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, 1999
[ ] 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. 0-12321
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 ( X ) No ( )
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 May 14, 1999
Common stock, $0.01 par value 3,251,195 Shares
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31,
(In thousands, except per share amounts)
(Unaudited)
1999 1998
Operating Revenues.......................................................... $ 39,857 $ 37,003
Operating Expenses.......................................................... 39,854 36,703
Operating Income............................................................ 3 300
Nonoperating Income
Interest income.......................................................... 20 67
Interest expense......................................................... (256) (51)
Other.................................................................... 25 35
Total nonoperating income............................................ (211) 51
Income (Loss) Before Income Taxes........................................... (208) 351
Income Tax Provision (Benefit).............................................. (36) 190
Net Income (Loss)........................................................... $ (172) $ 161
Basic and Diluted Earnings (Loss) Per Share................................. $ (0.04) $ 0.03
Basic Average Shares Outstanding............................................ 3,837 6,053
Diluted Average Shares Outstanding.......................................... 3,839 6,124
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
MARCH 31, DECEMBER 31,
1999 1998
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents................................................ $ 1,604 $ 3,256
Freight accounts receivable, less allowance
for credit losses of $421 and $387................................... 13,931 13,351
Finance accounts receivable, less allowance
for credit losses of $561 and $566................................... 13,924 12,584
Current deferred income taxes............................................ 2,713 2,548
Other current assets..................................................... 3,707 2,401
Total current assets................................................. 35,879 34,140
Operating Property, at Cost:
Revenue equipment........................................................ 31,901 31,969
Land..................................................................... 3,681 3,681
Structures and improvements.............................................. 11,153 11,130
Other operating property................................................. 11,017 10,500
57,752 57,280
Less accumulated depreciation........................................ (25,092) (24,122)
Net operating property........................................... 32,660 33,158
Intangibles, net of accumulated amortization................................ 9,621 9,777
Other Assets................................................................ 713 688
$ 78,873 $ 77,763
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Cash overdrafts.......................................................... $ -- $ 1,976
Accounts payable......................................................... 3,524 3,093
Current maturities of long-term debt..................................... 600 300
Accrued payroll and fringes.............................................. 7,042 6,068
Other accrued expenses................................................... 2,813 3,685
Total current liabilities............................................ 13,979 15,122
Deferred Income Taxes....................................................... 1,979 1,867
Long-Term Debt (Note 4)..................................................... 14,400 9,700
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 7,593,592 shares.............................................. 76 76
Paid-in capital.......................................................... 6,090 6,090
Retained earnings........................................................ 77,195 77,367
Treasury stock, 4,291,961 and 3,661,220 shares, at cost.................. (34,846) (32,459)
Total shareholders' equity........................................... 48,515 51,074
$ 78,873 $ 77,763
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(In thousands)
(Unaudited)
1999 1998
Cash Flows From Operating Activities
Net income (loss)................................................... $ (172) $ 161
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities
Depreciation and amortization..................................... 1,285 1,292
Provision for credit losses....................................... 256 210
Deferred income tax benefit....................................... (53) (1,468)
Other............................................................. (23) (15)
Net increase (decrease) from change in other
working capital items affecting operating activities........... (1,409) 756
(116) 936
Cash Flows From Investing Activities
Purchase of operating property, net................................. (623) (3,875)
Origination of finance accounts receivable.......................... (48,388) (32,295)
Sale of finance accounts receivable................................. 36,682 20,085
Collection of owned finance accounts receivable..................... 10,171 10,473
Maturities of short-term investments................................ -- 3,018
Other............................................................... (10) (379)
(2,168) (2,973)
Cash Flows From Financing Activities
Cash overdrafts..................................................... (1,976) 1,682
Borrowings on Long-Term Note Payable................................ 5,000 --
Payments to acquire treasury stock.................................. (2,387) --
Borrowing (repayments) on line of credit agreements, net............ -- (1,101)
Other............................................................... (5) (31)
632 550
Net Decrease in Cash and Cash Equivalents............................. (1,652) (1,487)
Cash and Cash Equivalents at beginning of period...................... 3,256 4,778
Cash and Cash Equivalents at end of period............................ $ 1,604 $ 3,291
Cash Paid During the Period for
Interest............................................................ $ 253 $ 48
Income Tax.......................................................... $ 28 $ --
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands)
Total
Share
Common Paid-In Retained Treasury holders'
Stock Capital Earnings Stock Equity
Balance at December 31, 1997.................. $ 75 $ 5,581 $ 79,394 $(12,565) $ 72,485
Net loss...................................... -- -- (2,027) -- (2,027)
Issuance of shares under Incentive Stock Plan. 1 509 -- (591) (81)
Purchase of 2,115,422 shares of common stock.. -- -- -- (19,303) (19,303)
Balance at December 31, 1998.................. 76 6,090 77,367 (32,459) 51,074
Net loss...................................... -- -- (172) -- (172)
Purchase of 630,741 shares of common stock.... -- -- -- (2,387) (2,387)
Balance at March 31, 1999 (unaudited)......... $ 76 $ 6,090 $ 77,195 $(34,846) $ 48,515
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRINCIPLES OF CONSOLIDATION AND SIGNIFICANT ACCOUNTING POLICIES
The 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 condensed financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC") and have not been examined or reviewed by independent public
accountants. 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 March 15, 1999, 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.
As of July 1, 1998, the Company prospectively decreased the estimated
remaining useful life of certain purchased software to reflect the Company's
plan to substantially revise and replace the software. This change decreased
amortization expense in the first quarter of 1999 by $50,000 and decreased net
loss by approximately $30,000 or $0.01 per share. This change will decrease
amortization expense and increase operating income by approximately $150,000 for
the remainder of 1999 from amounts which would have been recorded had the change
not been made.
2. SEGMENT REPORTING
The Company operates in three business segments: transportation, financial
services, and industrial technology. Other items are shown in the table below
for purposes of reconciling to consolidated amounts.
Operating
First Operating Income Total
Quarter Revenues (Loss) Assets
(unaudited, in thousands)
Transportation 1999 $ 37,857 $ (10) $ 48,208
1998 35,547 829 51,304
Financial Services 1999 1,969 290 24,964
1998 1,420 (55) 24,114
Industrial Technology 1999 -- (43) 141
1998 -- (193) 691
Total Segments 1999 39,826 237 73,313
1998 36,967 581 76,109
General Corporate and Other 1999 31 (234) 5,560
1998 36 (281) 15,514
Consolidated 1999 39,857 3 78,873
1998 37,003 300 91,623
3. ACQUISITION OF PREMIUM FINANCE SUBSIDIARY
On May 29, 1998, TransFinancial Holdings, Inc. ("TransFinancial" or "the
Company") through Universal Premium Acceptance Corporation ("UPAC"), its
insurance premium finance subsidiary, completed the acquisition of all of the
issued and outstanding stock of Oxford Premium Finance, Inc. ("Oxford") for
approximately $4.2 million. Oxford offers short-term collateralized financing
of commercial insurance premiums through approved insurance agencies in 17
states throughout the United States. At May 29, 1998, Oxford had outstanding
net finance receivables of approximately $22.5 million. This transaction was
accounted for as a purchase. UPAC sold an additional $4.2 million of its
receivables under its receivable securitization agreement to obtain funds to
consummate the purchase. Concurrently with the closing of the acquisition, UPAC
amended its receivables securitization agreement to increase the maximum
allowable amount of receivables to be sold under the agreement and to permit the
sale of Oxford's receivables under the agreement. Effective on May 29, 1998,
Oxford sold approximately $19 million of its receivables under the
securitization agreement using the proceeds to repay the balance outstanding
under its prior financing arrangement. The terms of the acquisition and the
purchase price resulted from negotiations between UPAC and Oxford Bank & Trust
Company, the former sole shareholder of Oxford. In connection with the purchase
of Oxford, based on a preliminary allocation of the purchase price,
TransFinancial recorded goodwill of $1.9 million, which will be amortized on the
straight-line basis over 15 years.
The operating results of Oxford are included in the consolidated operating
results of TransFinancial after May 29, 1998. The following reflects the
consolidated operating results of TransFinancial for the first quarter ended
March 31, 1998, assuming the acquisition occurred as of the beginning of the
period:
PRO FORMA OPERATING RESULTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
First
Quarter
1998
Operating Revenues............... $37,277
Net Income....................... $ 185
Basic and Diluted Earnings Per Share$ 0.03
The pro forma results of operations are not necessarily indicative of the
actual results that would have been obtained had the acquisitions been made at
the beginning of the respective periods, or of results which may occur in the
future.
4. FINANCING AGREEMENTS
SECURITIZATION OF RECEIVABLES
TransFinancial, UPAC and APR Funding Corporation (a wholly-owned subsidiary)
have entered into an extendible three year securitization agreement whereby
undivided interests in a designated pool of accounts receivable can be sold on
an ongoing basis. Effective September 11, 1998, the securitization agreement
was amended to modify the definition of eligible receivables under the
securitization agreement and to increase the maximum allowable amount of
receivables to be sold under the agreement to $85.0 million. The purchaser
permits principal collections to be reinvested in new financing agreements. The
Company had securitized receivables of $61.3 million and $34.1 million at March
31, 1999 and 1998. 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 require UPAC to maintain a minimum tangible net
worth of $5.0 million and contain restrictions on the payment of dividends by
UPAC to TransFinancial without prior consent of the financial institution. The
terms of the agreement also require the Company to maintain a minimum
consolidated tangible net worth of $40 million. The Company was in compliance
with all such provisions at March 31, 1999, except for the consolidated tangible
net worth covenant. The Company has received a waiver of this default through
June 30, 1999 while the Company negotiates an amendment to this covenant as well
as certain other provisions of the agreement. The terms of the securitization
agreement also require that UPAC maintain a default reserve at specified levels
which serves as collateral. At March 31, 1999, approximately $7.0 million of
owned finance receivables served as collateral under the default reserve
provision.
SECURED LOAN AGREEMENTS
In January 1998, Crouse entered into a three-year Secured Loan Agreement with
a commercial bank which 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, 1999 and
1998 (in thousands, except percentages):
First Quarter
1999 1998
Balance outstanding at end of period.................. $ -- $ 1,851
Average amount outstanding ........................... 603 1,977
Maximum month end balance outstanding................. 2,414 1,977
Interest rate at end of period........................ 7.5% 8.5%
Weighted average interest rate........................ 7.5% 8.5%
In September 1998, the Company entered into a two-year secured loan agreement
with a 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 million. The Loan bears interest at 25 basis points under the
bank's prime rate, 7.50% at March 31, 1999. 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.
The terms of the Loan require the Company to maintain a minimum 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 was in compliance with all such provisions at March 31,
1999. The proceeds of the Loan were used to repurchase shares of the Company's
common stock (See Note 5 of Notes to Consolidated Financial Statements).
7. 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. Through March 31, 1999, a
total of 630,741 shares had been repurchased at a cost of approximately $2.4
million.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
First quarter ended March 31, 1999 compared to the first quarter ended March 31,
1998.
TransFinancial operates primarily in three distinct segments; transportation,
through its subsidiary, Crouse; financial services, through its subsidiary,
UPAC; and industrial technology, through its subsidiary, Presis.
TRANSPORTATION
Operating Revenue - The changes in transportation operating revenue are
summarized in the following table (in thousands):
Qtr. 1 1999
vs.
Qtr. 1 1998
Increase (decrease) from:
Increase in LTL tonnage........................ $1,529
Increase in LTL revenue per hundredweight..... 873
Decrease in truckload revenues................. (92)
Net increase............................... $2,310
Less-than-truckload ("LTL") operating revenues rose by 7.7% for the first
quarter of 1999, as compared to the same period in 1998. Crouse achieved an
increase of 4.9% in LTL tons of the first quarter of 1999, compared to 1998.
Crouse's LTL revenue yield improved 2.7% due to general rate increases effective
November 1998 and the Company's focus on yield improvement. The severe winter
weather experienced in the Company's operating territory significantly affected
the Company's operations in the first quarter of 1999 by limiting the Company's
revenue growth relative to increased operating expenses.
Truckload operating revenues were 2.2% lower in the first quarter of 1999, on
approximately 0.9% fewer shipments. The decline in truckload operating revenues
was due primarily to the temporary closing of a meat processing plant operated
by one of the Company's customers and general softness in pork prices which has
reduced the volume of meat transported by truck.
Operating Expenses - A comparative summary of transportation operating expenses
as a percent of transportation operating revenue follows:
Percent of Operating Revenue
First Quarter
1999 1998
Salaries, wages and employee benefits.................... 60.0% 58.7%
Operating supplies and expenses.......................... 12.0% 11.7%
Operating taxes and licenses............................. 2.4% 2.4%
Insurance and claims..................................... 2.0% 2.0%
Depreciation............................................. 2.8% 2.9%
Purchased transportation and rents....................... 20.8% 20.0%
Total operating expenses............................. 100.0% 97.7%
Crouse's operating expenses as a percentage of operating revenue, or operating
ratio, was 100.0% for the first quarter March 31, 1999, which was higher than
the same period of 1998. The increase in salaries, wages and employee benefits
as a percent of operating revenue in the first quarter of 1999 as compared to
the first quarter of 1998 was due to two factors. First, the Company was
required to make payments for retroactive pay increases totaling approximately
$180,000 in connection with the resolution of certain local union contracts
which expired March 31, 1998. Additionally, the adverse impacts of the severe
winter weather and the closing of a customer's meat processing plant on first
quarter revenues contributed to certain inefficiencies in the utilization of
productive labor relative to revenues. Purchased transportation and rents
expense as a percent of operating revenue increased from the first quarter of
1998 due to the addition of certain tractors and trailers pursuant to long-term
operating leases in 1998.
FINANCIAL SERVICES
For the first quarter of 1999, UPAC reported operating income, of $290,000 on
net financial services revenue of $2.0 million, as compared to an operating loss
of $55,000 on net financial services revenue of $1.4 million, for the comparable
period of 1998. The increase in net financial services revenue and operating
income was the result of increased average total receivables outstanding offset,
in part by an increase in the percentage of finance contracts originated which
were sold under the securitization agreement and a lower average yield on
finance contracts. The growth in average total receivables outstanding was due
to the acquisition on May 29, 1998 of Oxford Premium Finance, Inc., an insurance
premium finance business serving the Chicago area and the industrial Midwest,
and the addition of marketing representatives in other key markets. A decrease
in consulting fees in the first quarter of 1999 resulting from the expiration,
effective December 31, 1998, of a consulting agreement with the former owner of
UPAC also contributed to the increase in operating income.
INDUSTRIAL TECHNOLOGY
In the first quarter of 1999, Presis, incurred operating expenses of $43,000,
primarily in salaries, wages and employee benefits as compared to operating
expenses of $193,000 for the first quarter of 1998. Since the fourth quarter of
1998, Presis has limited expenditures to essential activities related to
continued research and testing of its technology. The Company expects this
operation to incur operating losses in the remainder of 1999, at or below
expenditure levels of $100,000 per quarter as it continues to pursue the
research, testing and commercialization of its technology.*
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 1999
than in the same period of 1998. Interest expense increased in the current
quarter of 1999 due to borrowings on long-term debt incurred to repurchase
stock.
TransFinancial's effective income tax provision (benefit) rates for the first
quarter of 1999 and 1998 were (17%) and 54%. The effective income tax rate for
1999 was a lower percentage due to the impact of non-deductible amortization of
intangibles and meals and entertainment expenses, which reduce the tax benefit
of pre-tax losses in 1999, as compared to the impact of these items on pre-tax
income in 1998.
OUTLOOK
The following statements are forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, and as such
involve risks and uncertainties which are detailed below under the caption
"Forward-Looking Statements".
The Company utilizes a three-year strategic planning process with the goal of
maximizing shareholder value through profitable growth of its business segments.
In the transportation segment the plan calls for the Company to continue to
provide and improve upon its already superior service to its customers in its
primary operating territory, while increasing the density of its operations in
the eastern portion of its service area. The Company also intends to continue
to focus on improving the efficiency and effectiveness of its operations.
The Financial services segment will focus on targeting its marketing efforts
to improve its contribution to the Company's return on equity. Additionally,
the Company intends to focus on utilizing technology to improve its operating
efficiency.
The industrial technology operation will focus on continued research, testing
and commercialization of its technology. The Company expects this operation to
incur operating losses in the remainder of 1999 at or below expenditure levels
of $100,000 per quarter.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q which are
not statements of historical fact constitute forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
including, without limitation, the statements specifically identified as
forward-looking statements in this Form 10-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 the forward-looking statements contained herein are
marked by an asterisk ("*") or otherwise specifically identified herein. In
addition, certain statements in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases, and in oral
statements made by or with the approval of an authorized executive officer of
the Company which are not statements of historical fact constitute forward-
looking statements within the meaning of the Act. Examples of forward-looking
statements include, but are not limited to (i) projections of revenues, income
or loss, earnings or loss per share, capital expenditures, the payment or non-
payment of dividends, capital structure and other financial items, (ii)
statements of plans and objectives of the Company or its management or Board of
Directors, including plans or objectives relating to the products or services of
the Company, (iii) statements of future economic performance, and (iv)
statements of assumptions underlying the statements described in (i), (ii) and
(iii). These forward-looking statements involve risks and uncertainties which
may cause actual results to differ materially from those anticipated in such
statements. The following discussion identifies certain important factors that
could affect the Company's actual results and actions and could cause such
results or actions to differ materially from any forward-looking statements made
by or on behalf of the Company that relate to such results or actions. Other
factors, which are not identified herein, could also have such an effect.
TRANSPORTATION
Certain specific factors which may affect the Company's transportation
operation include: competition from other regional and national carriers for
freight in the Company's primary operating territory; price pressure; changes in
fuel prices; labor matters, including changes in labor costs, and other labor
contract issues resulting from the negotiation of new contracts to replace
current contracts, covering certain terminal employees which expired March 31,
1998; and environmental matters.
FINANCIAL SERVICES
Certain specific factors which may affect the Company's financial services
operation include: the performance of financial markets and interest rates; the
performance of the insurance industry; competition from other premium finance
companies and insurance carriers for finance business in the Company's key
operating states; adverse changes in 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.
INDUSTRIAL TECHNOLOGY
Presis is a start-up business formed to develop an industrial technology for
dry particle processing. This technology is subject to risks and uncertainties
in addition to those generally applicable to the Company's operations described
herein. These additional risks and uncertainties include the efficacy and
commercial viability of the technology, the ability of the venture to market the
technology, the acceptance of such technology in the marketplace, the general
tendency of large corporations to be slow to change from known technology, the
ability to protect its proprietary information in the technology and potential
future competition from third parties developing equivalent or superior
technology. As a result of these and other risks and uncertainties, the future
results of operations of the venture are difficult to predict, and such results
may be materially better or worse than expected or projected.
OTHER MATTERS
With respect to statements in this Report which relate to the current
intentions of the Company and its subsidiaries or of management of the Company
and its subsidiaries, such statements are subject to change by management at any
time without notice.
With respect to statements in "Financial Condition" regarding the adequacy of
the Company's capital resources, such statements are subject to a number of
risks and uncertainties including, without limitation: the future economic
performance of the Company (which is dependent in part upon the factors
described above); the ability of the Company and its subsidiaries to comply with
the covenants contained in the financing agreements; future acquisitions of
other businesses not currently anticipated by management of the Company; and
other material expenditures not currently anticipated by management.
GENERAL FACTORS
Certain general factors that could impact any or all of the Company's
operations include: changes in general business and economic conditions; changes
in governmental regulation; and tax changes. Expansion of these businesses into
new states or markets is substantially dependent on obtaining sufficient
business volumes from existing and new customers in these new markets at
compensatory rates.
The cautionary statements made pursuant to Section 21E of the Securities
Exchange Act of 1934, as amended, are made as of the date of this Report and are
subject to change. The cautionary statements set forth in this Report are not
intended to cover all of the factors that may affect the Company's businesses in
the future. Forward-looking information disseminated publicly by the Company
following the date of this Report may be subject to additional factors hereafter
published by the Company.
FINANCIAL CONDITION
The Company's financial condition remained strong at March 31, 1999 with more
than $1.6 million in cash and investments. The Company's current ratio was 2.6
to 1.0 and its ratio of total liabilities to tangible net worth was 0.8 to 1.0.
A substantial portion of the capital required for UPAC's insurance premium
finance operations has been provided through the sale of undivided interests in
a designated pool of receivables on an ongoing basis under receivables
securitization agreements. The current securitization agreement, which matures
December 31, 2001, currently provides for the sale of a maximum of $85.0 million
of eligible receivables. As of March 31, 1999, $61.3 million of such
receivables had been securitized. At March 31, 1999, the Company was not in
compliance with a covenant under this agreement requiring the Company to
maintain consolidated tangible net worth of $40 million. The Company has
received a waiver of this technical default through June 30, 1999 while the
Company negotiates an amendment to this covenant as well as certain other
provisions of the agreement.
Crouse has a three-year Secured Loan Agreement with a commercial bank which
provides for a $4.5 million working capital line of credit loan, ("Working
Capital Line"). As of March 31, 1999, no borrowings were outstanding under the
Working Capital Line.
Crouse has achieved ratification of new five year pacts with the
International Brotherhood of Teamsters covering substantially all of its union
employees. The new contracts, which became effective October 4, 1998, provide
for all of the terms of the National Master Freight Agreement with a separate
addendum for wages. Crouse will continue to maintain its past work rules,
practices and flexibility within its operating structure. Crouse continues to
negotiate with one union local representing seven employees. Additionally, the
current collective bargaining agreement covering approximately 250 linehaul
drivers will expire June 30, 1999. The Company has held preliminary
negotiations with these union locals; however, no agreements have been reached.
There can be, however, no assurance that Crouse's remaining union employees will
ratify new contracts acceptable to both the Company and the union, or that work
stoppages will not occur. If a work stoppage should occur, Crouse's customer
base would be put at risk inasmuch as its competition would have a continuing
operating advantage. Any of these actions could have a material adverse effect
on the Company's business, financial condition, liquidity or results of
operations.
In September 1998, the Company entered into a two-year secured loan agreement
with a commercial bank to borrow $10.0 million (the "Loan"). Freight accounts
receivable and a second lien on revenue equipment are pledged as collateral for
the Loan. In March 1998, 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, 7.50% at March 31, 1999. 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. At March 31, 1999 current maturities of long-
term debt were $600,000, with the remaining $14,400,000 due in 2000.
In the first quarter of 1999, the Board of Directors authorized the repurchase
of 1,030,000 shares of the Company's common stock. Through March 31, 1999, a
total of 630,741 shares had been repurchased at a cost of $2.4 million.
YEAR 2000 ISSUES
The Year 2000 Issue is the result of computer programs being written using two
digits to represent years rather than four digits, which include the century
designation. Without corrective action, it is possible that the Company's
computer programs, or its major service providers, vendors, suppliers, partners
or customers that have date-sensitive software could recognize a date using "00"
as the year 1900 rather than the year 2000. Additionally, certain other assets
may contain embedded chips that include date functions that could be affected by
the transition to the year 2000. In some systems this could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company has developed and is executing a Year 2000 Compliance Strategic
Plan ("Year 2000 Plan") to enable management of TransFinancial Holdings, Inc.
and each of its business operations to ensure that each of its critical business
systems are "Year 2000 Compliant". The Company considers a business system to
be Year 2000 Compliant if it is able to transition into the year 2000 without
significant disruption to the Company's internal operations or those of its key
business partners. The Year 2000 Plan encompasses the Company's information
technology assets, including computer hardware and software ("IT assets") and
non-information technology assets, goods and services, including assets
utilizing embedded chip technology and significant customer and vendor
relationships ("non-IT assets").
The Company's Year 2000 Plan includes three principal sections: (1) mainframe
computer and personal computer hardware and software utilized by the Company's
transportation operations ("Transportation IT assets"); (2) desktop computer
applications, embedded chips, significant business partners of the
transportation operations ("Transportation non-IT assets"); and (3) personal
computer hardware and software, desktop computer applications, embedded chips,
significant business partners of the financial services operations ("Financial
Services IT and non-IT assets"). The general phases common to all sections are:
(1) inventorying, assessing and assigning priorities to Year 2000 items
("Inventory Phase"); (2) taking corrective actions to modify, repair or replace
items that are determined not to be Year 2000 Compliant ("Corrective Action
Phase"); (3) testing material items ("Testing Phase"); and (4) developing and
implementing contingency plans for each organization and location ("Contingency
Planning Phase"). The Company intends to utilize primarily internal personnel
and resources to execute its Year 2000 Plan but may utilize external consultants
as needed in certain phases.
TRANSPORTATION IT ASSETS
With regard to the Transportation IT assets section, the Inventory Phase is
substantially completed. The Company has identified its computer applications,
programs and hardware and is in the processing of assessing the Year 2000 risk
associated with each item. The Company has begun executing the Corrective
Action Phase by modifying or upgrading items that are not Year 2000 compliant.
This phase is expected to be complete by the end of the second quarter of 1999.
The Testing Phase is ongoing as corrective actions are completed. The Testing
Phase is anticipated to be complete early in the third quarter of 1999.* The
Contingency Planning Phase was begun in the first quarter of 1999 and will be
completed in the second quarter of 1999.*
TRANSPORTATION NON-IT ASSETS
With regard to the Transportation non-IT assets section, the Inventory Phase
is substantially completed. The Company has identified assets that may contain
embedded chip technologies and has contacted the related vendors to gain
assurance of Year 2000 status on each item. The Company has also identified its
significant business relationships and has contacted key vendors, suppliers and
customers to attempt to reasonably determine their Year 2000 status. The
Company is in the process of effecting the Corrective Action Phase, which is
anticipated to be complete by the end of the second quarter of 1999. The
Testing Phase is ongoing as corrective actions are completed. This phase is
anticipated to be complete early in the third quarter of 1999. The Contingency
Planning Phase was begun in the first quarter of 1999 and will be completed in
the third quarter of 1999.
FINANCIAL SERVICES IT AND NON-IT ASSETS
With regard to the Financial Services IT and non-IT assets section, the
Inventory Phase is completed. The Company has identified its computer
applications, programs and hardware and non-IT assets and has assessed the Year
2000 risk associated with each item. The Company has also identified its
significant business relationships and has contacted key vendors, suppliers and
customers to attempt to reasonably determine their Year 2000 status. The
Company has substantially completed the Corrective Action Phase. The Company's
financial services database, operating systems and computer applications have
been upgraded or modified to address the Year 2000. The Testing Phase has been
ongoing as corrections were made and was substantially complete in the fourth
quarter of 1998. Certain testing of bank and other interfaces was completed in
the first quarter of 1999. The Contingency Planning Phase was begun in the first
quarter of 1999 and will be completed in the second quarter of 1999.*
COSTS
It is currently estimated that the aggregate cost of the Company's Year 2000
efforts will be approximately $150,000 to $200,000, of which approximately
$100,000 has been spent.* These costs are being expensed as they are incurred
and are being funded out of operating cash flow. These amounts do not include
approximately $100,000 of costs to be capitalized as the Company replaces
certain non-IT assets, in part to address the Year 2000 issue, as part of the
Company's normal capital replacement and upgrades. These amounts also do not
include any internal costs associated with the development and implementation of
contingency plans.
RISKS
The failure to correct a material Year 2000 issue could result in an
interruption in, or failure of, certain normal business operations. Such
failures could materially and adversely affect the Company's results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Year 2000 issue, resulting in part from the uncertainty of the
Year 2000 readiness of third-party vendors, suppliers and customers, the Company
is unable to determine at this time whether the consequences of Year 2000
failures will have a material impact on the Company's results of operations,
liquidity and financial condition. The Company's Year 2000 Plan is designed to
gather information concerning Year 2000 issues facing the Company and to address
and resolve such issues to the extent reasonably possible. Even if the Company
successfully implements its Year 2000 Plan, there can be no assurance that the
Company's operations will not be affected by Year 2000 failures or that such
failures will not have a material adverse effect on the Company's results of
operations, liquidity and financial condition.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings Reference is made to Item 3 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1998.
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 April 27, 1999.
(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:
(1) All seven nominees for director were elected as follows:
Shares Voted
Nominees For Withheld
William D. Cox 2,456,756 70,990
J. Richard Devlin 2,473,829 53,917
Harold C. Hill, Jr. 2,469,665 58,081
Roy R. Laborde 2,447,965 79,781
Timothy P. O'Neil 2,451,871 75,875
Clark D. Stewart 2,473,329 54,417
David D. Taggart 2,468,875 58,871
(3) The selection of PricewaterhouseCoopers, LLP as independent public
accountants was ratified with 2,370,200 shares voting for, 154,002
shares voting against, and 3,544 shares abstaining.
Item 4. Submission of Matters to Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1* Secured Loan Agreement by and between Bankers Trust Company of Des
Moines, Iowa, TransFinancial Holdings, Inc., and Crouse Cartage
Company, dated March 25, 1999.
27* Financial Data Schedule.
* Filed herewith.
(b) Reports on Form 8-K -
(1) A Current Report on Form 8-K, dated March 4, 1999, filed March 5,
1999, to report the amendment of the Company's Rights Agreement.
(2) A Current Report on Form 8-K, dated March 17, 1999, filed March
17, 1999, to report the expansion of a share repurchase program and
the repurchase of stock.
(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
By: /s/ Mark A. Foltz
Mark A. Foltz
Vice President, Finance and Secretary
Date: May 14, 1999
EXHIBIT INDEX
Assigned
Exhibit
Number Description of Exhibit
10.1 Secured Loan Agreement by and between Bankers Trust Company of Des
Moines, Iowa, TransFinancial Holdings, Inc., and Crouse Cartage
Company, dated March 25, 1999.
27 Financial Data Schedule.