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 September 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 November 17, 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 SEPTEMBER 30,
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
2000 1999
<S> <C> <C>
Operating Revenues.......................................................... $ 9,845 $ 9,489
Operating Expenses.......................................................... 10,246 9,445
Operating Income (Loss)..................................................... (401) 44
Interest Expense and Other, net............................................. (39) (246)
Income (Loss) Before Income Taxes........................................... (440) (202)
Income Tax Provision (Benefit).............................................. 57 (24)
Income (Loss) From Continuing Operations.................................... (497) (178)
Loss from Discontinued Operations (Note 1).................................. (3,355) (857)
Loss on Discontinued Operations (Note 1).................................... (6,700) --
Net Income (Loss)........................................................... $ (10,552) $ (1,035)
Basic and Diluted Earnings (Loss) Per Share From:
Continuing Operations.................................................... $ (0.15) $ (0.06)
Discontinued Operations (Note 1)......................................... (3.07) (0.26)
Net Income (Loss)........................................................ $ (3.22) $ (0.32)
Basic Average Shares Outstanding............................................ 3,278 3,276
Diluted Average Shares Outstanding.......................................... 3,555 3,294
<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 NINE MONTHS ENDED SEPTEMBER 30,
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
2000 1999
<S> <C> <C>
Operating Revenues.......................................................... $ 28,792 $ 13,737
Operating Expenses.......................................................... 30,718 13,569
Operating Income (Loss)..................................................... (1,926) 168
Interest Expense and Other, net............................................. (118) (678)
Income (Loss) Before Income Taxes........................................... (2,044) (510)
Income Tax Provision (Benefit).............................................. 100 (23)
Income (Loss) From Continuing Operations.................................... (2,144) (487)
Loss from Discontinued Operations (Note 1).................................. (8,732) (1,041)
Loss on Discontinued Operations (Note 1).................................... (6,700) --
Net Income (Loss)........................................................... $ (17,576) $ (1,528)
Basic and Diluted Earnings (Loss) Per Share From:
Continuing Operations.................................................... $ (0.65) $ (0.14)
Discontinued Operations (Note 1)......................................... (4.71) (0.30)
Net Income (Loss)........................................................ $ (5.36) $ (0.44)
Basic Average Shares Outstanding............................................ 3,278 3,461
Diluted Average Shares Outstanding.......................................... 3,555 3,469
<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>
SEPTEMBER 30, DECEMBER 31,
2000 1999
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................................ $ 88 $ 1,076
Freight accounts receivable, net......................................... 2,277 2,321
Finance accounts receivable, net (Note 3)................................ 80,278 15,305
Other current assets..................................................... 885 1,129
Net assets of discontinued operations (Note 1)........................... -- 13,708
Total current assets................................................. 83,528 33,539
Operating Property, at Cost:................................................ 7,851 7,771
Less accumulated depreciation............................................ (1,731) (1,110)
Net operating property............................................... 6,120 6,661
Intangibles, net of accumulated amortization................................ 9,073 9,005
Other Assets................................................................ 767 1,200
$ 99,488 $ 50,405
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Cash overdrafts.......................................................... $ 1,631 $ 1,667
Secured borrowings....................................................... 65,750 --
Accounts payable......................................................... 3,064 3,267
Current maturities of long-term debt (Note 3)............................ -- 1,500
Accrued payroll and fringes.............................................. 547 591
Other accrued expenses................................................... 2,026 2,984
Net liabilities of discontinued operations (Note 1)...................... 2,000 --
Total current liabilities............................................ 75,018 10,009
Long-Term Debt.............................................................. 1,500 --
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........................................................ 51,707 69,283
Treasury stock 4,345,561 shares, at cost................................. (35,067) (35,067)
Total shareholders' equity........................................... 22,970 40,396
$ 99,488 $ 50,405
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 NINE MONTHS ENDED SEPTEMBER 30,
(In thousands) (Unaudited)
<CAPTION>
2000 1999
<S> <C> <C>
Cash Flows From Operating Activities
Net loss............................................................ $ (17,576) $ (1,528)
Adjustments to reconcile net loss to cash
used in operating activities
Depreciation and amortization..................................... 1,028 765
Provision for credit losses....................................... 949 838
Deferred income tax benefit....................................... -- 88
Other............................................................. 329 56
Net increase (decrease) from change in other
working capital items affecting operating activities........... (774) (422)
Loss from and on discontinued operations............................ 15,432 1,041
(612) 838
Cash Flows From Investing Activities
Cash from discontinued operations................................... 276 --
Purchase of operating property, net................................. (80) (843)
Origination of finance accounts receivable.......................... (152,268) (148,652)
Sale of finance accounts receivable................................. 37,530 111,765
Collection of owned finance accounts receivable..................... 115,916 33,005
Other............................................................... (371) (27)
1,003 (4,752)
Cash Flows From Financing Activities
Borrowings on long-term debt........................................ -- 5,000
Payments to acquire treasury stock.................................. -- (2,603)
Borrowings (repayments) on secured credit agreements, net........... (1,350) --
Other............................................................... (29) 45
(1,379) 2,442
Net Decrease in Cash and Cash Equivalents............................. (988) (1,472)
Cash and Cash Equivalents at beginning of period...................... 1,076 3,213
Cash and Cash Equivalents at end of period............................ $ 88 $ 1,741
<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...................................... -- -- (17,576) -- (17,576)
Issuance of shares under incentive plans...... -- 7 -- -- 7
Issuance of shares under deferred
compensation arrangements................... -- 143 -- -- 143
Balance at September 30, 2000................. $ 76 $ 6,254 $ 51,707 $(35,067) $ 22,970
<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 losses in
the first nine months of 2000 and for the years 1999 and 1998 and significantly
reduced cash flows in 1999 and 2000, primarily related to the discontinued
operations of Crouse Cartage Company ("Crouse"). In addition, the Company had
violated certain covenants in its financing agreements. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
On September 16, 2000, the Company ceased operations of Crouse, its less-
than-truckload motor carrier subsidiary, as a result of its continuing operating
losses. The Company will continue to operate Specialized Transport, Inc.
("Specialized"), its truckload motor carrier subsidiary, and Universal Premium
Acceptance Corporation, its financial services subsidiary. Prior to Crouse's
closure, approximately 33% of Specialized's revenues were received from Crouse
for providing linehaul transportation between terminals. Specialized is in the
process of securing additional freight to replace revenues previously received
from Crouse.
The Company intends to conduct an orderly liquidation of Crouse's assets
for distribution to its secured and unsecured creditors. An "Advisory
Committee" of unsecured creditors has been formed to provide advice and
oversight to management during this liquidation process. The Company has closed
on the bulk sale of all of Crouse's tractors, trailers and other equipment and
expects to close on the sale of all of Crouse's real property prior to year-end.
The Company expects to collect substantially all of Crouse's outstanding
receivables and liquidate other assets over the next six to nine months. The
Company is in the process of verifying Crouse's unsecured claims. The proceeds
of asset liquidations are anticipated to allow the full payment of the secured
and priority claims, and a partial distribution to general unsecured creditors
on their claims.
A summary of the net liabilities of discontinued operations as of
September 30, 2000, follows (in thousands):
<TABLE>
Assets
<CAPTION>
<S> <C>
Cash............................................................. $ 400
Freight accounts receivable, net................................. 7,603
Operating property, at estimated net realizable value............ 23,511
Deposits, prepayments and other.................................. 411
Total assets..................................................... 31,925
Liabilities
Secured notes and other.......................................... 24,050
Post-cessation administrative costs.............................. 1,750
Priority wages, taxes and other.................................. 2,462
Unsecured liabilities:
Reserve for withdrawal from multiemployer
pension plans and WARN Act.............................. 4,800
Accounts payable............................................. 4,395
Accrued payroll and fringe benefits.......................... 4,211
Claims and insurance accruals................................ 5,713
........................................................ 19,119
Total liabilities................................................ 47,381
Net deficit...................................................... $ (15,456)
</TABLE>
After distribution of all of the proceeds to creditors, TFH and
Specialized are expected to incur approximately $2 million of residual
liabilities for certain claims included in the net deficit above. In connection
with the closure of Crouse the Company has recorded an estimated "Loss on
Discontinued Operations" of $6.7 million, or approximately $2.00 per share. The
loss includes adjustments of asset carrying values to liquidation values,
accruals of liabilities for multiemployer pension withdrawal and WARN Act
liabilities and estimated post-cessation administrative costs to conduct the
liquidation.
Management believes that it will be successful in conducting an orderly
liquidation of Crouse's assets and disposition of claims. Management believes
Specialized can replace the revenues from freight services provided to Crouse
and achieve a profitable level of operation that will enable it to satisfy those
net obligations attributable to Crouse that are assumed by the Company and not
satisfied from the estate of Crouse.
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>
Third Quarter Nine Months
Operating Operating Operating Operating
Revenues Income (Loss) Revenues Income (Loss)
<S> <C> <C> <C> <C> <C>
Transportation 2000 $ 7,938 $ (322) $ 23,703 $ (695)
1999 7,284 (98) 7,284 (160)
Financial Services 2000 1,897 214 5,060 (439)
1999 2,163 333 6,352 1,113
Total Segments 2000 9,835 (108) 28,763 (1,134)
1999 9,447 235 13,636 953
General Corporate and Other 2000 10 (293) 29 (792)
1999 42 (191) 101 (785)
Consolidated 2000 9,845 (401) 28,792 (1,926)
1999 9,489 44 13,737 168
<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. 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 cash flows from the sale of
receivables are reported as investing activities in the accompanying
consolidated statement of cash flows. Prior to the May 2000 amendment the
transferred receivables were reflected as sold. As of December 31, 1999, $63.9
million of receivables had been transferred and were considered sold.
On August 31, 2000, UPAC and APR Funding Corporation executed a Loan and
Security Agreement with the same financial institution under essentially the
same terms as the securitization agreement. Under the terms of the new
agreement, UPAC and APR Funding may borrow up to $80.0 million using its
eligible finance receivables as collateral. The loan bears interest at
commercial paper rates plus 130 basis points. Outstanding borrowings at
September 30, 2000, were $65.8 million.
The terms of the loan agreement also require that UPAC maintain a default
reserve at specified levels as additional collateral. At September 30, 2000,
approximately $7.5 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 September
30, 2000.
SECURED LOAN AGREEMENTS
A total of $20.9 million was outstanding under various loan agreements
with a commercial bank at September 30,2000. Effective November 1, 2000, the
Company executed an amended and restated secured loan agreement that allocated
$1.5 million of the outstanding loan to the Company. It is expected that the
remaining $19.4 million to will be paid from the liquidation of Crouse assets.
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
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 plaintiff 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. A motion to dismiss and an amended complaint have been filed and
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.
Specialized has commitments for long-term operating leases of trailers.
These leases are for terms of seven years. Annual rentals on these leases total
approximately $1.1 million. Additionally, Specialized has limited contingent
rental obligations if the fair market value of such trailers at the end of the
lease terms is less than certain residual values.
Specialized participates in multiemployer pension plans which provide
defined benefits to its drivers. 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. Specialized's estimated share of the unfunded benefits for these
plans is reported to be approximately $7.1 million as of December 31, 1999,
based on the limited information available from the plans' administrators.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Third quarter ended September 30, 2000 compared to the third quarter ended
September 30, 1999 and the nine months ended September 30, 2000 compared to the
nine months ended September 30, 1999
TransFinancial operates primarily in two segments; transportation, through
its subsidiary, Specialized Transport, Inc. ("Specialized"); and financial
services, through its subsidiary, Universal Premium Acceptance Corporation
("UPAC").
TRANSPORTATION
The Company formed Specialized to operate certain truckload and linehaul
operations previously performed by Crouse. Specialized operating results in
1999 include only its operations after it commenced operations on July 1, 1999.
Operating Revenue:
Operating revenues increased 9.0% in the third quarter of 2000 to $7.9
million from $7.3 million for the third quarter of 1999. This increase was due
to increased volumes of loads moved and improved revenue per mile as Specialized
decreased its commitment to support of Crouse's linehaul operations that yield
lower revenues per mile than the Company's special commodity operations.
Operating revenues for the nine months of 2000 increased substantially in
comparison the three months of operations in 1999 after the Company commenced
operations on July 1, 1999.
Operating Expenses:
Operating expenses increased 11.9% for the third quarter of 2000 to $8.3
million from $7.4 million for the third quarter of 1999, primarily due to the
increased freight volumes discussed above. This increase was also due to
increased salaries, wages and employee benefits resulting from the scheduled
increase in union wages and benefits effective July 1, 2000 and increase
purchased transportation costs caused by the higher fuel prices in 2000.
Operating expenses for the nine months of 2000 increased generally in comparison
to the three months of operations in 1999 and the factors discussed above.
The Company's transportation operating loss for the third quarter of 2000
was $322,000 as compared to an operating loss of $98,000 for the third quarter
of 1999, as a result of the increases in operating expenses discussed above.
The Company's transportation operating loss for the nine months of 2000 was
$695,000 as compared to an operating loss of $160,000 for the first nine months
of 1999, as a result of the increases in operating expenses discussed above.
FINANCIAL SERVICES
For the third quarter of 2000, UPAC reported operating income of $214,000
on net financial services revenue of $1.9 million, as compared to operating
income of $333,000 on net revenue of $2.2 million for the comparable period of
1999. For the nine months of 2000, UPAC reported an operating loss of $439,000
on net financial services revenue of $5.1 million, as compared to operating
income of $1,113,000 on net revenue of $6.4 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 and has been fully reflected in the first nine months of
2000. The non-cash effect on net financial services revenues and operating
income (loss) for the third quarter and nine months of 2000 was approximately
$200,000 and $700,000, respectively. 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 net income of $99,000 for the third quarter of 2000, not
considering the valuation allowance provided against consolidated deferred tax
assets, as compared to net income of $181,000 for the third quarter of 1999, and
a net loss of $377,000 for the nine months of 2000, not considering the
valuation allowance provided against consolidated deferred tax assets, as
compared to net income of $606,000 for the same period of 1999, as a result of
the factors discussed above.
DISCONTINUED OPERATIONS
The Company's loss from discontinued operations for the third quarter and
nine months of 2000 were $3,355,000 and $8,732,000, respectively, as compared to
$857,000 and $1,041,000 for the third quarter and nine months of 1999. These
losses increased in 2000 as uncertainty relating to continued difficulties in
union negotiations caused certain customers to decrease their dependence on
Crouse and diverted management and employees attention from the operation of the
motor carrier. In addition, increased labor and fuel costs further deteriorated
margins over the periods. In connection with the closure of Crouse the Company
has recorded an estimated "Loss on Discontinued Operations" of $6.7 million, or
approximately $2.00 per share. The loss includes adjustments of asset carrying
values to liquidation values, accruals of liabilities for multiemployer pension
withdrawal and WARN Act liabilities and estimated post-cessation administrative
costs to conduct the liquidation.
OTHER
In the third quarter and nine months of 2000, the Company's income tax
provision was $56,000 and $100,000 on a pre-tax losses of $526,000 and $2.6
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 that 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 the statements in this Report regarding the liquidation of
Crouse and the effect of the liquidation on the Company, such statements are
subject to a number of risks and uncertainties, including the amount realized
upon liquidation of the assets of Crouse, the ability of Crouse to reach
agreement on reasonable terms with creditors of Crouse regarding settlement of
their claims, the extent and nature of litigation, if any, filed in the future
with respect to the liquidation of Crouse and the costs and time expended in
completing the liquidation.
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.
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 has experienced losses through the third quarter of 2000, and
for the years 1999 and 1998 and significantly reduced cash flows in 1999 and
2000, primarily related to the discontinued operations of Crouse. In addition,
the Company had 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.
On September 16, 2000, the Company ceased operations of Crouse, its less-
than-truckload motor carrier subsidiary, as a result of its continuing operating
losses. The Company will continue to operate Specialized Transport, Inc.
("Specialized"), its truckload motor carrier subsidiary, and Universal Premium
Acceptance Corporation, its financial services subsidiary. Prior to Crouse's
closure, approximately 33% of Specialized's revenues were received from Crouse
for providing linehaul transportation between terminals. Specialized is in the
process of securing additional freight to replace revenues previously received
from Crouse.
The Company intends to conduct an orderly liquidation of Crouse's assets
for distribution to its secured and unsecured creditors. An "Advisory
Committee" of unsecured creditors has been formed to provide advice and
oversight to management during this liquidation process. The Company has closed
on the bulk sale of all of Crouse's tractors, trailers and other equipment and
expects to close on the sale of all of Crouse's real property prior to year-end.
The Company expects to collect substantially all of Crouse's outstanding
receivables and liquidate other assets over the next six to nine months. The
Company is in the process of verifying Crouse's unsecured claims. The proceeds
of asset liquidations are anticipated to allow the full payment of the secured
and priority claims and a partial distribution to general unsecured creditors on
their claims.
After distribution of all of the proceeds to creditors, TFH and
Specialized are expected to incur approximately $2 million of residual
liabilities for certain claims included in the net deficit as discussed in Note
1 of Notes to Condensed Consolidated Financial Statements. In connection with
the closure of Crouse the Company has recorded an estimated "Loss on
Discontinued Operations" of $6.7 million, or approximately $2.00 per share. The
loss includes adjustments of asset carrying values to liquidation values,
accruals of liabilities for multiemployer pension withdrawal and WARN Act
liabilities and estimated post-cessation administrative costs to conduct the
liquidation.
Management believes that it will be successful in conducting an orderly
liquidation of Crouse's assets and disposition of claims. Management believes
Specialized can replace the revenues from freight services provided to Crouse
and achieve a profitable level of operation that will enable it to satisfy those
net obligations attributable to Crouse that are assumed by the Company and not
satisfied from the estate of Crouse.
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 and since August 31, 2000, under a loan and security
agreement. As of September 30, 2000, $65.8 million was outstanding under the
loan and security agreement.
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 gains on sales were recognized for the
discounted interest strip retained as of the date of transfer. 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.
On August 31, 2000, UPAC and APR Funding Corporation executed a Loan and
Security Agreement with the same financial institution under essentially the
same terms as the securitization agreement. Under the terms of the new
agreement, UPAC and APR Funding may borrow up to $80.0 million using its
eligible finance receivables as collateral. The loan bears interest at
commercial paper rates plus 130 basis points. Outstanding borrowings at
September 30, 2000, were $65.8 million.
Effective November 1, 2000, the Company executed an amended and restated
secured loan agreement that allocated $1.5 million of the outstanding loan to
the Company. It is expected that the remaining $19.4 million to will be paid
from the liquidation of Crouse assets.
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.
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 plaintiff 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. A motion to dismiss and an amended complaint have been filed and
the Company believes this suit will not have a material adverse effect on the
financial condition, liquidity or results of operations of the Company.
Change in Certifying Accountants
In December 1999, the Securities and Exchange Commission ("SEC") adopted
new rules designed to improve disclosure relating to the composition and
practices of audit committees and to enhance the reliability and credibility of
financial statements for public companies. Among other things, the new rules
require that, effective for fiscal quarters ending on or after March 15, 2000,
companies' interim financial statements be reviewed by independent auditors
before companies file their Form 10-Q with the SEC. However, on July 12, 2000,
PricewaterhouseCoopers LLP ("PwC"), the Company's independent accountants,
notified the Company of PwC's decision to resign as the Company's auditors. The
Audit Committee of the Board of Directors is in the process of selecting
successor independent accountants. As such, the accompanying consolidated
financial statements included in this Form 10-Q have not been reviewed by
independent accountants.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings -- 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 plaintiff 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. A motion to
dismiss and an amended complaint have been filed and 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 --
(a) Annual Meeting of Shareholders was held on August 24, 2000.
(b) The nominees for the board of directors previously reported to the
Commission in the Company's Proxy Statement were elected.
(c) The matters voted upon at the Annual Meeting were as follows:
All five nominees for director were elected as follows:
Shares Voted
Nominees For Withheld
William D. Cox 1,486,394 153,505
Harold C. Hill, Jr. 1,569,594 70,305
Roy R. Laborde 1,479,330 160,569
Timothy P. O'Neil 1,481,952 157,947
Clark D. Stewart 1,569,594 70,305
Item 5. Other Information -- None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Loan and Security Agreement, dated August 31, 2000, among APR Funding
Corporation, Universal Premium Acceptance Corporation, Autobahn Funding
Company LLC and DG Bank Deutsche Genossenschaftsbank AG.
27 Financial Data Schedule.
(b) Reports on Form 8-K -
Current Report on Form 8-K, filed July 17, 2000, announcing the resignation of
the Company's independent accountants.
(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: November 20, 2000
TRANSFINANCIAL HOLDINGS, INC.
EXHIBIT INDEX
10.1 Loan and Security Agreement, dated August 31, 2000, among APR Funding
Corporation, Universal Premium Acceptance Corporation, Autobahn Funding
Company LLC and DG Bank Deutsche Genossenschaftsbank AG.
27 Financial Data Schedule.
