UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
Washington, DC 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
[ ] 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
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
8245 Nieman Road, Suite 100
Lenexa, Kansas 66214
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(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 October 31, 2001
---------------------------------- ----------------------------------
Common stock, $0.01 par value 3,278,291 Shares
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
For the Three Months Ended September 30,
(In thousands, except per share amounts)
(Unaudited)
2001 2000
-------- ---------
Operating Revenues.......................................................... $ 4,174 $ 3,323
Operating Expenses.......................................................... 3,506 3,403
--------- ---------
Operating Income (Loss)..................................................... 668 (80)
--------- ----------
Nonoperating Income (Expense)
Other, net.............................................................. (17) --
Interest income......................................................... 12 --
Interest expense........................................................ (16) (38)
---------- ----------
Total nonoperating income (expense).................................. (21) (38)
---------- ----------
Income (Loss) Before Income Taxes........................................... 647 (118)
Income Tax Provision (Benefit).............................................. 15 57
--------- ---------
Income (Loss) from Continuing Operations.................................... 632 (175)
--------- ----------
Income (Loss) from Discontinued Operations (Note 2)......................... -- (3,677)
Income (Loss) on Closure of Discontinued Operations (Note 2)................ -- (6,700)
--------- ----------
Net Income (Loss)........................................................... $ 632 $ (10,552)
========= ==========
Basic and Diluted Earnings (Loss) Per Share From
Continuing Operations................................................... $ 0.19 $ (0.05)
Discontinued Operations (Note 2)........................................ -- (3.17)
-------- ----------
Total............................................................... $ 0.19 $ (3.22)
========= ==========
Basic Average Shares Outstanding............................................ 3,278 3,278
========= =========
Diluted Average Shares Outstanding.......................................... 3,281 3,555
========= =========
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
For the Nine Months Ended September 30,
(In thousands, except per share amounts)
(Unaudited)
2001 2000
---------- ---------
Operating Revenues.......................................................... $ 11,641 $ 9,141
Operating Expenses.......................................................... 10,193 10,373
--------- ---------
Operating Income (Loss)..................................................... 1,448 (1,232)
--------- ----------
Nonoperating Income (Expense)
Other income, net....................................................... 16 --
Interest income......................................................... 40 3
Interest expense........................................................ (26) (118)
---------- ----------
Total nonoperating income (expense).................................. 30 (115)
--------- ---------
Income (Loss) Before Income Taxes........................................... 1,478 (1,347)
Income Tax Provision........................................................ 40 100
--------- ---------
Income (Loss) from Continuing Operations.................................... 1,438 (1,447)
--------- ----------
Income (Loss) from Discontinued Operations (Note 2)......................... - (9,429)
Income (Loss) on Closure of Discontinued Operations (Note 2)................ (2,050) (6,700)
---------- ----------
Net Loss.................................................................... $ (612) $ (17,576)
========== ==========
Basic and Diluted Earnings (Loss) Per Share From
Continuing Operations................................................... $ 0.44 $ (0.44)
Discontinued Operations (Note 2)........................................ (0.63) (4.92)
--------- ----------
Total............................................................... $ (0.19) $ (5.36)
=========== ==========
Basic Average Shares Outstanding............................................ 3,278 3,278
========= =========
Diluted Average Shares Outstanding.......................................... 3,280 3,555
========= =========
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
3
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share data)
September 30, December 31,
2001 2000
---------------- ---------------
Assets (Unaudited)
------
Current Assets:
Cash and cash equivalents............................................... $ 166 $ 258
Finance accounts receivable, less allowance
for credit losses of $1,425 and $1,490............................... 98,782 80,945
Other current assets................................................. 490 753
---------- ----------
Total current assets................................................. 99,438 81,956
---------- ----------
Operating Property, at Cost:
Land.................................................................... 339 339
Structures and improvements............................................. 1,474 1,474
Other operating property................................................ 1,015 1,083
---------- ----------
2,828 2,896
Less accumulated depreciation........................................ (1,115) (1,069)
---------- ----------
Net operating property........................................... 1,713 1,827
---------- ----------
Intangibles, net of accumulated amortization................................ 8,542 8,946
Other Assets................................................................ 102 108
---------- ----------
$ 109,795 $ 92,837
========== ==========
Liabilities and Shareholders' Equity
------------------------------------
Current Liabilities:
Cash overdrafts......................................................... $ 2,423 $ 1,161
Accounts payable........................................................ 3,317 2,309
Revolving bank loan (Note 4)............................................ 82,900 66,250
Other accrued expenses.................................................. 3,136 1,740
Net liabilities of discontinued operations (Note 2)..................... 754 3,500
---------- ----------
Total current liabilities............................................ 92,530 74,960
---------- ----------
Contingencies and Commitments (Note 5)...................................... -- --
Shareholders' Equity
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 7,623,091 shares................................ 76 76
Paid-in capital......................................................... 6,254 6,254
Retained earnings....................................................... 46,002 46,614
Treasury stock 4,345,561 shares, at cost................................ (35,067) (35,067)
---------- ----------
Total shareholders' equity........................................... 17,265 17,877
---------- ----------
$ 109,795 $ 92,837
========== ==========
The accompanying notes to condensed consolidated balance sheets are an integral
part of these statements.
4
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30,
(In thousands) (Unaudited)
2001 2000
-------- ----------
Cash Flows From Operating Activities
Net Loss............................................................ $ (612) $ (17,576)
Adjustments to reconcile net loss to cash
used in operating activities
Depreciation and amortization..................................... 587 614
Debt cost amortization............................................ 110 329
Provision for credit losses....................................... 1,723 949
Net increase (decrease) from change in other
working capital items affecting operating activities...........
Accounts Receivable...................................... (19,560) (2,047)
Accounts Payable......................................... 1,008 (14)
Other.................................................... 1,657 (564)
Loss from and on discontinued operations........................... 2,050 15,432
---------- ---------
(13,037) (2,877)
---------- ---------
Cash Flows From Investing Activities
Cash from (to) discontinued operations.............................. (4,796) 261
Purchase of operating property, net................................. (63) (71)
Net sales/repurchases of accounts receivable........................ -- (63,875)
Other............................................................... (108) (374)
----------- ----------
(4,967) (64,059)
----------- ---------
Cash Flows From Financing Activities
Line of credit borrowings (repayments), net......................... 16,650 65,750
Cash overdrafts..................................................... 1,262 190
Other............................................................... -- 8
---------- ---------
17,912 65,948
---------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents................... (92) (988)
Cash and Cash Equivalents at beginning of period....................... 258 1,076
---------- ---------
Cash and Cash Equivalents at end of period............................. $ 166 $ 88
========== =========
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
5
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement Of Shareholders' Equity
(In thousands)(Unaudited)
Total
Share
Common Paid-In Retained Treasury holders'
Stock Capital Earnings Stock Equity
------- ------- -------- --------- -------
Balance at December 31, 1999.................. $ 76 $ 6,104 $ 69,283 $ (35,067) $ 40,396
Net loss...................................... -- -- (22,669) -- (22,669)
Issuance of shares under Deferred
Compensation Arrangements.................. -- 143 -- -- 143
Issuance of shares under incentive plans...... -- 7 -- -- 7
------- ------- --------- --------- ---------
Balance at December 31, 2000.................. 76 6,254 46,614 (35,067) 17,877
Net loss...................................... -- -- (612) -- (612)
------- ------- ----------- --------- ----------
Balance at September 30, 2001................. $ 76 $ 6,254 $ 46,002 $ (35,067) $ 17,265
======= ======= ========= ========= =========
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
6
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 April 20, 2001, 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 for the years 2000, 1999 and 1998 and negative cash flows from
operating activities in 2001, 2000, 1999 and 1998. In addition, the Company
violated certain covenants in its financing agreements and discontinued its
transportation segment in 2000 (See Note 2, below). These factors raise
substantial doubt about the Company's ability to continue as a going concern.*
On September 14, 2001, the Board of Directors unanimously approved a plan of
liquidation for the Company. Under the plan of liquidation, the Company will
sell all of its assets, and after paying off its debts and setting aside
required reserves, will distribute the remaining proceeds as one or more
"liquidating dividends" within the next several months (See Note 6, below).
2. Discontinued Operations
TransFinancial discontinued its transportation operations in 2000. The
Company's subsidiary, TFH Logistics & Transportation Services, Inc. ("TFH L&T"),
which is a holding company for the Company's transportation subsidiaries, has
two principal subsidiaries, Crouse Cartage Company ("Crouse"), which was
acquired in 1991, and Specialized Transport, Inc. ("Specialized"), formed in
1999.
On September 16, 2000 and December 16, 2000, Crouse and Specialized,
respectively, ceased operations; Crouse as a result of significant operating
losses and cash flow deficiency and Specialized as a result of its insurance
carrier revoking its coverage. These companies liquidated outside of bankruptcy,
with the advice of independent advisory committees of creditors, and followed
the general processes and procedures defined under the federal bankruptcy code.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
The Company has essentially completed the orderly liquidations of the
Crouse and Specialized.* The proceeds of asset liquidations have allowed full
payment of secured claims and a partial distribution to priority creditors.
7
A summary of the net liabilities of the discontinued operations as of
September 30, 2001, follows (in thousands):
Assets
------
Cash................................................... $ 470
Deposits, prepayments, and other....................... 75
----
Total assets........................................... 545
---------
Liabilities
-----------
Secured notes and other................................ 1,223
Post- cessation administrative costs................... 76
---------
Total Liabilities...................................... 1,299
---------
Net deficit............................................ $ (754)
=========
After distribution of all proceeds to creditors, TransFinancial
incurred approximately $5.6 million of residual liabilities for certain claims
of the Discontinued Operations, approximately $4.8 million of which has been
paid.* This estimate of residual liabilities assumes the reduction of the
transportation operations general unsecured liabilities of Crouse and
Specialized by $18.5 million.* Such reduction relates to debts specific to these
corporations and without recourse to TFH L&T, and various settlements with other
creditors.* In connection with the closure of the transportation businesses the
Company recorded a "Loss on Closure of Discontinued Operations" of $9.1 million,
or approximately $2.78 per share, in the third and fourth quarters of 2000, and
$2.1 million, or $0.62 per share, in the first quarter 2001. These losses
include adjustments for asset and liability carrying values to liquidation
values, accruals of liabilities for multi-employer pension withdrawal and WARN
Act liabilities and estimated post-cessation administrative costs to conduct the
liquidation.
8
3. Segment Reporting
The Company operates in financial services through Universal Premium
Acceptance Corporation ("UPAC"). The company discontinued its transportation
operations during 2000. Other items are shown in the table below for purposes of
reconciling to consolidated amounts (in thousands).
Third Quarter Nine Months
----------------------- -----------------------
Operating Operating Operating Operating Total
Revenues Income (Loss) Revenue Income (Loss) Assets
--------- ------------ ------- ------------- -------
Financial Services 2001 $ 4,165 $ 764 $ 11,618 $ 1,845 $ 108,574
2000 3,313 214 9,113 (439) 90,588
General Corporate and Other 2001 9 (96) 23 (397) 1,221
2000 10 (294) 28 (793) 1,829
Total from Continuing
Operations 2001 4,174 668 11,641 1,448 109,795
2000 3,323 (80) 9,141 (1,232) 92,417
Transportation (Discontinued
Operations) 2001 -- -- -- (2,050) 476
2000 30,603 (10,377) 105,066 (16,129) 39,296
Consolidated Continuing 2001 4,174 668 11,641 (602) 110,271
& Discontinued Operations 2000 33,926 (10,457) 114,207 (17,361) 131,713
4. Financing Agreements
In December 1996, UPAC and TransFinancial entered into a securitization
agreement whereby undivided interests in a designated pool of finance accounts
receivable could be sold on an ongoing basis. Effective May 26, 2000, the
securitization agreement was assigned to and assumed by a new financial
institution. UPAC and its subsidiary, APR Funding Corporation, amended the
securitization agreement with the new financial institution increasing maximum
allowable amount of receivables to be sold under the agreement to $80 million,
extending the term of the agreement by five years with annual liquidity renewals
and amending certain convenants. On August 31, 2000, UPAC and APR Funding
Corporation executed a Loan and Security Agreement with the same financial
institution under essentially the same terms as the securitization agreement.
UPAC and APR Funding borrow under a revolving loan arrangement with allowable
maturities from 1 to 270 days. On August 17, 2001, UPAC and APR Funding amended
the Loan and Security Agreement to increase the facility to $100 million under
essentially the same terms as the prior agreement. The loan bears interest at
commercial paper rates plus bank program fees.
Among other things, the terms of the agreement require UPAC to maintain
a minimum tangible net worth of $10 million, contain restrictions on the payment
of dividends by UPAC to TransFinancial without prior consent of the financial
institution and require UPAC to report any material adverse changes in its
financial condition. The terms of the loan agreement require UPAC to maintain a
reserve at specific levels that serves as collateral. At September 30, 2001,
$9.4 million of receivable serves as collateral reserves for the loan agreement.
Under the prior securitization agreement UPAC recognized gains on sales
of receivables. These gains are shown as operating revenue on the accompanying
income statement. Effective May 26, 2000, as a result of certain call provisions
in the amended agreement, the receivables were no longer treated as sold in
balance sheet presentations. This change in accounting treatment had no effect
on the total earnings recognized over the term of each finance contract or the
cash flow received by UPAC on each contract. The timing of earnings recognition
was altered by the accounting change. The non-cash effect on operating revenue
and operating income from the change in gain on sale treatment of receivables
for the first nine months of 2000 was a negative charge of $768,000.
9
On August 24, 2001, TransFinancial entered into a Secured Promissory
Note in the amount of $1.25 million to facilitate the payment of a portion of
the "residual liabilities" referred to in Note 2, above. This note is
collateralized by the stock of UPAC, matures 150 days from its execution and
bears interest at 10% per annum.
5. Contingencies and Commitments
TransFinancial's operating subsidiaries are parties to routine
litigation. TransFinancial and its subsidiaries maintain insurance programs and
accrue for expected losses in amounts designed to cover liability resulting from
these claims. In the opinion of management, the outcome of such claims and
litigation will not materially affect the Company's financial position or
results of operations.*
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 a
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. The plaintiff filed an amended complaint on
August 9, 2000, seeking damages in excess of $4.50 per share for the alleged
breaches of fiduciary duties. A motion to dismiss and an amended complaint has
been filed and the Company believes this suit will not have a material adverse
effect on the financial condition, liquidity or results of operations of the
Company*.
6. Subsequent Events
On September 14, 2001, the Board of Directors unanimously approved a
plan of liquidation for the Company. Under the plan of liquidation, the Company
will sell all of its assets, and after paying off its debts and setting aside
required reserves, will distribute the remaining proceeds as one or more
"liquidating dividends" within the next several months. The preliminary
estimates of the total distribution under the plan range from $2.75 to $3.25 per
share.
In conjunction with the plan, a definitive agreement was executed on
November 6, 2001 for the sale of the financial services business and certain
related assets for $17.3 million, subject to certain adjustments and due
diligence.
These proposals are subject to approval by a majority of
TransFinancial's outstanding shares at a meeting to be held after preparation
and mailing of proxy material. The Board of Directors will recommend approval of
each of these proposals to the shareholders.
10
Item 2.Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
TransFinancial operates in financial services. The company discontinued
its transportation operations in 2000.
Financial Services
- ------------------
For the third quarter of 2001, UPAC reported operating income of
$764,000 on operating financial services revenue of $4.2 million, as compared to
operating income of $214,000 on operating revenue of $3.3 million for the
comparable period of 2000. The increase in operating revenue and operating
income in 2001 was primarily the result of greater amounts financed, increases
in interest spread margins, and transition from the gain on sale treatment of
receivables under the amended securitization agreement of May 26, 2000. Premiums
financed were $62.0 million in the third quarter of 2001 as compared to $47.6 in
the third quarter of 2000. Interest margins are 2.8% higher in the third quarter
of 2001 as compared to the third quarter of 2000. The increase in interest
margins was primarily due to fixed interest rates on previous funded finance
agreements and the decreases in borrowing costs in the commercial paper market
in the third quarter of 2001. The non-cash effect on operating revenue and
operating income from the change in gain on sale treatment of receivables for
the third quarter of 2000 was a negative charge of $200,000. Operating expenses
increased by 36.7% in the third quarter of 2001 from the same period in 2000,
due principally to increases in salaries and benefits, and bad debt provisions
on liquidated carriers and monies owed to UPAC by insurance agencies.
For the first nine months of 2001, UPAC reported operating income of $1,845,000
on operating financial services revenue of $11.6 million, as compared to
operating losses of $439,000 on operating revenue of $9.1 million for the
comparable period of 2000. The increase in operating revenue and operating
income in 2001 was primarily the result of greater amounts financed, increases
in interest spread margins, and transition from the gain on sale treatment of
receivables under the amended securitization agreement of May 26, 2000. Premiums
financed were $179.6 million in the first nine months of 2001 as compared to
$150.4 in the first nine months of 2000. Interest margins are 2.1% higher in
first nine months of 2001 as compared to the first nine months of 2000. The
increase in interest margins was primarily due to fixed interest rates on
previous funded finance agreements and the decreases in borrowing costs in the
commercial paper market in 2001. The non-cash effect on operating revenue and
operating income from the change in gain on sale treatment of receivables for
the first nine months of 2000 was a negative charge of $768,000. Operating
expenses increased by 15.2% in the first nine months of 2001 from the same
period in 2000, due principally to increases in salaries, employee benefits, and
bad debt provisions related to liquidated carriers and monies owed to UPAC by
insurance agencies.
Other
- -----
TransFinancial's effective income tax provision rate for the third
quarter of 2001 was 2.4%, as compared to 1% for the comparable period of 2000.
In the third quarter of 2001, the Company's income tax provision was $15,000 on
a pre-tax income of $647,000. The effective income tax rates for each period
were a lower percentage than statutory rates due to the impact of losses on
discontinued operations and net operating loss carry-forwards, partially offset
by non-deductible amortization of intangibles and valuation allowances provided
against net deferred tax assets.
The Company incurred approximately $105,000 in costs in the third
quarter of 2001 associated with maintaining and operating the public enterprise
as compared to $323,000 in the comparable period of 2000. TransFinancial has
substantially reduced its overhead costs relating to management and director
compensation and contemplates cancellation of many insurance policies (including
director liability coverage) and elimination of other expenses to reflect the
substantially reduced size of the Company's operations.*
11
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.
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 successfully liquidate the
transportation operations, 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.
12
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 September 30, 2001, the Company's net working capital was $6.9
million as compared to $7.0 million as of December 31, 2000. The Company's
current ratio was 1.1 and its ratio of total liabilities to tangible net worth
was 10.6 as of September 30, 2001, as compared to a current ratio of 1.1 and a
ratio of total liabilities to tangible net worth of 8.4 as of December 31, 2000.
Cash used by operating activities was negative for the nine months ended
September 30, 2001 and September 30, 2000 due to increases in finance accounts
receivable resulting from increases in amounts financed by UPAC.
The Company has experienced increases in net income in third quarter
and first nine months of 2001 as compared to the related periods of 2000 as a
result of discontinuing its transportation operations and increased profits in
the financial services segment. The transportation operations had losses of
$10.4 million in the third quarter of 2000, and $16.1 million in the first nine
months of 2000. In addition, the Company violated certain convenants in its
financing agreements in 2000. The report of the Company's Independent
Accountants included in TransFinancial's Annual Report on Form 10-K for the year
ended December 31, 2000, contains an explanatory paragraph indicating that these
factors raise substantial doubt about the Company's ability to continue as a
going concern.
On September 14, 2001, the Board of Directors unanimously approved a
plan of liquidation for the Company. Under the plan of liquidation, the Company
will sell all of its assets, and after paying off its debts and setting aside
required reserves, will distribute the remaining proceeds as one or more
"liquidating dividends" within the next several months.
Effective May 26, 2000, UPAC's receivable 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 resulted
in a non-cash reduction of revenue of $768,000 in 2000, $200,000 occurring in
the third quarter of 2000.
On August 31, 2000, UPAC and APR Funding Corporation executed a Loan
and Security Agreement with the same financial institution under essentially the
same terms as the securitization agreement. Under the terms of the new
agreement, UPAC and APR Funding may borrow up to $80 million using its eligible
finance receivables as collateral. The loan agreement was amended on August 17,
2001 to increase the borrowing facility to $100 million. The loan bears interest
at commercial paper rates plus bank program fees. On August 17, 2001, UPAC and
APR
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Funding amended the Loan and Security Agreement to increase the facility to $100
million under essentially the same terms as the prior agreement.
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. The plaintiff filed an amended complaint on
August 9, 2000, seeking damages in excess of $4.50 per share for the alleged
breaches of fiduciary duties. A motion to dismiss and an amended complaint has
been filed and the Company believes this suit will not have a material adverse
effect on the financial condition, liquidity or results of operations of the
Company*.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings -- The Company and its directors have been named as
defendants in a lawsuit filed on January 12, 2000 in the Chancery Court in New
Castle County, Delaware. The suit seeks declaratory, injunctive and other relief
relating to the proposed management buyout of the Company. The suit alleges that
the directors of the Company failed to seek bidders for the Company's
subsidiary, Crouse, failed to seek bidders for its subsidiary, UPAC, failed to
actively solicit offers for the Company, imposed arbitrary time constraints on
those making offers and favored a management buyout group's proposal. The suit
seeks certification as a class action complaint. The proposed management buyout
was terminated on February 18, 2000. The plaintiff filed an amended complaint on
August 9, 2000, seeking damages in excess of $4.50 per share for the alleged
breaches of fiduciary duties. A motion to dismiss and an amended complaint has
been filed and the Company believes this suit will not have a material adverse
effect on the financial condition, liquidity or results of operations of the
Company*.
Item 2. Changes in Securities -- None
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Item 3. Defaults Upon Senior Securities -- None
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Item 4. Submission of Matters to Vote of Security Holders -- None
- ----------------------------------------------------------
Item 5. Other Information -- None
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Item 6. Exhibits and Reports on Form 8-K -- None
- -----------------------------------------
14
(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/
---------------------------------------------
William D. Cox, President & Chief
Executive Officer
(Principal executive and financial officer)
Date:
15