make any other determination or take any
other action that it deems necessary or desirable for administration of the Plan
or any Award hereunder. Decisions of the Committee shall be final, binding and
conclusive on all persons, including the Company and any Participant. The
Committee may hold meetings and otherwise take action in the manner permitted
under the applicable provisions of the Restated Certificate of Incorporation and
By-laws of the Company, resolutions of the Board and applicable law, as amended
from time to time. No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Award under the
Plan.
(c) Delegation of Authority. To the extent permitted by applicable
law, the Committee may delegate to one or more executive officers of the Company
the power to make Awards to Participants who are not Reporting Persons or
Covered Employees and to make all determinations under the Plan with respect to
such Participants, subject to such terms, conditions and limitations as the
Committee may establish in its sole discretion.
(d) Power and Authority of the Board of Directors. Notwithstanding
anything to the contrary contained herein, the Board of Directors may at any
time and from time to time, without any further action of the Committee,
exercise the powers and duties of the Committee under the Plan.
3. STOCK SUBJECT TO THE PLAN.
(a) Amount. The aggregate number of Shares which may be the subject
of or related to Awards under the Plan shall be 600,000 Shares, subject,
however, to adjustment as provided in subparagraph (b) hereof. Such Shares may
be authorized and unissued Shares or treasury Shares. If for any reason any
Award expires or lapses or is terminated, forfeited or canceled, any Shares
subject to such Award, to the extent of such expiration, lapse, termination,
forfeiture or cancellation, shall again be available for award under the Plan.
Notwithstanding the provisions of this subparagraph (a), no Shares shall again
be subject to Awards if such action would cause an Incentive Stock Option to
fail to qualify as an incentive stock option under Section 422 of the Code.
(b) Adjustment. In the event that the Committee determines that any
dividend or distribution (whether in the form of cash, Shares, other securities
or other property), recapitalization, merger, consolidation, reorganization,
spin-off or split-up, reverse stock split, combination or exchange of Shares or
other transaction affects the Shares such that an adjustment is determined by
the Committee to be appropriate in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available under the Plan,
then the Committee may, in such manner as it may deem equitable and without the
consent of any affected Participant, adjust the number and kind of securities
which may be issued under the Plan, the number and kind of securities subject to
outstanding Awards and the exercise price of each outstanding stock option
granted under the Plan, and may make such other changes in outstanding Awards as
it deems equitable in its sole discretion. Fractional Shares resulting from any
such adjustments shall be eliminated. No adjustment or action under this
subparagraph (b) shall be authorized to the extent that such adjustment or
action would cause the Plan or any outstanding Incentive Stock Option to violate
Section 422 of the Code or would cause any Performance-Based Award to fail to
qualify as "qualified performance-based compensation" under Section 162(m) of
the Code and the regulations promulgated thereunder.
(c) Limit on Individual Grants. Subject to adjustment as provided in
subparagraph (b) hereof, (i) the maximum number of Shares subject to stock
options which may be granted in the aggregate under the Plan in any calendar
year to any Participant shall be 50,000 Shares, (ii) the maximum number of
Shares underlying stock appreciation rights which may be granted in the
aggregate under the Plan in any calendar year to any Participant shall be 50,000
Shares and (iii) the maximum number of Shares subject to restricted stock
awards, performance share awards and other stock-based awards which may be
granted under the Plan in any calendar year to any Participant shall be 50,000
Shares. In addition, the maximum amount of compensation payable in respect of
performance unit awards, cash in addition to an Award under paragraph 13 hereof
and dividend equivalents under paragraph 15(c) hereof that may be paid in the
aggregate under the Plan in any calendar year to any Participant shall be
$1,000,000. In all events, determinations under this subparagraph shall be made
in a manner that is consistent with Section 162(m) of the Code and the
regulations promulgated thereunder.
(d) Limit on Certain Types of Awards. The maximum number of Shares
which may be issued in the aggregate with respect to restricted stock awards
under paragraph 8 hereof, performance share awards under paragraph 9 hereof and
other stock-based awards payable in Shares pursuant to paragraph 10 hereof shall
be 100,000 Shares, subject to adjustment as provided in subparagraph (b) hereof,
provided that Shares awarded pursuant to any such Award shall not, to the extent
such Award expires or lapses or is terminated, surrendered, forfeited,
cancelled, exercised or settled in a manner that results in fewer Shares
outstanding than were awarded pursuant to such Award, be counted against the
maximum number of Shares which may be issued pursuant to this subparagraph 3(d).
4. ELIGIBILITY TO RECEIVE AWARDS.
All officers, directors, key employees and consultants of the Company are
eligible to be Participants in the Plan. As used herein, key employees are
employees determined by the Committee to be capable of contributing
significantly to the profitability and success of the Company. Incentive Stock
Options (as defined below) may be granted only to persons eligible to receive
such options under the Code.
5. FORM OF AWARDS.
Subject to the provisions of the Plan, Awards may be made from time to time
by the Committee in the form of stock options to purchase Shares, stock
appreciation rights, restricted stock, performance shares, performance units,
other stock-based awards as provided herein or any combination of the above.
Stock options may be options which are intended to qualify as incentive stock
options within the meaning of Section 422 of the Code or any successor provision
("Incentive Stock Options") or options which are not intended to so qualify
("Nonqualified Stock Options").
6. STOCK OPTIONS.
(a) Award. Subject to the provisions of the Plan, the Committee shall
determine the terms and conditions of each stock option granted by the
Committee, which may include without limitation: (i) the type of option
(Incentive Stock Option or Nonqualified Stock Option), (ii) the number of Shares
subject to the option, (iii) the time or times at which and/or the conditions
upon which the option shall become exercisable in whole or in part, (iv) the
term of the option, provided that the term of an option shall not be greater
than ten (10) years, and (v) the exercise price per Share, provided that the
exercise price per Share shall not be less than the fair market value of a Share
on the date of grant, as determined by the Committee (subject to subsequent
adjustment as provided in paragraph 3(b) hereof). The Committee, in its
discretion, may provide for circumstances under which the option shall become
immediately exercisable, in whole or in part, and, notwithstanding the
foregoing, may accelerate the exercisability of any option, in whole or in part,
at any time. A stock option granted under this Plan shall be an Incentive Stock
Option only if the stock option is designated as an Incentive Stock Option in
the Award Agreement.
(b) Payment for Shares. The Committee shall determine the form of
payment of the purchase price of the Shares with respect to which an option is
exercised, which may include without limitation (i) cash (which may include
personal checks, certified checks, cashier's checks or money orders), (ii)
Shares at fair market value, (iii) the optionee's written request to the Company
to reduce the number of Shares otherwise issuable to the optionee upon the
exercise of the option by a number of Shares having a fair market value equal to
such purchase price, (iv) a payment commitment of a financial institution or
brokerage firm in connection with the "cashless exercise" of an option, (v) any
other lawful consideration, including, without limitation, an Award or a note or
other commitment satisfactory to the Committee or (vi) a combination of any of
the foregoing.
(c) Incentive Stock Options. In the case of an Incentive Stock
Option, each Award shall contain such other terms, conditions and provisions as
the Committee determines to be necessary or desirable in order to qualify such
option as an Incentive Stock Option within the meaning of Section 422 of the
Code or any successor provision.
(d) Formula Options. The Committee shall not have any discretion
pursuant to this paragraph 6 with respect to Formula Options granted pursuant to
paragraph 11 hereof.
7. STOCK APPRECIATION RIGHTS.
(a) Award. Stock Appreciation Rights ("SARs") may be granted by the
Committee either in connection with a previously or contemporaneously granted
stock option or independently of a stock option. Subject to the provisions of
the Plan, the Committee shall determine the terms and conditions of each SAR.
SARs shall entitle the grantee, subject to such terms and conditions as may be
determined by the Committee, to receive upon exercise thereof all or a portion
of the excess of (i) the fair market value at the time of exercise, as
determined by the Committee, of a specified number of Shares with respect to
which the SAR is exercised, over (ii) a specified price which shall not be less
than 100 percent of the fair market value of the Shares at the time the SAR is
granted, or, if the SAR is granted in connection with a previously or
contemporaneously issued stock option, not less than the exercise price of the
Shares subject to the option.
(b) SARs Related to Stock Options. If an SAR is granted in relation
to a stock option, unless otherwise determined by the Committee, (i) the SAR
shall be exercisable only at such times, and by such persons, as the related
option is exercisable, (ii) the grantee's right to exercise the related option
shall be canceled if and to the extent that the Shares subject to the option are
used to calculate the amount to be received upon the exercise of the related SAR
and (iii) the grantee's right to exercise the related SAR shall be canceled if
and to the extent that the Shares subject to the SAR are purchased upon the
exercise of the related option, provided that an SAR granted with respect to
less than the full number of Shares covered by a related option shall not be
reduced until the related option has been exercised or has terminated with
respect to the number of Shares not covered by the SAR.
(c) Other Terms. Each SAR shall have such other terms and conditions
as the Committee shall determine in its sole discretion, provided that the term
of an SAR shall not be greater than ten (10) years. The Committee may, in its
discretion, provide in the Award circumstances under which the SARs shall become
immediately exercisable, in whole or in part, and may, notwithstanding the
foregoing, accelerate the exercisability of any SAR, in whole or in part, at any
time. Upon exercise of an SAR, payment shall be made in cash, Shares at fair
market value on the date of exercise, other Awards, other property or any
combination thereof, as the Committee may determine.
8. RESTRICTED STOCK AWARDS.
(a) Award. Restricted stock awards under the Plan shall consist of
Shares free of any purchase price or for such purchase price as may be
established by the Committee, subject to forfeiture, and subject to such other
terms and conditions (including attainment of performance objectives) as may be
determined by the Committee.
(b) Restriction Period. Restrictions shall be imposed for such
period or periods as may be determined by the Committee. The Committee shall
determine the terms and conditions upon which any restrictions upon restricted
stock awarded under the Plan shall expire, lapse, or be removed. The Committee,
in its discretion, may provide in the Award circumstances under which the
restricted stock shall become immediately transferable and nonforfeitable, or
under which the restricted stock shall be forfeited, and, notwithstanding the
foregoing, may accelerate the expiration of the restriction period imposed on
any restricted stock at any time.
(c) Restrictions Upon Transfer. Restricted stock and the right to
vote such restricted stock and to receive dividends thereon, may not be sold,
assigned, transferred, exchanged, pledged, hypothecated, or otherwise encumbered
during the restriction period applicable to such Shares, except to the extent
determined by the Committee. Notwithstanding the foregoing, and except as
otherwise provided in the Plan or determined by the Committee, the grantee of
the restricted stock shall have all of the other rights of a stockholder,
including, but not limited to, the right to receive dividends and the right to
vote such Shares. The Committee, in its discretion, may provide that any
dividends or distributions paid with respect to Shares subject to the unvested
portion of a restricted stock award will be subject to the same restrictions as
the Shares to which such dividends or distributions relate.
(d) Registration. Any restricted stock issued hereunder may be
evidenced in such manner as the Committee in its sole discretion may deem
appropriate, including without limitation, book-entry registration or issuance
of a stock certificate or certificates. In the event any certificate or
certificates are to be issued, the Committee, in its sole discretion, shall
determine when the certificate or certificates shall be delivered to the
grantee, may provide for the holding of such certificate or certificates in
escrow or in custody by the Company or its designee pending their delivery to
the grantee, and may provide for any appropriate legend to be borne by the
certificate or certificates.
9. PERFORMANCE UNITS AND PERFORMANCE SHARES.
Performance unit and performance share awards under the Plan shall entitle
grantees to future payments based upon the achievement of pre-established
performance objectives. Subject to the provisions of the Plan, the Committee
shall determine the terms and conditions applicable to each performance unit or
performance share award, which may include without limitation the following:
(a) one or more performance periods, (b) the initial value of each performance
unit subject to a performance unit award or the number of Shares subject to a
performance share award, (c) performance targets to be achieved during each
applicable performance period and (d) the terms of payment of performance unit
and performance share awards. Performance targets established by the Committee
may relate to financial and nonfinancial performance goals, may relate to
corporate, division, unit, individual or other performance and may be
established in terms of growth in gross revenue, earnings per share, ratios of
earnings to equity or assets, or such other measures or standards as may be
determined by the Committee in its discretion. Multiple targets may be used and
may have the same or different weighting, and they may relate to absolute
performance or relative performance. At any time prior to payment of a
performance unit or performance share award, the Committee may adjust previously
established performance targets or other terms and conditions to reflect
unforeseen events, including without limitation, changes in laws, regulations or
accounting practices, mergers, acquisitions or divestitures or other
extraordinary, unusual or non-recurring items or events. Payment on performance
unit and performance share awards may be made in cash, Shares, other Awards,
other property or any combination thereof, as the Committee may determine.
10. OTHER STOCK-BASED AWARDS.
The Committee may grant to Participants, either alone or in addition to
other Awards granted under the Plan, awards which are denominated or payable in,
valued in whole or in part by reference to, or otherwise based on or related to
Shares (including, without limitation, securities or other instruments
convertible into Shares). Subject to the terms of the Plan, the Committee shall
determine the terms and conditions of such Awards. Such Awards may be paid in
Shares, cash, other Awards, other property or any combination thereof, as the
Committee may determine. Such Awards may be issued for no cash consideration,
for such minimum consideration as may be required by applicable law or for such
other consideration as the Committee may determine. The form or forms of
consideration payable for Shares or other securities delivered pursuant to a
purchase right granted under this paragraph may include any form of
consideration specified in paragraph 6(b) hereof. The Committee may establish
certain performance criteria that may relate in whole or in part to receipt of
Awards hereunder. The provisions of this paragraph 10 notwithstanding, any
stock option to purchase Shares, SAR, restricted stock award or performance
share award granted under this Plan must comply with the provisions of this Plan
applicable to such Award.
11. NON-EMPLOYEE DIRECTORS' OPTIONS.
(a) Grant of Nonqualified Stock Options. On the first stock trading
day after each annual meeting of shareholders of TransFinancial commencing with
the year 1998, each person who is serving as a director of TransFinancial and is
not an employee of the Company on such day ("Non-Employee Director") shall
automatically receive a grant of a Nonqualified Stock Option to purchase 2,000
Shares (a "Formula Option").
(b) Option Price. The option exercise price to be paid by each such
Non-Employee Director for each Share purchased upon the exercise of such Formula
Option shall be one hundred percent (100%) of the fair market value of the
Shares on the date the option is granted. Fair market value for purposes of
this paragraph 11 shall be deemed to be the closing price of the Shares on the
American Stock Exchange as of the date the Formula Option is granted, as
reported in the Midwest Edition of the Wall Street Journal, provided that if the
Shares are not then listed on the American Stock Exchange, fair market value
shall be the Closing Price (as defined in paragraph 16) on such date.
(c) Vesting Schedule. Each Formula Option shall become exercisable
with respect to one-half of the Shares subject to such option on the last day of
the tenth full calendar month following the date of grant and shall become
exercisable in full on the last day of the twenty-second full calendar month
following the date of grant; provided that, notwithstanding the foregoing, the
Formula Option shall become exercisable in full upon (i) the occurrence of a
Change of Control (as defined in the form of Directors Stock Option Agreement
attached hereto as Exhibit I) during the Non-Employee Director's service as a
director of TransFinancial, provided the Formula Option has been outstanding for
at least one hundred eighty (180) days at the time of such occurrence, (ii)
termination of the Non-Employee Director's service as a director of
TransFinancial concurrently with a Change of Control, provided the Formula
Option has been outstanding for at least one hundred eighty (180) days at the
time of such termination, or (iii) termination of the Non-Employee Director's
service as a director of TransFinancial due to the Non-Employee Director's (A)
death, (B) permanent and total disability, or (C) retirement at the end of a
term of office, after completing five (5) years of service as a director
("Retirement").
(d) Term of Option. Each Formula Option shall expire on the tenth
anniversary of the date of grant, subject to earlier termination as provided in
this subparagraph. In the event that a Non-Employee Director's service as a
director of TransFinancial terminates for any reason, the Non-Employee Director
(or in the event of death the Non-Employee Director's Beneficiary) shall have
the right to exercise the Formula Option, to the extent the Formula Option was
exercisable at the time of such termination, at any time within one hundred
eighty (180) days after the date of termination of service, provided that in no
event may the Formula Option be exercised after the tenth anniversary of the
date of grant. Upon the earlier of the tenth anniversary of the date of grant
or the end of such 180 day period, the Formula Option shall expire.
(e) Payment for Shares. The option exercise price of the Shares with
respect to which a Formula Option is exercised shall be payable in full at the
time of exercise in (i) cash (which may include personal checks, certified
checks, cashier's checks or money orders), (ii) Shares at fair market value or
(iii) a combination of the foregoing. The fair market value of any Shares used
to pay any part of the exercise price shall be their fair market value, as
determined pursuant to subparagraph (b) hereof, on the date the Formula Option
is exercised. In lieu of delivering Shares, the optionee may provide an
affidavit regarding ownership of such Shares and receive the number of Shares
otherwise issuable to the optionee upon the exercise of the Formula Option, less
a number of Shares having a fair market value equal to such purchase price,
determined as provided in this subparagraph.
(f) Other Terms and Conditions. Each Formula Option granted to a
Non-Employee Director shall be subject to all of the other terms and conditions
set forth in the form of Directors Stock Option Agreement attached hereto as
Exhibit I.
(g) Additional Awards. Nothing in this paragraph 11 shall be deemed
to prevent the Committee from granting Awards to any Non-Employee Director in
addition to Formula Options.
(h) Committee Discretion. The Committee may exercise discretion with
respect to Formula Options only to the extent that the exercise of such
discretion shall not cause the provisions of this Plan applicable to Formula
Options to fail to qualify as a "formula plan" within the meaning of Rule 16b-3
under the 1934 Act.
12. PERFORMANCE-BASED AWARDS.
(a) Applicability. Awards granted and other compensation payable
under the Plan which are intended to qualify as Performance-Based Awards shall
be subject to the provisions of this paragraph 12. In the event of any conflict
between the provisions of this paragraph 12 and any other provisions of this
Plan, the provisions of this paragraph 12 shall prevail.
(b) Performance Goals. The specific performance goals for the
Performance-Based Awards granted under paragraphs 8, 9, 10, 13 and 15(c) hereof
shall be one or more Stockholder-Approved Performance Goals, as selected by the
Committee in its sole discretion. To the extent required under Section 162(m)
of the Code and the regulations promulgated thereunder, the Committee shall
(i) establish in the applicable Award Agreement the specific performance targets
relative to the Stockholder-Approved Performance Goals which must be attained
before compensation under the Performance-Based Award becomes payable, (ii)
provide in the applicable Award Agreement the method for computing the amount of
compensation payable to the Participant if the target or targets are attained,
and (iii) at the end of the relevant performance period and prior to any payment
of compensation, certify whether the applicable target or targets were achieved
and whether any other material terms were in fact satisfied. The specific
targets and the method for computing compensation shall be established within
the time period permitted under Section 162(m) of the Code and the regulations
promulgated thereunder. The Committee may reserve the right in any Award
Agreement covering a Performance-Based Award to reduce the amount payable at a
given level of performance. The Committee shall be precluded from increasing
the amount of compensation payable that would otherwise be due upon attainment
of a performance goal contained in a Performance-Based Award, to the extent
required under Section 162(m) of the Code and the regulations promulgated
thereunder for Performance-Based Awards to qualify as "qualified performance-
based compensation" under Section 162(m) of the Code.
(c) Modification of Performance Goals. Except where a modification
would cause a Performance-Based Award to no longer qualify as "qualified
performance-based compensation" within the meaning of Section 162(m) of the
Code, the Committee may in its discretion modify any performance goal or target
relating to a Performance-Based Award, in whole or in part, as the Committee
deems appropriate and equitable, subject to the provisions of paragraph 15(i)
hereof.
(d) Discretion; Compliance. Notwithstanding any other provision of
this Plan to the contrary, neither the Board nor the Committee shall be entitled
to exercise any discretion otherwise authorized under this Plan with respect to
any Performance-Based Award or with respect to the amendment or modification of
any provision of this Plan without stockholder approval, if the ability to
exercise such discretion (as opposed to the exercise of such discretion) would
cause any Performance-Based Award to fail to qualify as "qualified performance-
based compensation" under Section 162(m) of the Code. Notwithstanding any other
provision of this Plan to the contrary, the Plan shall be deemed to include such
additional limitations or requirements set forth in Section 162(m) of the Code
and the regulations and rulings promulgated thereunder which are required to be
included in the Plan in order for Performance-Based Awards to qualify as
"qualified performance-based compensation" under Section 162(m) of the Code, and
this Plan shall be deemed amended to the extent necessary to conform to such
limitations and requirements from time to time.
13. LOANS AND SUPPLEMENTAL CASH PAYMENTS.
The Committee in its sole discretion to further the purpose of the Plan may
provide for cash payments to individuals in addition to an Award, or loans to
individuals in connection with all or any part of an Award. Supplemental cash
payments shall be subject to such terms and conditions as shall be prescribed by
the Committee, provided that in no event shall the amount of payment exceed:
(a) In the case of an option, the excess of the fair market value of
a Share on the date of exercise over the option price multiplied by the number
of Shares for which such option is exercised, or
(b) In the case of an SAR, performance unit, performance share,
restricted stock or other stock-based award, the value of the Shares and other
consideration issued in payment of such Award.
Any loan shall be evidenced by a written loan agreement or other instrument in
such form and containing such terms and conditions (including, without
limitation, provisions for interest, payment schedules, collateral, forgiveness
or acceleration) as the Committee may prescribe from time to time.
14. GENERAL RESTRICTIONS.
Each Award under the Plan shall be subject to the requirement that if at
any time the Committee shall determine that (i) the listing, registration or
qualification of the Shares subject or related thereto upon any securities
exchange or under any state or federal law, or (ii) the consent or approval of
any regulatory body, or (iii) an agreement by the recipient of an Award with
respect to the disposition of Shares in order to satisfy the requirements of
federal or state securities laws, or (iv) the satisfaction of withholding tax or
other withholding liabilities is necessary or desirable as a condition of or in
connection with the granting of such Award or the issuance or purchase of Shares
thereunder, such Award shall not be consummated in whole or in part unless such
listing, registration, qualification, consent, approval, agreement, or
withholding shall have been effected or obtained. Any such restriction
affecting an Award shall not extend the time within which the Award may be
exercised; and none of the Company, its directors or officers or the Committee
shall have any obligation or liability to the grantee or to a Beneficiary with
respect to any Shares with respect to which an Award shall lapse or with respect
to which the grant, issuance or purchase of Shares shall not be effected,
because of any such restriction.
15. GENERAL PROVISIONS APPLICABLE TO AWARDS.
(a) Award Agreements. Each Award under the Plan shall be evidenced
by a written agreement entered into by and between TransFinancial and the
Participant ("Award Agreement"), containing such terms and conditions not
inconsistent with the provisions of the Plan as the Committee in its sole
discretion deems necessary or advisable, except as provided in paragraph 11 with
respect to Formula Options. Each Participant to whom an Award has been granted
shall agree that such Award shall be subject to all of the terms and conditions
of the Plan and the terms and provisions of the applicable Award Agreement. A
Participant shall have no rights with respect to any Award unless the
Participant shall have executed and delivered to the Company a copy of the Award
Agreement with respect to such Award.
(b) Committee Discretion. Each type of Award may be made alone, in
addition to or in relation to any other Award. Multiple Awards, multiple forms
of Awards, or combinations thereof may be evidenced by a single Award Agreement
or multiple Award Agreements, as determined by the Committee, except with
respect to Formula Options under paragraph 11 hereof. Successive Awards may be
granted to the same Participant whether or not any Awards previously granted to
such Participant remain outstanding. The Committee's determinations under the
Plan need not be uniform and may be made selectively among persons who receive,
or are eligible to receive, Awards under the Plan, whether or not such persons
are similarly situated. No person shall have any claim or right to be granted
an Award under the Plan.
(c) Dividends. In the discretion of the Committee, any Award under
the Plan may provide the Participant with dividends or dividend equivalents
payable in cash or property, currently or deferred, with or without interest,
except with respect to Formula Options under paragraph 11 hereof. Dividend
equivalents granted with respect to a stock option which is a Performance-Based
Award may not be made contingent upon exercise of the stock option, to the
extent prohibited by Section 162(m) of the Code and the regulations promulgated
thereunder with respect to qualified performance-based compensation.
(d) Termination of Employment or Consulting Arrangement. Except with
respect to Formula Options under paragraph 11 hereof, the Committee shall
determine the effect, if any, on an Award of the disability, death, retirement
or other termination of employment or services of a Participant and the extent
to which, and the period during which, the Participant or the Participant's
legal representative, guardian or Beneficiary may receive payment of an Award or
exercise rights thereunder.
(e) Change of Control. Except with respect to Formula Options under
paragraph 11 hereof and subject to the terms and conditions of the Plan, the
Committee may include such provisions in the terms of an Award or Award
Agreement relating to a change of control of the Company (as defined by the
Committee) as the Committee determines in its discretion. Such provisions may
include, without limitation, provisions which: (i) provide for the acceleration
of any time period relating to the exercise, realization, payment or term of the
Award, (ii) provide for payment to the Participant of cash or other property
with a fair market value, as determined by the Committee, equal to the amount
that would have been received upon the exercise or payment of the Award had the
Award been exercised or paid upon the change in control, (iii) adjust the terms
of the Award in a manner necessary to reflect the change in control or (iv)
require that the Award be assumed, or new rights substituted therefor, by
another entity.
(f) Transferability. Except with respect to Formula Options under
paragraph 11 hereof, in the discretion of the Committee, any Award may be made
transferable upon such terms and conditions and to such extent as the Committee
determines, provided that Incentive Stock Options may be transferable only to
the extent permitted by the Code. Except with respect to Formula Options under
paragraph 11 hereof, the Committee may in its discretion waive any restriction
on transferability, provided that Incentive Stock Options may be transferable
only to the extent permitted by the Code. Unless the Committee determines
otherwise, a Participant's rights and interest under any Award or any Award
Agreement may not be assigned or transferred in whole or in part, voluntarily or
involuntarily, including by operation of law, except by will, by the laws and
descent and distribution or pursuant to an effective Beneficiary designation.
(g) Withholding.
(i) Prior to the issuance or transfer of Shares or other
property under the Plan, the recipient shall remit to the Company an amount
sufficient to satisfy any Federal, state or local withholding tax
requirements. The recipient may satisfy the withholding requirement in
whole or in part by delivering Shares or electing to have the Company
withhold Shares having a value equal to the amount required to be withheld.
The value of such Shares shall be the fair market value, as determined by
the Committee, of the stock on the date that the amount of tax to be
withheld is determined (the Tax Date). Such Election must be made prior to
the Tax Date, must comply with all applicable securities law and other
legal requirements, as interpreted by the Committee, and may not be made
unless approved by the Committee, in its discretion.
(ii) Whenever payments to a Participant in respect of an Award
under the Plan are to be made in cash, such payments shall be net of the
amount necessary to satisfy any Federal, state or local withholding tax
requirements.
(h) Deferred or Installment Payments. The Committee may provide that
the issuance of Shares or the payment or transfer of cash or property upon the
settlement of Awards may be made in a single payment or transfer or in
installments, and may authorize the deferral of, or permit a Participant to
elect to defer, any such issuance, payment or transfer, all in accordance with
such rules, requirements, conditions and procedures as may be established by the
Committee. The Committee may also provide that any such installment or any such
deferred issuance, payment or transfer shall include the payment or crediting of
dividend equivalents, interest or earnings on deferred amounts. The provisions
of this subparagraph (h) shall not apply to Formula Options under paragraph 11
hereof.
(i) Amendment of Awards. Subject to the terms and conditions of the
Plan and any Award Agreement, the Committee will have the authority under the
Plan to amend or modify the terms of any outstanding Award (including the
applicable Award Agreement) in any manner, prospectively or retroactively,
including, without limitation, the authority to modify the number of shares or
other terms and conditions of an Award, extend the term of an Award, accelerate
the exercisability or vesting or otherwise terminate any restrictions relating
to an Award, convert an Incentive Stock Option to a Nonqualified Stock Option,
accept the surrender of any outstanding Award and authorize the grant of new
Awards in substitution for surrendered Awards; provided, however, that the
amended or modified terms are permitted by the Plan as then in effect and
provided, further, that if such amendment or modification, taking into account
any related action, materially and adversely affects a Participant's rights
under an Award or an Award Agreement, such Participant shall have consented to
such amendment or modification. Nothing in this subparagraph shall be deemed to
limit the Committee's authority to amend or modify any outstanding Award
pursuant to paragraph 3(b) of the Plan. The Committee may not amend any
outstanding Award or Award Agreement relating to a Formula Option to the extent
that such amendment would cause the provisions of this Plan applicable to
Formula Options and the provisions of the Award or Award Agreement to fail to
qualify as a "formula plan" within the meaning of Rule 16b-3 under the 1934 Act.
(j) Limitation on Amendment of Awards. Notwithstanding subparagraph
(i) hereof, unless approved by the shareholders of TransFinancial in accordance
with Delaware law, (i) the Committee shall not amend or modify the terms of any
outstanding Award relating to any stock option or SAR (including the applicable
Award Agreement) to reduce the exercise price per Share and (ii) no stock option
or SAR shall be cancelled and replaced with any Award or Awards having a lower
exercise price. Nothing in this subparagraph shall be deemed to limit the
Committee's authority to amend or modify any outstanding Award pursuant to
paragraph 3(b) hereof.
16. CERTAIN DEFINITIONS
(a) "1934 Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor law.
(b) "Award" means any award of stock options to purchase Shares,
stock appreciation rights, performance units, performance shares, restricted
stock, other stock-based awards as provided herein or any combination of the
above granted under the Plan.
(c) "Beneficiary" means the person or persons designated in writing
by the grantee of an Award as the grantee's Beneficiary with respect to such
Award; or, in the absence of an effective designation or if the designated
person or persons predecease the grantee, the grantee's Beneficiary shall be the
grantee's estate or the person or persons who acquire by bequest or inheritance
the grantee's rights in respect of an Award. In order to be effective, a
grantee's designation of a Beneficiary must be on file with the Committee before
the grantee's death, but any such designation may be revoked and a new
designation substituted therefor at any time before the grantee's death.
(d) "Closing Price" as of a particular day with respect to any
securities shall be the last sale price of such securities on the national
securities exchange on which such securities are listed and principally traded
or, if such securities are not listed on any national securities exchange, as
reported by NASDAQ, or, if not so reported by NASDAQ, the average of the closing
bid and asked quotations for such securities as reported by the National
Quotations Bureau Incorporated or similar organization selected by the
Committee, or, if on any such date such securities are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in such securities selected by the
Committee.
(e) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor law.
(f) "Covered Employee" means a "covered employee" for a particular
taxable year of the Company within the meaning of Section 162(m) of the Code and
the regulations promulgated thereunder or any Participant who the Committee
believes will be such a covered employee for a particular taxable year of the
Company, and who the Committee believes will have remuneration in excess of
$1,000,000 for such taxable year, as provided in Section 162(m) of the Code.
(g) "Participant" means any person selected to receive an Award
pursuant to the Plan.
(h) "Performance-Based Awards" means Awards and other compensation
payable under the Plan which the Committee from time to time determines are
intended to qualify as "qualified performance-based compensation" under Section
162(m) of the Code.
(i) "Reporting Person" means any person subject to Section 16 of the
1934 Act, or any successor rule.
(j) "Shares" means shares of Common Stock, $.01 par value per share,
of TransFinancial as constituted on the effective date of the Plan, and any
other shares into which such Common Stock shall thereafter be changed by reason
of any transaction described in paragraph 3(b) hereof.
(k) "Stockholder-Approved Performance Goals" means the measurable
performance objective or objectives established pursuant to this Plan for
Participants who have received grants of Performance-Based Awards described in
paragraph 12(b) hereof. To the extent permitted under Section 162(m) of the
Code and the regulations promulgated thereunder, Stockholder-Approved
Performance Goals may be described in terms of objectives related to the
performance of the Participant, TransFinancial, any subsidiary, or any division,
unit, department, region or function within TransFinancial or any subsidiary in
which the Participant is employed. Stockholder-Approved Performance Goals may
be made relative to the performance of other companies. To the extent permitted
under Section 162(m) of the Code and the regulations promulgated thereunder,
Stockholder-Approved Performance Goals applicable to any Performance-Based Award
shall be based on specified levels of or changes in one or more of the following
criteria: (i) cash flow, which may include net cash flow from operations, or net
cash flow from operations, financing and investing activities, (ii) earnings per
share, (iii) pre-tax income, (iv) net income, (v) return on sales, (vi) return
on equity, (vii) return on assets, (viii) return on capital, (ix) return on
investment, (x) revenue growth, (xi) market share, (xii) retained earnings,
(xiii) improved gross margins, (xiv) operating expense ratios, (xv) earnings
before interest, taxes, depreciation and amortization, (xvi) costs, (xvii) cost
reductions or savings, (xviii) debt reduction, (xix) selling, general and
administrative expenses and (xx) total return to shareholders (share
appreciation plus dividends).
17. MISCELLANEOUS.
(a) Rights of a Stockholder. Except as otherwise provided in
paragraph 8 hereof and subject to the provisions of the applicable Award
Agreement, the recipient of any Award under the Plan shall have no rights as a
stockholder with respect thereto unless and until certificates for Shares are
issued to such Participant, and the issuance of Shares shall confer no
retroactive right to dividends.
(b) Rights to Terminate Employment. Nothing in the Plan or in any
Award Agreement shall confer upon any person the right to continue in the
employment of the Company or affect any right which the Company may have to
terminate the employment of such person.
(c) Amendment and Termination of Plan. The Board may terminate,
amend, modify or suspend the Plan at any time, subject to such stockholder
approval as the Board determines to be necessary or desirable to comply with any
tax, regulatory or other requirement, provided that (i) in no event shall the
provisions relating to the timing, amount and exercise price of Formula Options
provided for in paragraph 11 of the Plan be amended more than once every six
months, other than to comport with changes in the Code, the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder, (ii) subject
to paragraph 3(b) hereof, the Board may not, unless such amendment is approved
by the shareholders of TransFinancial in accordance with Delaware law, amend the
Plan to (A) increase the number of Shares available for the grant of Awards
under the Plan pursuant to paragraph 3(a) hereof, (B) increase the maximum
individual limits on Awards set forth in paragraph 3(c) hereof, (C) increase the
maximum number of Shares which may be subject to restricted stock awards,
performance share awards and other stock-based awards pursuant to paragraph 3(d)
hereof, (D) decrease the minimum per Share exercise price of stock options or
the minimum per Share specified price for SARs under the Plan, (E) increase the
maximum term of stock options or SARs under the Plan or (F) change or modify the
provisions of paragraph 15(j) hereof. If any such termination, modification,
amendment or suspension of the Plan shall materially and adversely affect the
rights of any grantee or Beneficiary under an Award previously granted, the
consent of such grantee or Beneficiary shall be required, provided that it shall
be conclusively presumed that any adjustment pursuant to paragraph 3(b) hereof
does not materially and adversely affect any such right.
(d) Effect on Other Plans; Nature of Payments. Nothing contained in
this Plan shall prevent the Company from adopting other or additional
compensation arrangements or other benefit or incentive plans or shall affect
any Participant's eligibility to participate in any other such arrangement or
plan. Each grant of an Award and each issuance of Shares hereunder shall be in
consideration of services performed for the Company by the Participant receiving
the Award. Each such grant and issuance shall constitute a special incentive
payment to the Participant receiving the Award and shall not be taken into
account in computing the amount of salary or compensation of the Participant for
the purposes of determining any pension, retirement, death or other benefits
under (i) any pension, retirement, profit-sharing, bonus, life insurance or
other benefit plan of the Company or (ii) any agreement between the Company and
the Participant, except as such plan or agreement shall otherwise expressly
provide.
(e) Effective Date and Duration of Plan. The Plan shall become
effective when adopted by the Board, provided that the Plan is approved by the
shareholders of TransFinancial in accordance with Delaware law before the first
anniversary of the date the Plan is adopted by the Board, and provided, further,
that no payment on any Award shall be made unless and until such stockholder
approval is obtained. Unless it is sooner terminated in accordance with
subparagraph (c) hereof, the Plan shall remain in effect until all Awards under
the Plan have been satisfied or have expired or otherwise terminated, but no
Incentive Stock Option shall be granted more than ten years after the earlier of
the date the Plan is adopted by the Board or is approved by the shareholders of
TransFinancial.
(f) Unfunded Plan. The Plan shall be unfunded, except to the extent
otherwise provided in accordance with paragraph 8 hereof. Neither the Company
nor any affiliate shall be required to segregate any assets that may be
represented by Awards, and neither the Company nor any affiliate shall be deemed
to be a trustee of any amounts to be paid under any Award. Any liability of the
Company or any affiliate to pay any grantee or Beneficiary with respect to an
Award shall be based solely upon any contractual obligations created pursuant to
the provisions of the Plan, and no such obligations will be deemed to be secured
by a pledge of or encumbrance on any property of the Company or an affiliate.
(g) Governing Law. The Plan shall be governed by, and shall be
construed, enforced and administered in accordance with, the laws of the State
of Delaware, except to the extent that such laws may be superseded by any
Federal law.
Exhibit I
Form of Directors Stock Option Agreement
[Date]
[Name of Optionee]
[Address of Optionee]
Dear [Optionee]:
This Agreement is entered into pursuant to the TransFinancial Holdings, Inc.
1998 Long-Term Incentive Plan ("Plan"), a copy of which has been furnished to
you. This Agreement is subject to all of the terms and provisions of the Plan,
which are incorporated by reference. In the event of a conflict between this
Agreement and the Plan, the provisions of the Plan shall govern.
1. GRANT OF NONQUALIFIED STOCK OPTION. TransFinancial Holdings, Inc.
("TransFinancial") hereby grants to you a Nonqualified Stock Option ("Option")
to purchase from TransFinancial all or any part of an aggregate of Two Thousand
(2,000) shares of common stock, $.01 par value per share, of TransFinancial
("Shares") at the option exercise price specified below ("Option Price"),
subject to the terms and conditions of the Plan and this Agreement.
2. OPTION PRICE. The Option Price shall be Dollars ($ ) per
Share, such Option Price being the fair market value of the Shares on the date
hereof pursuant to the Plan, equal to the closing price of the Shares on the
American Stock Exchange on , the first stock trading day following
the annual meeting of the shareholders of TransFinancial, as reported
by The Wall Street Journal on .
3. EXERCISE OF OPTION.
a. Subject to all of the other terms and conditions set forth herein, the
Option may be exercised in respect of 1,000 Shares on and after
and may be exercised in respect of all of the Shares subject
to the Option on and after .
b. Notwithstanding the provisions of subparagraph (a) hereof, the Option
shall become exercisable in full upon (i) the occurrence of a Change of
Control (as hereinafter defined) during your service as a director of
TransFinancial, provided the Option has been outstanding for at least One
Hundred Eighty (180) days at the time of such occurrence, (ii) termination
of your service as a director of TransFinancial concurrently with a Change
of Control, provided the Option has been outstanding for at least One
Hundred Eighty (180) days at the time of such termination, or
(iii) termination of your service as a director of TransFinancial due to
your (A) death, (B) permanent and total disability, or (C) retirement at
the end of a term of office, after completing five (5) years of service as
a director ("Retirement").
c. Subject to all of the other terms and conditions set forth herein, you
shall have the right to exercise the Option in whole or in part from time
to time, provided that you may not exercise the Option with respect to a
fractional share or with respect to fewer than ten (10) Shares (or such
lesser number remaining unexercised). Except as otherwise provided herein,
this Option may not be exercised unless you are then a director of
TransFinancial.
4. TERM OF OPTION.
a. The Option shall expire at the close of business on (the
"Expiration Date"), subject to earlier termination as provided in this
Paragraph 4. In no event may the Option be exercised after the Expiration
Date.
b. If your service as a director of TransFinancial terminates for any
reason, you (or in the event of death your Beneficiary under the Plan)
shall have the right to exercise the Option, to the extent the Option was
exercisable at the time of such termination, at any time within One Hundred
Eighty (180) days after the date of termination of service, provided that
in no event may the Option be exercised after the Expiration Date. Upon
the earlier of the Expiration Date or the end of such 180 day period, the
Option shall expire.
5. METHOD OF EXERCISE OF OPTION. The Option may be exercised by delivering to
the Corporate Secretary of TransFinancial written notice of exercise and payment
of the Option Price. The written notice of exercise shall:
a. State the election to exercise the Option (or any part thereof), the
number of Shares in respect of which the Option is being exercised, the
person in whose name the stock certificate or certificates for such Shares
is to be registered, his or her address and Social Security Number (or, if
more than one, the names, addresses, and Social Security Numbers of such
persons); and
b. Be signed by the person or persons entitled to exercise the Option,
and, if the Option is being exercised by any person or persons other than
you, it shall be accompanied by proof satisfactory to counsel for
TransFinancial of the right of such person or persons to exercise the
Option.
6. PAYMENT OF OPTION PRICE.
a. Payment of Option Price shall be made in (i) cash (which may include
personal checks, certified checks, cashier's checks or money orders), (ii)
Shares owned by you for at least six months prior to the time of exercise
at fair market value or (iii) a combination of the foregoing. The fair
market value of any Shares used to pay any part of the exercise price shall
be their fair market value, as determined below. No fractional Shares
shall be accepted by TransFinancial, and if payment is to be made only in
Shares, the Shares shall be rounded to the next lowest whole number of
Shares, and you shall pay the amount equal to the fractional Share in cash
or by check. In lieu of delivering Shares, you may provide an affidavit
regarding ownership of such Shares and receive the number of Shares
otherwise issuable to the you upon the exercise of the Option, less a
number of Shares having a fair market value equal to such purchase price,
as determined below.
b. Fair market value for purposes of this paragraph 6 shall be deemed to
be the closing price of the Shares on the American Stock Exchange as of the
date the Option is exercised, as reported in the Midwest Edition of the
Wall Street Journal.
7. ISSUANCE OF SHARES. Upon the exercise of the Option in whole or in part
and upon satisfaction of the other terms and conditions of this Agreement and of
the Plan, TransFinancial will cause to be issued certificates for Shares
purchased pursuant to the Option. Shares to be issued to you shall be fully
paid and nonassessable, and will be either authorized and previously unissued
Shares or Shares held in the treasury of TransFinancial. It is understood that
you shall not have any of the rights of a shareholder with respect to such
Shares until such Shares are actually issued and registered in your name.
8. DEFINITION OF CHANGE OF CONTROL. A "Change of Control" shall be deemed
to have occurred if (a) any person (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended [the "1934 Act"]),
other than a trustee or other fiduciary holding securities under an employee
benefit plan of TransFinancial, and other than a corporation owned directly or
indirectly by the shareholders of TransFinancial in substantially the same
proportions as their ownership of stock of TransFinancial, shall have become,
according to a public announcement or filing, the beneficial owner (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
TransFinancial representing thirty percent (30%) or more of the combined voting
power of TransFinancial's then outstanding voting securities; (b) a majority of
the members of the Board of Directors of TransFinancial (the "Board") ceases to
consist of Continuing Directors ("Continuing Directors" means (i) individuals
who were members of the Board on the date of grant of the Option or (ii)
individuals who subsequently become members of the Board if such individuals'
elections or nominations for election by TransFinancial's shareholders were
recommended or approved by a majority of the then Continuing Directors); (c) the
shareholders of TransFinancial approve a merger or consolidation of
TransFinancial with any other entity, other than a merger or consolidation which
would result in the voting securities of TransFinancial outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity or the surviving
entity's parent) at least seventy percent (70%) of the combined voting power
represented by voting securities of TransFinancial, such surviving entity or
such parent, as the case may be, outstanding immediately after such merger or
consolidation, or (d) the shareholders of TransFinancial approve a plan of
complete liquidation of TransFinancial or an agreement for the sale or
disposition by TransFinancial of all or substantially all of TransFinancial's
assets, except a sale or disposition to any entity wholly-owned, directly or
indirectly, by TransFinancial. As used in this Paragraph 8, the parent of the
surviving entity shall mean an entity which owns, directly or indirectly, one
hundred percent (100%) of the outstanding voting securities of the surviving
entity.
9. NONTRANSFERABILITY OF OPTION. The Option may not be transferred by you
other than by will or by the laws of descent and distribution and may be
exercised during your lifetime only by you.
10. WAIVER OF OPTION. By entering into this Agreement, you hereby waive any
right which you may have to receive an annual grant under the 1992 Incentive
Stock Plan of TransFinancial of a "Directors Option" (as defined in that plan)
for the year .
11. NOTICES. Each notice relating to this Agreement shall be in writing and
delivered in person or by certified mail. Each notice shall be deemed to have
been given on the date it is received. Each notice to TransFinancial shall be
addressed to it at its principal office, at 8245 Nieman Road, Suite 100, Lenexa,
Kansas 66214, attention of the Corporate Secretary. Each notice to you or other
person or persons then entitled to exercise the Option shall be addressed to you
or such other person or persons at your address set forth in the heading of this
Agreement. Anyone to whom a notice may be given under this Agreement may
designate a new address by notice to that effect.
12. BENEFITS OF AGREEMENT. This Agreement shall inure to the benefit of, and
be binding upon, the respective heirs, executors, administrators, distributees
and successors of the parties hereto, except as otherwise specifically provided
herein.
13. RESOLUTION OF DISPUTES. Any dispute or disagreement which should arise
under, or as a result of, or in any way relate to, the interpretation,
construction or application of this Agreement or the Plan will be determined by
the Committee of the Board of Directors of TransFinancial administering the Plan
or this Agreement. Any determination made hereunder or under the Plan shall be
final, binding and conclusive for all purposes.
14. CONTINUATION AS DIRECTOR. Nothing in this Agreement or the Plan shall
confer upon you the right to continue as a director of TransFinancial or any of
its subsidiaries, or affect any right which TransFinancial or any of its
subsidiaries may have to terminate your service as a director.
15. MARKET RISKS. It is expressly understood and agreed that you assume all
risks incident to any change in the market value of the Shares subject to this
Option after the exercise of this Option in whole or in part.
16. GOVERNING LAW, ETC. This Agreement shall be construed and its provisions
enforced and administered in accordance with the laws of the State of Delaware
except to the extent that such laws may be superseded by any Federal law. This
Agreement may not be modified orally.
Please acknowledge your acceptance of this agreement by executing both copies;
retaining one copy for your files and returning the second copy to the Corporate
Secretary in Lenexa, Kansas.
Very truly yours,
President
ACCEPTED AND AGREED TO this
day of , .
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<LEGEND>
This schedule contains summary financial information extracted from the
TransFinancial Holdings, Inc. consolidated statement of income for the year
ended December 31, 1998 and consolidated balance sheet as of December 31, 1998
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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3256
<SECURITIES> 0
<RECEIVABLES> 26888
<ALLOWANCES> 953
<INVENTORY> 0
<CURRENT-ASSETS> 34140
<PP&E> 57280
<DEPRECIATION> 24122
<TOTAL-ASSETS> 77763
<CURRENT-LIABILITIES> 15122
<BONDS> 9700
0
0
<COMMON> 76
<OTHER-SE> 50998
<TOTAL-LIABILITY-AND-EQUITY> 77763
<SALES> 0
<TOTAL-REVENUES> 151701
<CGS> 0
<TOTAL-COSTS> 154722
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 311
<INCOME-PRETAX> (2866)
<INCOME-TAX> (839)
<INCOME-CONTINUING> (2027)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2027)
<EPS-PRIMARY> (.39)
<EPS-DILUTED> (.39)
</TABLE>
Exhibit 21
TRANSFINANCIAL HOLDINGS, INC.
LISTING OF SUBSIDIARIES
Subsidiaries of TransFinancial Holdings, Inc. State of Incorporation
TFH Logistics & Transportation Services, Inc. Kansas
Crouse Cartage Company Iowa
Phoenix Computer Services, Inc. Kansas
American Freight System, Inc.
(d/b/a AFS, Inc.) Delaware
Agency Premium Resource, Inc. Kansas
TFH Properties, Inc. Kansas
Universal Premium Acceptance Corporation Missouri
Subsidiaries of Universal Premium Acceptance Corporation
APR Funding Corporation Delaware
Oxford Premium Finance, Inc. Illinois
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, the Stock Option Agreement by and between Anuhco, Inc.
and C. Ted McCarter, effective May 31, 1995, File No. 33-62553, and the
TransFinancial Holdings, Inc. 1998 Long-Term Incentive Plan, File No. 333-66803,
of our report dated February 3, 1999, except for Note 10, as to which the date
is February 18, 1999, on our audit of the consolidated financial statements and
financial statement schedule of TransFinancial Holdings, Inc. (formerly Anuhco,
Inc.) as of December 31, 1998 and 1997, and for the years ended December 31,
1998, 1997, and 1996,, which report is included in this Annual Report on Form
10-K.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
SEC/Consent Independent Acct
Kansas City, Missouri
March 15, 1999
