UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-12070
TRANSFINANCIAL HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 46-0278762
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
8245 Nieman Road, Suite 100
Lenexa, Kansas 66214
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (913) 859-0055
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 ( ) No (X)
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at August 7, 2000
Common stock, $0.01 par value 3,278,291 shares
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30,
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
2000 1999
<S> <C> <C>
Operating Revenues.......................................................... $ 38,777 $ 40,261
Operating Expenses.......................................................... 41,659 40,438
Operating Income (Loss)..................................................... (2,882) (177)
Nonoperating Income (Expense)
Interest income.......................................................... 3 27
Interest expense......................................................... (525) (290)
Other.................................................................... -- (15)
Total nonoperating income (expense).................................. (522) (278)
Income (Loss) Before Income Taxes........................................... (3,404) (455)
Income Tax Provision (Benefit).............................................. 21 (134)
Net Income (Loss)........................................................... $ (3,425) $ (321)
Basic and Diluted Earnings (Loss) Per Share................................. $ (1.05) $ (0.09)
Basic Average Shares Outstanding............................................ 3,278 3,612
Diluted Average Shares Outstanding.......................................... 3,290 3,613
<FN>
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
</TABLE>
<TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30,
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
2000 1999
<S> <C> <C>
Operating Revenues.......................................................... $ 77,645 $ 80,118
Operating Expenses.......................................................... 83,673 80,291
Operating Income (Loss)..................................................... (6,028) (173)
Nonoperating Income (Expense)
Interest income.......................................................... 8 48
Interest expense......................................................... (961) (546)
Other.................................................................... -- 9
Total nonoperating income (expense).................................. (953) (489)
Income (Loss) Before Income Taxes........................................... (6,981) (662)
Income Tax Provision (Benefit).............................................. 43 (169)
Net Income (Loss)........................................................... $ (7,024) $ (493)
Basic and Diluted Earnings (Loss) Per Share................................. $ (2.14) $ (0.14)
Basic Average Shares Outstanding............................................ 3,278 3,612
Diluted Average Shares Outstanding.......................................... 3,422 3,613
<FN>
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
</TABLE>
<TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................................ $ 550 $ 1,076
Freight accounts receivable, less allowance
for credit losses of $211 and $203................................... 15,127 14,373
Finance accounts receivable, less allowance
for credit losses of $1,552 and $870 (Note 3)........................ 82,948 15,305
Other current assets..................................................... 3,801 3,579
Total current assets................................................. 102,406 34,333
Operating Property, at Cost:
Revenue equipment........................................................ 30,987 31,415
Land..................................................................... 3,402 3,402
Structures and improvements.............................................. 12,352 11,336
Other operating property................................................. 11,224 11,289
57,965 57,442
Less accumulated depreciation........................................ (26,981) (25,400)
Net operating property........................................... 30,984 32,042
Intangibles, net of accumulated amortization................................ 9,239 9,005
Other Assets................................................................ 1,362 1,513
$ 143,991 $ 76,893
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Cash overdrafts.......................................................... $ 3,537 $ 2,673
Secured borrowings....................................................... 72,284 3,659
Accounts payable......................................................... 9,002 5,312
Current maturities of long-term debt (Note 3)............................ -- 14,800
Accrued payroll and fringes.............................................. 8,108 5,006
Claims and insurance accruals............................................ 933 1,361
Other accrued expenses................................................... 2,405 3,686
Total current liabilities............................................ 96,269 36,497
Long-term Debt.............................................................. 14,200 --
Contingencies and Commitments (Note 5)...................................... -- --
Shareholders' Equity (Note 4)
Preferred stock with $0.01 par value, authorized 1,000,000 shares,
none outstanding..................................................... -- --
Common stock with $0.01 par value, authorized 13,000,000 shares,
issued 7,623,852 and 7,597,931 shares................................ 76 76
Paid-in capital.......................................................... 6,254 6,104
Retained earnings........................................................ 62,259 69,283
Treasury stock 4,345,561 shares, at cost................................. (35,067) (35,067)
Total shareholders' equity........................................... 33,522 40,396
$ 143,991 $ 76,893
The accompanying notes to condensed consolidated balance sheets are an integral part of these statements.
<FN>
</TABLE>
<TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(In thousands) (Unaudited)
<CAPTION>
2000 1999
<S> <C> <C>
Cash Flows From Operating Activities
Net loss............................................................ $ (7,024) $ (493)
Adjustments to reconcile net loss to cash
used in operating activities
Depreciation and amortization..................................... 2,488 2,526
Provision for credit losses....................................... 714 559
Deferred income tax benefit....................................... -- (227)
Other............................................................. 95 23
Net increase (decrease) from change in other
working capital items affecting operating activities........... 4,148 (41)
421 2,347
Cash Flows From Investing Activities
Purchase of operating property, net................................. (1,153) (1,269)
Origination of finance accounts receivable.......................... (101,093) (101,361)
Sale of finance accounts receivable................................. 37,530 74,622
Collection of owned finance accounts receivable..................... 62,428 21,542
Other............................................................... (455) (137)
(2,743) (6,603)
Cash Flows From Financing Activities
Cash overdrafts..................................................... 864 228
Borrowings on long-term debt........................................ -- 5,000
Repayments on long-term debt........................................ (600) --
Payments to acquire treasury stock.................................. -- (2,603)
Borrowing on secured credit agreements, net......................... 1,525 346
Other............................................................... 7 (4)
1,796 2,967
Net Decrease in Cash and Cash Equivalents............................. (526) (1,289)
Cash and Cash Equivalents at beginning of period...................... 1,076 3,256
Cash and Cash Equivalents at end of period............................ $ 550 $ 1,967
Cash Paid During the Period for
Interest............................................................ $ 961 $ 546
Income taxes........................................................ $ 25 $ 29
<FN>
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
</TABLE>
<TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands) (Unaudited)
<CAPTION>
Total
Share
Common Paid-In Retained Treasury holders'
Stock Capital Earnings Stock Equity
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998.................. $ 76 $ 6,090 $ 77,367 $(32,459) $ 51,074
Net loss...................................... -- -- (8,084) -- (8,084)
Issuance of shares under incentive plans...... -- 14 -- (5) 9
Purchase of 683,241 shares of common stock.... -- -- -- (2,603) (2,603)
Balance at December 31, 1999.................. 76 6,104 69,283 (35,067) 40,396
Net loss...................................... -- -- (7,024) -- (7,024)
Issuance of shares under incentive plans...... -- 7 -- -- 7
Issuance of shares under deferred
compensation arrangements................... -- 143 -- -- 143
Balance at June 30, 2000...................... $ 76 $ 6,254 $ 62,259 $(35,067) $ 33,522
<FN>
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
</TABLE>
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. PRINCIPLES OF CONSOLIDATION AND SIGNIFICANT ACCOUNTING POLICIES
The unaudited condensed consolidated financial statements include
TransFinancial Holdings, Inc. ("TransFinancial") and all of its subsidiary
companies (the "Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation. The unaudited condensed
financial statements included herein have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC"). The year end
condensed balance sheet data was derived from audited financial statements, but
does not include all disclosures required by generally accepted accounting
principles. In the opinion of management, all adjustments necessary to fairly
present the results of operations have been made.
Pursuant to SEC rules and regulations, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
from these statements unless significant changes have taken place since the end
of the most recent fiscal year. TransFinancial believes that the disclosures
contained herein, when read in conjunction with the financial statements and
notes included in TransFinancial's Annual Report on Form 10-K, filed with the
SEC on July 6, 2000, are adequate to make the information presented not
misleading. It is suggested, therefore, that these statements be read in
conjunction with the statements and notes included in the aforementioned report
on Form 10-K.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has experienced operating
losses in the first six months of 2000 and for the years 1999 and 1998 and
significantly reduced cash flows from operating activities in 1999 and 2000. In
addition, the Company has violated certain covenants in its financing
agreements. These factors raise substantial doubt about the Company's ability
to continue as a going concern.
The Company's ability to continue as a going concern is ultimately
dependent on its ability to refinance its outstanding debt with new lenders and
make changes in its operations to allow it to operate profitably and sustain
positive operating cash flows. Effective May 26, 2000, UPAC entered into a new
receivable securitization agreement (See Note 3). Effective July 6, 2000, the
Company executed an Amended and Restated Secured Loan Agreement that provides
approximately $21 million of credit for one year and waives the existing
covenant violations under its prior credit agreements. Management continues to
seek replacement financing that would enable it to repay its secured loan
agreement and provide additional liquidity. The Company has also effected
changes in its operations intended to bring operating expenses in line with
operating revenue levels and to increase the levels of revenues.
Management believes that it will be successful in closing on replacement
financing and that the operational changes should result in improved operating
results. However, there can be no assurance that replacement financing will be
successfully closed or that the operational changes will result in improved
financial performance. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
2. SEGMENT REPORTING
The Company operates in two business segments: transportation and
financial services. Other items are shown in the table below for purposes of
reconciling to consolidated amounts (in thousands).
<TABLE>
<CAPTION>
Second quarter Six Months
Operating Operating Operating Operating Total
RevenuesIncome (Loss) Revenues Income (Loss) Assets
<S> <C> <C> <C> <C> <C> <C>
Transportation 2000 $ 37,444 $ (1,750) 74,463 (4,875) $ 48,088
1999 38,013 (349) 75,869 (359) 47,575
Financial Services 2000 1,324 (871) 3,163 (653) 93,742
1999 2,220 490 4,189 780 27,969
Total Segments 2000 38,768 (2,621) 77,626 (5,528) 141,830
1999 40,233 141 80,058 421 75,544
General Corporate and Other 2000 9 (261) 19 (500) 2,161
1999 28 (318) 60 6,182
Consolidated 2000 38,777 (2,882) 77,645 (6,028) 143,991
1999 40,261 3 80,118 (613) 81,726
<FN>
</TABLE>
3. FINANCING AGREEMENTS
SECURITIZATION OF RECEIVABLES
TransFinancial, UPAC and APR Funding Corporation (a wholly-owned
subsidiary) have entered into a securitization agreement with a financial
institution whereby undivided interests in a designated pool of accounts
receivable can be transferred on an ongoing basis. Effective May 26, 2000, the
securitization agreement was assigned to and assumed by a new purchaser. UPAC
and APR Funding Corporation amended the securitization agreement with the new
purchaser increasing the maximum allowable amount of receivables to be sold
under the new agreement to $80.0 million, extending the term of the agreement by
five years with annual liquidity renewals and amending certain financial
covenants. As a result of certain call provisions in the amended agreement, the
receivables transferred under the agreement after the date of the amendment are
not reflected as sold in subsequent balance sheets. The funds advanced under
the amended agreement are accounted for as secured borrowings. The purchaser
permits principal collections to be reinvested in new financing agreements. The
Company had transferred receivables of $67.3 million at June 30, 2000. The cash
flows from the sale of receivables are reported as investing activities in the
accompanying consolidated statement of cash flows. Previously the transferred
receivables were reflected as sold. As of December 31, 1999, $63.9 million of
receivables had been transferred and were considered sold.
The terms of the securitization agreement also required that UPAC maintain
a default reserve at specified levels that serves as additional collateral. At
June 30, 2000, approximately $7.6 million of owned finance receivables served as
collateral under the default reserve provision.
Among other things, the terms of the agreement require UPAC to maintain a
minimum tangible net worth of $10.0 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. UPAC was in compliance with such covenants at June 30,
2000.
SECURED LOAN AGREEMENTS
In January 1998, Crouse Cartage Company entered into a three-year secured
loan agreement with a commercial bank that provides for a $4.5 million working
capital line of credit loan ("Working Capital Line"). The following table
summarizes activity under the Working Capital Line in the second quarter and six
months ended June 30, 2000 and 1999 (in thousands, except percentages):
Second quarter Six Months
2000 1999 2000 1999
Balance outstanding at end of period $ 5,034 $ 346 $5,034
$ 346
Average amount outstanding.......... $4,678 $ 115 $4,550 $521
Maximum month end balance outstanding $ 5,034 $ 346 $5,034
$ 2,414
Interest rate at end of period...... 9.25% 7.25% 9.25% 7.25%
Weighted average interest rate...... 9.01% 7.50% 8.76% 7.72%
In September 1998, the Company entered into a two-year secured loan
agreement with the same commercial bank which enabled the Company to borrow
$10.0 million (the "Loan"), secured by freight accounts receivable and a second
lien on revenue equipment. In March 1999, the Loan was amended and restated to
increase the borrowing to $15.0 million. The proceeds of the Loan were used to
repurchase shares of the Company's common stock and fund operations. The Loan
bears interest at 25 basis points below the bank's prime rate. The interest
rate was 9.25% at June 30, 2000.
Effective July 6, 2000, the Company executed an Amended and Restated
Secured Loan Agreement (the "Loan Agreement") that provides approximately $21
million of credit, including the term loan of $14.2 million, the Working Capital
Line of $4.5 million and a new bridge loan of $2.2 million. The Loan Agreement
is secured by freight accounts receivable, revenue equipment, mortgages on real
property and the stock of UPAC. The Loan Agreement bears interest at 25 basis
points below the bank's prime rate.
The terms of the Working Capital Line require TransFinancial to maintain a
minimum consolidated tangible net worth of $23 million, a ratio of current
assets to current liabilities of 1.0 to 1.0, a ratio of debt to tangible net
worth of 1.2 to 1.0, and contain restrictions on the payment of dividends
without prior consent of the Lender.
4. STOCK REPURCHASE
In the first quarter of 1999, the Board of Directors authorized the
repurchase of 1,030,000 shares of the Company's common stock. In 1999, a total
of 683,241 shares had been repurchased at a cost of approximately $2.6 million.
5. CONTINGENCIES AND COMMITMENTS
Crouse has been named as a defendant in two lawsuits arising out of a
motor vehicle accident. The first suit was instituted on June 16, 1999 in the
United States District Court in the Eastern District of Michigan (Northern
Division) by Kimberly Idalski, Personal Representative of the Estate of Lori
Cothran, Deceased against Crouse. The second suit was instituted on August 17,
1999 in the United States District Court in the Eastern District of Michigan
(Northern Division) by Jeanne Cothran, as Legal Guardian, on behalf of Kaleb
Cothran, an infant child against Crouse. The suits allege that Crouse
negligently caused the death of Lori Cothran in a motor vehicle accident
involving a Crouse driver. The first suit seeks damages in excess of
$50,000,000, plus costs, interest and attorney fees. The second suit seeks
damages in excess of $100,000,000, plus costs, interest and attorney fees.
These suits were settled by Crouse's insurance carrier without additional
charges to Crouse.
The Company and its directors have been named as defendants in a lawsuit
filed on January 12, 2000 in the Chancery Court in New Castle County, Delaware.
The suit seeks declaratory, injunctive and other relief relating to the proposed
management buyout of the Company. The suit alleges that the directors of the
Company failed to seek bidders for the Company's subsidiary, Crouse, failed to
seek bidders for its subsidiary, UPAC, failed to actively solicit offers for the
Company, imposed arbitrary time constraints on those making offers and favored a
management buyout group's proposal. The suit seeks certification as a class
action complaint. The proposed management buyout was terminated on February 18,
2000 and the Company has filed for dismissal of the suit. The defendant filed
an amended class action complaint on August 9, 2000, seeking damages in excess
of $4.50 per share for the alleged breaches of fiduciary duties by the
defendants. The Company believes this suit will not have a material adverse
effect on the financial condition, liquidity or results of operations of the
Company.
The Company is also party to certain other 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.
In 1998 and 1999, TFH L&T entered into a long-term operating leases 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
$1,215,000 and $832,000 for the six months ended June 30, 2000 and 1999.
Minimum future rentals for operating leases are as follows: remaining six months
of 2000 - $1,199,000; 2001 - $2,399,000; 2002 - $2,399,000; 2003 - $1,961,000;
2004 - $862,000; 2005 - $791,000; and thereafter - $501,000. Additionally, TFH
L&T has limited contingent rental obligations of $1,019,000 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 TFH L&T to maintain tangible net
worth of $26.0 million, increasing by $1.0 million per year beginning in 1999.
TFH L&T was not in compliance with this covenant at June 30, 2000.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Second quarter ended June 30, 2000 compared to the second quarter ended June 30,
1999 and the six months ended June 30, 2000 compared to the six months ended
June 30, 1999
TransFinancial operates primarily in two segments; transportation, through
its subsidiary, TFH Logistics & Transportation Services, Inc. and its
subsidiaries ("TFH L&T"); and financial services, through its subsidiary,
Universal Premium Acceptance Corporation ("UPAC").
TRANSPORTATION
Operating Revenue - The changes in transportation operating revenue are
summarized in the following table (in thousands):
Qtr. 2 2000 Six Months 2000
vs. vs.
Qtr. 2 1999 Six Months 1999
Increase (decrease) from:
Decrease in LTL tonnage........................ $ (1,137) $ (2,119)
Decrease in LTL revenue per hundredweight...... (522) (1,222)
Increase in truckload revenues................. 1,090 1,935
Net increase (decrease).................... $ (569) $ (1,406)
Less-than-truckload ("LTL") revenues declined 4.9%, from $33.8 million for
the second quarter of 1999 to $32.2 million for the second quarter of 2000, and
5.0%, from $67.5 million for the first six months of 1999 to $64.2 million for
the first half of 2000. The principal causes of the declines in the periods of
2000 were a more than three percent decrease in LTL tons hauled and a decline in
LTL revenue yield. Management believes the decline in LTL tons hauled and
revenue yield was the result of targeted marketing of Crouse's customers by
certain competitors due to uncertainty amongst shippers about TFH L&T's future
resulting from the terminated management buyout, recent operating losses and
covenant violations under its financing arrangements.*
Truckload ("TL") operating revenues rose 26.1%, from $4.2 million for the
second quarter of 1999 to $5.3 million for the second quarter of 2000, and
23.2%, from $8.3 million for the first six months of 1999 to $10.3 million for
the same period in 2000. The increases in TL shipments and revenues were due to
improved focus on this market resulting from the Company's restructuring of its
TL operations as a separate subsidiary. Also, the 1999 TL revenues were
depressed due to the temporary closing of a meat processing plant operated by
one of Crouse's customers.
Operating Expenses - A comparative summary of transportation operating expenses
as a percent of transportation operating revenue follows:
<TABLE>
<CAPTION>
Percent of Operating Revenue
Second quarter Six Months
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Salaries, wages and employee benefits.................... 63.2% 58.9% 63.6% 59.4%
Operating supplies and expenses.......................... 14.2% 14.5% 15.4% 13.9%
Operating taxes and licenses............................. 1.2% 1.1% 1.3% 1.0%
Insurance and claims..................................... 2.1% 2.4% 2.1% 2.2%
Depreciation............................................. 2.8% 2.7% 2.8% 2.8%
Purchased transportation and rents....................... 21.2% 21.3% 21.4% 21.2%
Total operating expenses............................. 104.7% 100.9% 106.5% 100.5%
</TABLE>
TFH L&T's operating expenses as a percentage of operating revenue, or
operating ratio, increased in the second quarter of 2000, in relation to the
comparable period of 1999. The deterioration in operating ratio occurred
principally in two cost categories: salaries, wages and employee benefits; and
operating supplies and expenses. Operating expenses as a percentage of revenue
were also higher for all cost categories as the result of dividing their fixed
cost components by lower revenues in the second quarter of 2000.
Salaries, wages and employee benefits increased 5.7% from $22.4 million
for the second quarter of 1999 to $23.7 million for the second quarter of 2000.
The increase in the second quarter of 2000 was principally the result of a
scheduled increase in union wages and benefits effective April 1, 2000, pursuant
to the Crouse's collective bargaining agreement and increased utilization of
Company drivers and tractors to provide transportation of freight between
terminals ("linehaul transportation") and decreased utilization of owner-
operator leased equipment. Salaries, wages and employee benefits increased 4.9%
from $45.1 million for the six months of 1999 to $47.3 million for the six
months of 2000 due principally to the same causes as discussed for the second
quarter.
Operating supplies and expenses increased 9.3% from $10.5 million for the
first six months of 1999 to $11.5 million for the first half of 2000. The
increase in 2000 was primarily the result of increases in diesel fuel prices, as
well as increased general supplies and expenses, particularly in the first
quarter of 2000.
The Company's transportation net loss for the second quarter of 2000 was
$1,148,000, not considering the valuation allowance provided against
consolidated deferred tax assets, as compared to a net loss of $188,000 for the
second quarter of 1999, as a result of the decrease in operating revenues and
increases in operating expenses discussed above. The Company's transportation
net loss for the six months of 2000 was $3,013,000, not considering the
valuation allowance provided against consolidated deferred tax assets, as
compared to a net loss of $246,000 for the first half of 1999, as a result of
the decrease in operating revenues and increases in operating expenses discussed
above.
FINANCIAL SERVICES
For the second quarter of 2000, UPAC reported an operating loss of
$871,000 on net financial services revenue of $1.3 million, as compared to
operating income of $490,000 on net revenue of $2.2 million for the comparable
period of 1999. For the six months of 2000, UPAC reported an operating loss of
$653,000 on net financial services revenue of $3.2 million, as compared to
operating income of $780,000 on net revenue of $4.2 million for the comparable
period of 1999. The decreases in net financial services revenue and operating
income in 2000 was primarily the result of transition from gain on sale
treatment of receivables transferred under UPAC's previous securitization
agreement to secured borrowing treatment under the agreement as amended. This
change had no effect on the total earnings recognized over the term of each
finance contract or the cash flow received by UPAC on each such contract. The
timing of earnings recognition was changed. The non-cash effect on net
financial services revenues and operating loss for the second quarter and six
months of 2000 was approximately $500,000. Also, reducing net financial
services revenues and operating income were increased costs of funds under
UPAC's securitization agreement and fees and expenses relating to the extension
and replacement of the previous securitization agreement. These decreases were
offset in part by increased average total receivables outstanding. The growth
in average total receivables was due to the addition of marketing
representatives since the beginning of 1999 and increased finance contracts in
existing markets.
UPAC reported a net loss of $617,000 for the second quarter of 2000, not
considering the valuation allowance provided against consolidated deferred tax
assets, as compared to net income of $259,000 for the second quarter of 1999,
and a net loss of $476,000 for the six months of 2000, not considering the
valuation allowance provided against consolidated deferred tax assets, as
compared to net income of $425,000 for the same period of 1999, as a result of
the factors discussed above.
OTHER
Interest expense increased substantially in the second quarter and six
months of 2000 due to additional borrowings on long-term debt incurred to
repurchase stock and fund operations in 1999, increased working capital
borrowings in 2000 and increased interest rates on borrowings in 2000.
In the second quarter and six months of 2000, the Company's income tax
provision was $21,000 and $43,000 on a pre-tax losses of $3.4 million and $7.0
million, primarily as a result of increases in its valuation allowance provided
against consolidated deferred tax assets.
FORWARD-LOOKING STATEMENTS
The Company believes certain statements contained in this Quarterly Report
on Form 10-Q which are not statements of historical fact may 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-Q. 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 such statements contained herein
are marked by an asterisk ("*") or otherwise specifically identified herein. In
addition, the Company believes 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 may
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
that 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; 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 statutory interest rates or other
regulations 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.
OTHER MATTERS
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 Part II - Item 1 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
results of the discovery process and the final resolution of ongoing claims and
litigation.
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 ability of management
to effect operational changes to improve the future economic performance of the
Company (which is dependent in part upon the factors described above); the
ability of management to obtain replacement financing, 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
Company's intention to refinance, extend or replace certain financing
arrangements, the Company's ability to do so is subject to a number of risks and
uncertainties, including, without limitation, the future economic performance of
the Company, the ability of the Company to comply with the terms of such
financing arrangements, general conditions in the credit markets and the
availability of credit to the Company on acceptable terms.
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
As of June 30, 2000, the Company's net working capital was $6.1 million as
compared to a working capital deficit of $2.2 million as of December 31, 1999.
The Company's current ratio was 1.1 and its ratio of total liabilities to
tangible net worth was 4.6 as of June 30, 2000, as compared to a current ratio
of 0.9 and a ratio of total liabilities to tangible net worth of 1.2 as of
December 31, 1999. Cash provided by operating activities decreased in the six
months ended June 30, 2000 as compared to the six months ended June 30, 1999,
due primarily to current operating losses in the Company's transportation
operations.
The Company has experienced operating losses in second quarter of 2000,
and for the years 1999 and 1998 and significantly reduced cash flows from
operating activities in 1999 and 2000. In addition, the Company has violated
certain covenants in its financing agreements. The report of the Company's
Independent Accountants included in TransFinancial's Annual Report on Form 10-K
for the year ended December 31, 1999, contains an explanatory paragraph
indicating that these factors raise substantial doubt about the Company's
ability to continue as a going concern.
The Company's ability to continue as a going concern is ultimately
dependent on its ability to refinance its outstanding debt with new lenders and
make changes in its operations to allow it to operate profitably and sustain
positive operating cash flows. Effective May 26, 2000, UPAC entered into a new
receivable securitization agreement (See Note 3 of Notes to Consolidated
Financial Statements). Effective July 6, 2000, the Company executed an Amended
and Restated Secured Loan Agreement that provides approximately $21 million of
credit for one year and waives the existing covenant violations under its prior
credit agreements. Management continues to seek replacement financing that
would enable it to repay its secured loan agreement and provide additional
liquidity. The Company has also effected changes in its operations intended to
bring operating expenses in line with operating revenue levels and to increase
the levels of revenues.
Management believes that it will be successful in closing on replacement
financing and that the operational changes should result in improved operating
results. However, there can be no assurance that replacement financing will be
successfully closed or that the operational changes will result in improved
financial performance. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
A substantial portion of the capital required for UPAC's insurance premium
finance operations has been provided through the transfer of undivided interests
in a designated pool of receivables on an ongoing basis under a receivables
securitization agreement. As of June 30, 2000, $67.3 million of such
receivables had been sold.
Effective May 26, 2000, the securitization agreement was assigned to and
assumed by a new purchaser. UPAC and APR Funding Corporation (wholly-owned
subsidiary of UPAC) amended the securitization agreement with the new purchaser
increasing the maximum allowable amount of receivables to be financed under the
new agreement to $80.0 million, extending the term of the agreement by five
years with annual liquidity renewals and amending certain financial covenants.
Receivables transferred prior to the amendment were accounted for as sold,
removed from the balance sheet and a gain on sale was recognized for the
discounted interest strip retained as of the date of transfer. As a result of
certain call provisions in the amended agreement, the receivables transferred
under the amended agreement are not reflected as sold in future balance sheets.
The funds advanced are accounted for as secured borrowings and earnings on
receivables financed are recognized on an interest earned basis over the term of
the finance contracts. This change will have no effect on the total earnings
recognized over the term of each finance contract or the cash flow received by
UPAC on each such contract. The timing of earnings recognition will however be
changed. The effect of this change on operating results in 2000 could be
material.*
Crouse had a three-year secured loan agreement with a commercial bank that
provided for a $4.5 million working capital line of credit loan, ("Working
Capital Line"). Borrowings on the Working Capital Line bear interest at 25
basis points below the bank's prime rate. The interest rate was 9.25% at June
30, 2000. As of June 30, 2000, borrowings of $4,500,000 were outstanding under
the Working Capital Line. Crouse's banking arrangements with its primary bank
provide for automatic borrowing under the Working Capital Line to cover checks
presented in excess of collected funds. On certain occasions the timing of
cash disbursements and cash collections results in a net cash overdraft. The
outstanding checks representing such overdrafts are generally funded from the
next days cash collections, or if not sufficient, from borrowings on the
Working Capital Line.
In September 1998, the Company entered into a two-year secured loan
agreement with the same 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. In March 1999, the Company amended and restated
this agreement increasing the borrowings to $15 million. The Loan bears
interest at 25 basis points below the bank's prime rate. The interest rate was
9.25% at June 30, 2000.
Effective July 6, 2000, the Company executed an Amended and Restated
Secured Loan Agreement that provides approximately $21 million of credit for one
year and waives the existing covenant violations under its prior credit
agreements. Management continues to seek replacement financing that would
enable it to repay its secured loan agreement and provide additional liquidity.
The Company had limited working capital at June 30, 2000, and was not in
compliance with certain covenants in its financing agreements and was
experiencing reduced cash flows from operating activities. In order to remedy
the working capital problems and covenant violations, the Company executed an
Amended and Restated Secured Loan Agreement that provides approximately $21
million of credit and waived the covenant violations. Management is continuing
to seek replacement financing for TFH L&T that would enable it to pay off its
existing financing arrangements and provide additional liquidity. In addition,
the Company has effected changes in its operations intended to bring operating
expenses in line with operating revenue levels, and to increase the levels of
revenues. Management believes that replacement financing, if closed, together
with the changes in operations should provide sufficient funds to meet the
Company's short-term and long-term cash requirements.* If the Company is unable
to close on replacement financing or improve operating results, the Company will
suffer increased liquidity problems in the future.*
In the first quarter of 1999, the Board of Directors authorized the
repurchase of 1,030,000 shares of the Company's common stock. In 1999, a total
of 683,241 shares had been repurchased at a cost of $2.6 million. The
repurchase of these shares was funded from the proceeds of the additional term
loan borrowings described above.
Crouse has been named as a defendant in two lawsuits arising out of a
motor vehicle accident. The first suit was instituted on June 16, 1999 in the
United States District Court in the Eastern District of Michigan (Northern
Division) by Kimberly Idalski, Personal Representative of the Estate of Lori
Cothran, Deceased against Crouse. The second suit was instituted on August 17,
1999 in the United States District Court in the Eastern District of Michigan
(Northern Division) by Jeanne Cothran, as Legal Guardian, on behalf of Kaleb
Cothran, an infant child against Crouse. The suits allege that Crouse
negligently caused the death of Lori Cothran in a motor vehicle accident
involving a Crouse driver. The first suit seeks damages in excess of
$50,000,000, plus costs, interest and attorney fees. The second suit seeks
damages in excess of $100,000,000, plus costs, interest and attorney fees.
These suits were settled by Crouse's insurance carrier without additional
charges to Crouse.
The Company and its directors have been named as defendants in a lawsuit
filed on January 12, 2000 in the Chancery Court in New Castle County, Delaware.
The suit seeks declaratory, injunctive and other relief relating to the proposed
management buyout of the Company. The suit alleges that the directors of the
Company failed to seek bidders for the Company's subsidiary, Crouse, failed to
seek bidders for its subsidiary, UPAC, failed to actively solicit offers for the
Company, imposed arbitrary time constraints on those making offers and favored a
management buyout group's proposal. The suit seeks certification as a class
action complaint. The proposed management buyout was terminated on February 18,
2000 and the Company has filed for dismissal of the suit. The defendant filed
an amended class action complaint on August 9, 2000, seeking damages in excess
of $4.50 per share for the alleged breaches of fiduciary duties by the
defendants. The Company believes this suit will not have a material adverse
effect on the financial condition, liquidity or results of operations of the
Company.*
PART II - OTHER INFORMATION
Item 1. Legal Proceedings -- Crouse has been named as a defendant in two
lawsuits arising out of a motor vehicle accident. The first suit was instituted
on June 16, 1999 in the United States District Court in the Eastern District of
Michigan (Northern Division) by Kimberly Idalski, Personal Representative of the
Estate of Lori Cothran, Deceased against Crouse. The second suit was instituted
on August 17, 1999 in the United States District Court in the Eastern District
of Michigan (Northern Division) by Jeanne Cothran, as Legal Guardian, on behalf
of Kaleb Cothran, an infant child against Crouse. The suits allege that Crouse
negligently caused the death of Lori Cothran in a motor vehicle accident
involving a Crouse driver. The first suit seeks damages in excess of
$50,000,000, plus costs, interest and attorney fees. The second suit seeks
damages in excess of $100,000,000, plus costs, interest and attorney fees.
These suits were settled by Crouse's insurance carrier without additional
charges to Crouse.
The Company and its directors have been named as defendants in a lawsuit
filed on January 12, 2000 in the Chancery Court in New Castle County, Delaware.
The suit seeks declaratory, injunctive and other relief relating to the proposed
management buyout of the Company. The suit alleges that the directors of the
Company failed to seek bidders for the Company's subsidiary, Crouse, failed to
seek bidders for its subsidiary, UPAC, failed to actively solicit offers for the
Company, imposed arbitrary time constraints on those making offers and favored a
management buyout group's proposal. The suit seeks certification as a class
action complaint. The proposed management buyout was terminated on February 18,
2000 and the Company has filed for dismissal of the suit. The defendant filed
an amended class action complaint on August 9, 2000, seeking damages in excess
of $4.50 per share for the alleged breaches of fiduciary duties by the
defendants. The Company believes this suit will not have a material adverse
effect on the financial condition, liquidity or results of operations of the
Company.*
Item 2. Changes in Securities -- None
Item 3. Defaults Upon Senior Securities -- None
Item 4. Submission of Matters to Vote of Security Holders -- None
Item 5. Other Information -- None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amended and Restated Secured Loan Agreement, dated July 5 2000. by and
among Bankers Trust Company, N.A. of Des Moines, Iowa, TransFinancial
Holdings, Inc., Crouse Cartage Company, Specialized Transport, Inc.,
TFH Logistics & Transportation Services, Inc., Transport Brokerage,
Inc., Phoenix Computer Services, Inc., Custom Client Services, Inc. and
TFH Properties, Inc.
27 Financial Data Schedule.
(b) Reports on Form 8-K -
Current Report on Form 8-K, filed May 18, 2000, announcing the date of the
Company's Annual Meeting of Shareholders.
(SIGNATURE)
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TransFinancial Holdings, Inc.
Registrant
By: /s/ Timothy P. O'Neil
Timothy P. O'Neil, President &
Chief Executive Officer
(Principal executive and
financial officer)
Date: August 14, 2000
TRANSFINANCIAL HOLDINGS, INC.
EXHIBIT INDEX
10.1 Amended and Restated Secured Loan Agreement, dated July 5 2000. by and
among Bankers Trust Company, N.A. of Des Moines, Iowa, TransFinancial
Holdings, Inc., Crouse Cartage Company, Specialized Transport, Inc.,
TFH Logistics & Transportation Services, Inc., Transport Brokerage,
Inc., Phoenix Computer Services, Inc., Custom Client Services, Inc. and
TFH Properties, Inc.
27 Financial Data Schedule.
