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 March 31, 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 June 16, 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 MARCH 31,
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
2000 1999
<S> <C> <C>
Operating Revenues.......................................................... $ 38,868 $ 39,857
Operating Expenses.......................................................... 42,014 39,854
Operating Income (Loss)..................................................... (3,146) 3
Nonoperating Income (Expense)
Interest income.......................................................... 6 20
Interest expense......................................................... (436) (256)
Other.................................................................... -- 25
Total nonoperating income (expense).................................. (430) (211)
Income (Loss) Before Income Taxes........................................... (3,576) (208)
Income Tax Provision (Benefit).............................................. 23 (36)
Net Income (Loss)........................................................... $ (3,599) $ (172)
Basic and Diluted Earnings (Loss) Per Share................................. $ (1.10) $ (0.04)
Basic Average Shares Outstanding............................................ 3,277 3,837
Diluted Average Shares Outstanding.......................................... 3,278 3,839
<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>
MARCH 31, DECEMBER 31,
2000 1999
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................................ $ 112 $ 1,076
Freight accounts receivable, less allowance
for credit losses of $228 and $203................................... 15,807 14,373
Finance accounts receivable, less allowance
for credit losses of $909 and $870................................... 18,032 15,305
Other current assets..................................................... 4,593 3,579
Total current assets................................................. 38,544 34,333
Operating Property, at Cost:
Revenue equipment........................................................ 31,231 31,415
Land..................................................................... 3,402 3,402
Structures and improvements.............................................. 12,175 11,336
Other operating property................................................. 11,173 11,289
57,981 57,442
Less accumulated depreciation........................................ (26,123) (25,400)
Net operating property........................................... 31,858 32,042
Intangibles, net of accumulated amortization................................ 8,855 9,005
Other Assets................................................................ 1,307 1,513
$ 80,564 $ 76,893
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Cash overdrafts.......................................................... $ 5,526 $ 2,673
Line of credit borrowings................................................ 4,500 3,659
Accounts payable......................................................... 6,393 5,312
Current maturities of long-term debt (Note 4)............................ 14,500 14,800
Accrued payroll and fringes.............................................. 7,812 5,006
Claims and insurance accruals............................................ 1,494 1,361
Other accrued expenses................................................... 3,393 3,686
Total current liabilities............................................ 43,618 36,497
Contingencies and Commitments (Note 6)...................................... -- --
Shareholders' Equity (Note 5)
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 7,623,091 and 7,597,931 shares................................ 76 76
Paid-in capital.......................................................... 6,253 6,104
Retained earnings........................................................ 65,684 69,283
Treasury stock 4,345,561 shares, at cost................................. (35,067) (35,067)
Total shareholders' equity........................................... 36,946 40,396
$ 80,564 $ 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 THREE MONTHS ENDED MARCH 31,
(In thousands) (Unaudited)
<CAPTION>
2000 1999
<S> <C> <C>
Cash Flows From Operating Activities
Net loss............................................................ $ (3,599) $ (172)
Adjustments to reconcile net loss to cash
used in operating activities
Depreciation and amortization..................................... 1,259 1,285
Provision for credit losses....................................... 282 256
Deferred income tax benefit....................................... (37) (53)
Other............................................................. 86 (23)
Net increase (decrease) from change in other
working capital items affecting operating activities........... 1,398 (1,409)
(611) (116)
Cash Flows From Investing Activities
Purchase of operating property, net................................. (940) (623)
Origination of finance accounts receivable.......................... (52,111) (48,388)
Sale of finance accounts receivable................................. 37,530 36,682
Collection of owned finance accounts receivable..................... 11,633 10,171
Other............................................................... 135 (10)
(3,753) (2,168)
Cash Flows From Financing Activities
Cash overdrafts..................................................... 2,853 (1,976)
Borrowings on long-term debt........................................ -- 5,000
Repayments on long-term debt........................................ (300) --
Payments to acquire treasury stock.................................. -- (2,387)
Borrowing on line of credit agreements, net......................... 841 --
Other............................................................... 6 (5)
3,400 632
Net Decrease in Cash and Cash Equivalents............................. (964) (1,652)
Cash and Cash Equivalents at beginning of period...................... 1,076 3,256
Cash and Cash Equivalents at end of period............................ $ 112 $ 1,604
Cash Paid During the Period for
Interest............................................................ $ 436 $ 253
Income taxes........................................................ $ 15 $ 28
<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...................................... -- -- (3,599) -- (3,599)
Issuance of shares under incentive plans...... -- 6 -- -- 6
Issuance of shares under deferred
compensation arrangements................... -- 143 -- -- 143
Balance at March 31, 2000..................... $ 76 $ 6,253 $ 65,684 $(35,067) $ 36,946
<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 7, 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 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. 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 4). Management is in the process
of negotiating a new $30 million credit facility for TFH L&T that, if closed,
would enable it to repay its working capital line of credit and term loan 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 the new
credit facility and that the operational changes should result in improved
operating results. However, there can be no assurance that the new credit
facility 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>
First Quarter
Operating Operating Total
RevenuesIncome (Loss) Assets
<S> <C> <C> <C> <C>
Transportation 2000 $ 37,019 $ (3,126) $ 50,011
1999 37,857 (10) 48,208
Financial Services 2000 1,839 218 28,621
1999 1,969 290 24,964
Total Segments 2000 38,858 (2,908) 78,632
1999 39,826 280 73,172
General Corporate and Other 2000 10 (238) 1,932
1999 31 (277) 5,701
Consolidated 2000 38,868 (3,146) 80,564
1999 39,857 3 78,873
<FN>
</TABLE>
3. PROPOSED MERGER
On October 19, 1999, the Company executed a definitive agreement pursuant
to which COLA Acquisitions, Inc. ("COLA"), a company newly formed by three
TransFinancial directors, would acquire all of the Company stock not owned by
such directors for $6.03 in cash. Effective February 18, 2000, COLA notified
the Company that its bank financing necessary to consummate the proposed merger
had been withdrawn. The receipt of financing by COLA was a condition to the
consummation of the merger. As a result, the Merger Agreement was terminated.
4. 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 sold on an ongoing basis. The purchaser permits principal
collections to be reinvested in new financing agreements. The Company had
securitized receivables of $63.4 million and $61.3 million at March 31, 2000 and
1999. The cash flows from the sale of receivables are reported as investing
activities in the accompanying consolidated statement of cash flows. The
securitized receivables are reflected as sold in the accompanying balance sheet.
The terms of the agreement required UPAC to maintain a minimum book net
worth of $20.0 million and contained restrictions on the payment of dividends by
UPAC to TransFinancial without prior consent of the financial institution. The
terms of the agreement also required the Company to maintain a minimum
consolidated tangible net worth of $35 million and a minimum ratio of
consolidated EBITDA to interest and securitization fees of 1.5 to 1.0. The
Company was not in compliance with such financial covenants at March 31, 2000.
The terms of the securitization agreement also required that UPAC maintain a
default reserve at specified levels that serves as additional collateral. At
March 31, 2000, approximately $7.2 million of owned finance receivables served
as collateral under the default reserve provision.
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 will not be reflected as sold in
future balance sheets. The funds advanced under the amended agreement will be
accounted for as secured borrowings.
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.
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 first quarter ended
March 31, 2000 and 1999 (in thousands, except percentages):
First Quarter
2000 1999
Balance outstanding at end of period $4,500 $ --
Average amount outstanding.......... $4,421 $ 927
Maximum month end balance outstanding $4,500 $2,414
Interest rate at end of period...... 8.75% 7.50%
Weighted average interest rate...... 8.50% 7.75%
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 8.75% at March 31, 2000. The terms of the Loan provide for monthly
payments of interest only through September 30, 1999, with monthly principal
payments thereafter of $100,000 plus interest through maturity on September 30,
2000, when the balance outstanding becomes due. At March 31, 2000, the
outstanding balance of $14.5 million was classified as current maturities of
long-term debt.
The terms of the Working Capital Line require TFH Logistics &
Transportation Services, Inc. ("TFH L&T") to maintain a minimum consolidated
tangible net worth of $27 million. The terms of the Loan required the Company
to maintain a minimum consolidated tangible net worth of $35 million, a ratio of
current assets to current liabilities of 1.25 to 1.00, a ratio of total
liabilities to tangible net worth of 1.0 to 1.0, and contain restrictions on the
payment of dividends without prior consent of the Lender. The Company and TFH
L&T were not in compliance with such financial covenants at March 31, 2000.
5. 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.
6. 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. The
claims against Crouse are currently under investigation. Based on the
information presently known to the Company, management does not believe these
suits will have a material adverse effect on the financial condition, liquidity
or results of operations of the Company.
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 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
$640,000 and $14,000 for the three months ended March 31, 2000 and 1999.
Minimum future rentals for operating leases are as follows: remaining nine
months of 2000 - $1,799,000; 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 March
31, 2000.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
First quarter ended March 31, 2000 compared to the first quarter ended March 31,
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, UPAC.
TRANSPORTATION
Operating Revenue - The changes in transportation operating revenue are
summarized in the following table (in thousands):
Qtr. 1 2000
vs.
Qtr. 1 1999
Increase (decrease) from:
Decrease in LTL tonnage........................ $ (980)
Decrease in LTL revenue per hundredweight...... (725)
Increase in truckload revenues................. 867
Net increase (decrease).................... $ (838)
Less-than-truckload ("LTL") revenues declined 5.1% from $33.7 million for
the first quarter of 1999 to $32.0 million for the first quarter of 2000. The
principal cause of the decline was a 2.9% decrease in LTL tons hauled and a 2.2%
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 20.9% from $4.2 million for the
first quarter of 1999 to $5.0 million for the first quarter of 2000. The
increase in truckload revenues was the result of a 10.1% increase in the number
of loads hauled and a 10.8% improvement in revenue per shipment. 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 first quarter 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
First Quarter
2000 1999
<S> <C> <C>
Salaries, wages and employee benefits.................... 63.9% 60.0%
Operating supplies and expenses.......................... 16.7% 13.3%
Operating taxes and licenses............................. 1.3% 0.8%
Insurance and claims..................................... 2.1% 2.0%
Depreciation............................................. 2.8% 2.8%
Purchased transportation and rents....................... 21.6% 21.1%
Total operating expenses............................. 108.4% 100.0%
</TABLE>
TFH L&T's operating expenses as a percentage of operating revenue, or
operating ratio, increased in the first 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 first quarter of 2000.
Salaries, wages and employee benefits increased 4.1% from $22.7 million
for the first quarter of 1999 to $23.6 million for the first quarter of 2000.
The increase in the first quarter of 2000 was principally the result of a
scheduled increase in union wages and benefits effective April 1, 1999, 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 its utilization of owner-
operator leased equipment.
Operating supplies and expenses increased 23.1% from $5.0 million for the
first quarter of 1999 to $6.2 million for the first quarter of 2000. The
increase in the first quarter was primarily the result of increases in diesel
fuel prices, as well as increased general supplies and expenses.
The Company's transportation net loss for the first quarter of 2000 was
$1,866,000, not considering the valuation allowance provided against
consolidated deferred tax assets, as compared to a net loss of $31,000 for the
first quarter of 1999, as a result of the decrease in operating revenues and
increases in operating expenses discussed above.
FINANCIAL SERVICES
For the first quarter of 2000, UPAC reported operating income of $218,000
on net financial services revenue of $1.8 million, as compared to operating
income of $290,000 on net revenue of $2.0 million for the comparable period of
1999. The decrease in net financial services revenue and operating income in
2000 was primarily the result of increased costs of funds under UPAC's
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. Operating expenses were
lower by 3.5% in the first quarter of 2000 from the same period in 1999, due
principally to increased productivity achieved through UPAC's investments in
technology.
UPAC reported net income of $141,000 for the first quarter of 2000, not
considering the valuation allowance provided against consolidated deferred tax
assets, as compared to net income of $167,000 for the first quarter of 1999, as
a result of decreased revenues that more than offset decreased operating
expenses as discussed above.
OTHER
As a result of the Company's use of funds for the stock repurchases,
interest earnings on invested funds were substantially lower in the first
quarter of 2000 than in the same period of 1999. Interest expense increased
substantially in the first quarter 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
the first quarter of 2000.
TransFinancial's effective income tax provision (benefit) rate for the
first quarter of 2000 was 6%, as compared to (17)% for the comparable period of
1999. In the first quarter of 2000, the Company's income tax provision was
$23,000 on a pre-tax loss of $3.6 million, primarily as a result of a $1.4
million increase in its valuation allowance provided against consolidated
deferred tax assets. The effective income tax rates for each period were a
lower percentage than the statutory rate due to the impact of non-deductible
amortization of intangibles and meals and entertainment expenses.
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
which may cause actual results to differ materially from those anticipated in
such statements. The following discussion identifies certain important factors
that could affect the Company's actual results and actions and could cause such
results or actions to differ materially from any forward-looking statements made
by or on behalf of the Company that relate to such results or actions. Other
factors, which are not identified herein, could also have such an effect.
TRANSPORTATION
Certain specific factors which may affect the Company's transportation
operation include: competition from other regional and national carriers for
freight in the Company's primary operating territory; price pressure; changes in
fuel prices; labor matters, including changes in labor costs, and other labor
contract issues; 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 close on a new credit facility, 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 March 31, 2000, the Company's net working capital deficit was $5.1
million as compared to $2.2 million as of December 31, 1999. The Company's
current ratio was 0.9 and its ratio of total liabilities to tangible net worth
was 1.6 as of March 31, 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
used by operating activities increased in the three months ended March 31, 2000
as compared to the three months ended March 31, 1999, due to current operating
losses in the Company's transportation operations.
The Company has experienced operating losses in first 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 4 of Notes to Consolidated
Financial Statements). Management is in the process of negotiating a new $30
million credit facility for TFH L&T that, if closed, would enable it to repay
its working capital line of credit and term loan 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 the new
credit facility and that the operational changes should result in improved
operating results.* However, there can be no assurance that the new credit
facility will be successfully closed or that the operational changes will result
in improved financial performance.
A substantial portion of the capital required for UPAC's insurance premium
finance operations has been provided through the sale of undivided interests in
a designated pool of receivables on an ongoing basis under a receivables
securitization agreement. As of March 31, 2000, $63.4 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 will not be reflected as sold in future balance
sheets. The funds advanced will be accounted for as secured borrowings and
earnings on receivables financed will be 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 has 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"). Borrowings on the Working Capital Line bear interest at 25
basis points below the bank's prime rate. The interest rate was 8.75% at
March 31, 2000. As of March 31, 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
8.75% at March 31, 2000. The terms of the Loan provide for monthly payments of
interest only through September 30, 1999, with monthly principal payments
thereafter on $100,000 plus interest through maturity on September 30, 2000.
The Company and Crouse were not in compliance with certain financial
covenants, minimum tangible net worth and ratio total liability to equity,
required by the Working Capital Line and the Loan as of March 31, 2000.
Management is in the process of negotiating a new $30 million credit facility
for TFH L&T that, if closed, would enable it to repay its working capital line
of credit and term loan and provide additional liquidity.
The Company had a working capital deficit at March 31, 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 deficit and covenant violations, management is in the
process of negotiating a new $30 million credit facility 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 the new credit
facility, 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 the new credit facility, or
is unsuccessful in effecting the operational changes to 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.
As announced by the Company in a press release dated June 21, 1999, three
TransFinancial directors, the Company's Chairman, Vice-Chairman and President,
presented a proposal to the Board of Directors of the Company by which they
would agree to acquire all of the outstanding stock of the Company for $5.25 per
share in cash. The Board of Directors appointed a Special Committee of the
independent directors to consider this proposal and other options. The Special
Committee engaged the general counsel of the Company as legal counsel and
engaged a financial advisor to assist it in evaluating the proposal and other
strategic options. On October 19, 1999, the Company executed a definitive
agreement pursuant to which COLA Acquisitions, Inc. ("COLA"), a company newly
formed by the three TransFinancial directors, would acquire all of the Company
stock not owned by such directors for $6.03 in cash. Effective February 18,
2000, COLA notified the Company that its bank financing necessary to consummate
the proposed merger had been withdrawn. The receipt of financing by COLA was a
condition to the consummation of the merger. As a result, the Merger Agreement
was terminated.
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. The
claims against Crouse are currently under investigation. Based on the
information presently known to the Company, management does not believe these
suits will have a material adverse effect on the financial condition, liquidity
or results of operations of the Company. The Company believes that it is highly
likely that any liability resulting from this litigation will be funded within
the limits of Crouse's primary and excess liability insurance policies which
provide a total coverage of $20 million.*
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 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. The
claims against Crouse are currently under investigation. Based on the
information presently known to the Company, management does not believe these
suits will have a material adverse effect on the financial condition, liquidity
or results of operations of the Company. The Company believes that it is highly
likely that any liability resulting from this litigation will be funded within
the limits of Crouse's primary and excess liability insurance policies which
provide a total coverage of $20 million.*
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 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
27* Financial Data Schedule.
(b) Reports on Form 8-K -
Current Report on Form 8-K, filed February 22, 2000, reporting termination of
Merger Agreement with COLA Acquisitions, Inc.
Current Report on Form 8-K, filed March 16, 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: June 22, 2000
